For example, in 2013,  the total Medicare payment rate for a mid-level E/M office visit for an  established patient—billed under Healthcare Common Procedure Coding  System (HCPCS) code 99213—was $51 higher when the service was  performed in an HOPD instead of a physician office (see table 1). Many other services, such as imaging and surgical services, are also  reimbursed at a higher rate by Medicare when performed in HOPDs  versus other settings. 1). 1). Vertical Consolidation Associated with Higher Utilization of Medicare E/M Office Visits in Hospital Outpatient Departments Percentage of Medicare E/M Office Visits Performed in HOPDs Higher in Counties with Higher Levels of Vertical Consolidation

The percentage of E/M office visits—as well as the number of E/M office  visits per beneficiary—performed in HOPDs, rather than physician offices,  was generally higher in counties with higher levels of vertical  consolidation in 2007 through 2013. In contrast, this rate was 14.1  percent for the counties with the highest levels of consolidation (see fig. For  example, the median percentage of E/M office visits performed in HOPDs  in the group of counties with the lowest level of vertical consolidation was  3.9 percent in 2007, compared to a median of 7.3 percent in the counties  with the highest levels of consolidation. Such excess  payments are inconsistent with Medicare’s role as an efficient purchaser  of health care services. According to CMS, the agency does not have the  statutory authority to equalize total payment rates between HOPDs and  physician offices. Therefore, absent  legislative intervention, the Medicare program will likely pay more than  necessary for E/M office visits. Conclusions

From 2007 through 2013, the number of vertically consolidated  physicians nearly doubled, with faster growth in more recent years. Regardless of what has driven hospitals and physicians to vertically  consolidate, paying substantially more for the same service when  performed in an HOPD rather than a physician office provides an  incentive to shift services that were once performed in physician offices to  HOPDs after consolidation has occurred. Matter for Congressional Consideration

In order to prevent the shift of services from physician offices to HOPDs  from increasing costs for the Medicare program and beneficiaries,  Congress should consider directing the Secretary of HHS to equalize  payment rates between settings for E/M office visits—and other services  that the Secretary deems appropriate—and to return the associated  savings to the Medicare program. Agency and Third- Party Comments and Our Evaluation

HHS provided technical comments on a draft of this report, which we  incorporated where appropriate. GAO staff who made key contributions to this  report are listed in appendix V.

Appendix I: Scope and Methodology

This appendix describes the scope and methodology used to examine our  two objectives: (1) trends in vertical consolidation between physicians and  hospitals from 2007 through 2013 and (2) the extent to which higher  levels of vertical consolidation were associated with more evaluation &  management (E/M) office visits being performed in hospital outpatient  departments (HOPD) instead of physician offices from 2007 through  2013. Examining Trends in Vertical Consolidation between Hospitals and Physicians

To examine trends in vertical consolidation between hospitals and  physicians, we used survey data from the American Hospital Association  (AHA) Annual Survey Database,TM in which hospitals report what types of  relationships they have with physicians and the number of physicians in  those relationships, and Medicare Provider Analysis and Review  (MedPAR) files, which contain information on Medicare inpatient  discharges for short-term acute care hospitals, from 2007 through 2013.
Why GAO Did This Study

Medicare expenditures for HOPD services have grown rapidly in recent years. Some policymakers have raised questions about whether this growth may be attributed to services that were typically performed in physician offices shifting to HOPDs. GAO was asked to examine trends in vertical consolidation and its effects on Medicare.
This report examines, for years 2007 through 2013, (1) trends in vertical consolidation between hospitals and physicians and (2) the extent to which higher levels of vertical consolidation were associated with more E/M office visits being performed in HOPDs. GAO analyzed, using various methods including regression analyses, the most recent available claims data from CMS and survey data from the American Hospital Association, in which hospitals report the types of financial arrangements they have with physicians.

What GAO Found

Vertical consolidation is a financial arrangement that occurs when a hospital acquires a physician practice and/or hires physicians to work as salaried employees. The number of vertically consolidated hospitals and physicians increased from 2007 through 2013. Specifically, the number of vertically consolidated hospitals increased from about 1,400 to 1,700, while the number of vertically consolidated physicians nearly doubled from about 96,000 to 182,000. This growth occurred across all regions and hospital sizes, but was more rapid in recent years. After hospitals and physicians vertically consolidate, services performed in physician offices, such as evaluation & management (E/M) office visits, can be classified as being performed in hospital outpatient departments (HOPD). Medicare often pays providers at a higher rate when the same service is performed in an HOPD rather than in a physician office. For example, in 2013, the total Medicare payment rate for a mid-level E/M office visit for an established patient was $51 higher when the service was performed in an HOPD instead of a physician office.
The percentage of E/M office visits—as well as the number of E/M office visits per beneficiary—performed in HOPDs, rather than in physician offices, was generally higher in counties with higher levels of vertical consolidation in 2007 through 2013. For example, the median percentage of E/M office visits performed in HOPDs in counties with the lowest levels of vertical consolidation was 4.1 percent in 2013. In contrast, this rate was 14.1 percent for counties with the highest levels of consolidation. GAO's findings suggest that Medicare will likely pay more than necessary for E/M office visits. Such excess payments are inconsistent with Medicare's role as an efficient purchaser of health care services. However, the Centers for Medicare & Medicaid Services (CMS)—the agency that is responsible for the Medicare program—lacks the statutory authority to equalize total payment rates between HOPDs and physician offices and achieve Medicare savings.

What GAO Recommends

In order to prevent the shift of services from lower paid settings to the higher paid HOPD setting from increasing costs for the Medicare program and beneficiaries, Congress should consider directing the Secretary of the Department of Health and Human Services (HHS) to equalize payment rates between settings for E/M office visits—and other services that the Secretary deems appropriate—and to return the associated savings to the Medicare program. HHS provided technical comments on a draft of this report, which GAO incorporated as appropriate.