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Why Is the Federal Government Hostile to Private Physician Practices?

Posted Nov 27 2012 12:00am

As discussed in a recent note, Medicare is relentlessly ratcheting down reimbursement for surgical pathology services, particularly for prostate biopsies (see: Response to the Recent Note about the Future of In-Office Labs ). These changes will probably have a disproportionate and negative effect on in-office histology labs and private labs. Here's a comment about the note that was submitted by pathologist Karl Robstad who blogs over at The 1X Objective :

I work for a pathologist-owned private lab - this news is devastating and infuriating; we are going to get KILLED… and this is on top of the Palmetto decision… and this on top of the end of the TC grandfather clause. So you take pathologists who are already a marginalized under-reimbursed specialty, you let private practitioners who are already well compensated steal our work and force us to work for pennies on the dollar because of some loophole in the Stark Laws, they clearly abuse the system, get in trouble, and now we are the ones that gets hurt in the end?!? This is so unbelievable that it has left my head spinning.

Are pathologist-owned private labs that rare now-a-days? This CMS decision CLEARLY has ZERO regard for pathologist-owned labs; and now we are looking at MAJOR cutbacks. We've always had to compete with faceless megalabs, but now we are getting marauded from the government too. What a horrific lose-lose situation for everyday honest hard-working pathologists. Is there any silver-lining here? Is this the end of pathology private practice? Am I still a doctor? I'm really confused and really frustrated and not sure what I should do…

In previous notes and on the web, there are numerous references to the fact that hospitals are purchasing physician practices (see: Response to the Recent Note about the Future of In-Office LabsThe Increasing Tempo of Physician Practice Purchases by HospitalsSome Independent Physician Practices on the Brink of Financial FailurePhysician Private Practice Declines; the Last Barrier to Emergence of "Big Medicine"Medicare’s Payment System Continues As a Cause of Thinning Down the Number of Private Practice Doctors in the US–They Go To Work as Employees of Hospitals ). This trend continues unabated.

The topic of the reduced Medicare reimbursement for private practices was addressed in BloombergBusinessWeek in an article that questioned this logic in the face of pressure to contain healthcare costs (see: The High Price of Nickel-and-Diming Doctors ). 

[A Wisconsin cardiologist] sold [his practice to a health system], becoming one of more than 6,000 employees at ThedaCare , which runs five hospitals and numerous clinics in the northeastern part of the state. [He] is among thousands of once-independent doctors who are joining with hospital chains to stay afloat, a trend that threatens to raise the price of health care even as the federal government strains to keep a lid on costs. Under Medicare’s tangled payment system, hospitals get higher reimbursements than individual doctors for cardiology treatment and other specialty services—in some cases a lot higher. The program pays a hospital $400 for an echocardiogram, $180 for a cardiac stress test, and more than $25 for an electrocardiogram, according to data from the American College of Cardiology. At a private physician’s office, Medicare pays $150 for an echocardiogram, $60 for a cardiac stress test, and $10 for an electrocardiogram. Large hospital chains also have more power than individual doctors to negotiate reimbursements from insurers such as UnitedHealth Group (UNH) and WellPoint (WLP). The result: Instead of controlling costs by keeping payments to doctors down, the federal government may be driving them higher. 

An interesting question is why the federal government seems to be driving private practices into the open arms of hospitals by driving down reimbursement to them. As the BloombergBusinessWeek article opines, this seems to be contrary to the policy objective of trying to reduce costs given that hospitals have more power to negotiate the fees paid to them.  Some people hold the opinion that the federal authorities believe that the physician private practices are more likely to game Medicare billing. This does not really make sense to me in given that hospitals also take every opportunity to [legally] increase their revenue from the government. I have blogged previously about the topic of hospital upcoding (see: Upcoding Can Result in Greater Healthcare Costs After EMR Deployment ). However, I believe that there is another force at work here. I think that the federal bureaucrats intrinsically prefer to interface with large organizations (e.g., large health systems) that have their own large bureaucratic cohort.

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