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Hospital-Owned Doctors Offices Driving Up Medical Costs

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The rising cost of healthcare in the United States has been a controversial topic for several years now. As a result, many patients often feel that they have to choose a healthcare provider based on price: emergency room care, for example, is reserved strictly for emergencies, while cheaper options like doctors offices and urgent care centers are more readily embrace. However, the New York Times reports that a Medicare change has caused prices at many medical clinics to rise as hospitals purchase doctors offices.

This subtle shift reportedly began in 2009, when the federal government cut back on what it paid to private practices offering certain tests. Medicare had determined that the tests in question not only cost more than what was justified, but found evidence that some doctors were overusing them. After this decision, Medicare began paying private medical practices around a third less than it had previously. However, hospitals actually received more money for the same tests, because the payment separate systems were separate and Medicare essentially assumes that hospital care is more expensive.

In a perfect world, this would have meant that doctors stopped performing unnecessary tests and the cost of medical care would have decreased. However, in reality, doctors began selling their practices to nearby hospitals, causing the number of private practices to plummet. As a result, hospital-affiliated doctors offices were placed under the same payment systems as the hospitals, allowing them to charge the higher fees. While the bulk of this charge was assumed by Medicare, the higher amount also trickled down to patients’ co-pays.

This change didn’t only hurt Medicare users: private insurers, like Medicare, also pay higher prices to hospitals than private doctors. Moreover, large hospital groups can often negotiate with insurers for higher prices. Because of the nationwide impact of this practice, the Obama administration has recommended a revision that would apply to all doctors working in off-campus, hospital-owned clinics.

Under the administration’s proposal, Medicare would pay the same amount for any visit, test or procedure, regardless of whether the provider is private or hospital-affiliated. Doctors in actual hospital buildings could still be paid the higher amount, but the White House estimates that Medicare could save nearly $30 billion over 10 years. And because of these savings, it has a significant chance of being passed in Congress.

However, the plan does have its critics: hospitals, for example, would make less profit, which many of them need to provide 24-hour care, especially in light of recent cuts. Additionally, the Medicare Payment Advisory Committee, a congressional advisory group, believes that the pay difference should only apply to certain services. Moreover, industry experts have pointed out that young doctors are often more interested in working for a hospital instead of opening their own practices. In the end, it appears that the entire system is broken, rather than a single payment practice. As the U.S. waits for reform and the potential approval of Obama’s proposal, many patients will likely turn to urgent care clinics and the few remaining private practices to avoid higher fees.
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