In recent years hospitals have been snatching up private practices at a rapid rate—a trend that raises costs for patients. According to a piece in The Upshot by Margot Sanger-Katz, part of the motive force behind hospital consolidation was failed Medicare policy: the federal program incentives consolidation by paying hospitals more for the same procedure than it pays private-practice doctors. Sanger-Katz uses heart doctors as an example. In 2009 Medicare cut the rate at which it reimbursed private practice cardiologists in an attempt to control costs. About 30 percent of “a typical cardiologist’s revenue” depends on tests that the doctors administer, and officials believed cardiologists were using too many tests that were too expensive. They therefore cut reimbursement rates by about one-third for private practice doctors—but not for hospitals:
You can imagine the result: Over the past five years, the number of cardiologists in private practice has plummeted as more and more doctors sold their practices to nearby hospitals that weren’t subject to the new cuts. Between 2007 and 2012, the number of cardiologists working for hospitals more than tripled, according to a survey from the American College of Cardiology, while the percentage working in private practice fell to 36 percent from 59 percent. At the time of the survey, an additional 31 percent of practices were either in the midst of merger talks or considering it. The group’s former chief operating officer once described the shift to me as “like a migration of wildebeests.”
The Upshot piece details a item of President Obama’s budget that seeks to eliminate this distortion by paying the same rate to private practice doctors and doctors who “work in off-campus practices that are owned by hospitals.” Doctors who physically work inside a hospital will still get higher rates, but off-site doctors won’t. Officials believe this could save Medicare $30 billion dollars in the next decade, and Sanger-Katz suggests that the chances of it getting past are higher for this proposal than for many others in the President’s budget.This idea sounds promising, but we shouldn’t forget what led to this problem in the first place. The federal government attempted to control costs and wound up introducing a distortion that raised costs by encouraging hospital consolidation (surprise!). Health care is full of examples of this dynamic at play, where top-down cost control winds up being a kind of wonky whac-a-mole. Perhaps it’s time to give another approach a shot, one that acknowledges that empowering consumers is the best shot we have at sustainable cost control.