Hospital-physician integration and Medicare's site-based outpatient payments

To determine the relationship between Medicare's site-based outpatient billing policy and hospital-physician integration.

National Medicare claims data from 2010 to 2016.

For each physician-year, we calculated the disparity between Medicare reimbursement under hospital ownership and under physician ownership. Using logistic regression analysis, we estimated the relationship between these payment differences and hospital-physician integration, adjusting for region, market concentration, and time fixed effects. We measured integration status using claims data and legal tax names.

The study included integrated and non-integrated physicians who billed Medicare between January 1, 2010, and December 31, 2016 (n = 2 137 245 physician-year observations).

Medicare reimbursement for physician services would have been $114 000 higher per physician per year if a physician were integrated compared to being non-integrated. Primary care physicians faced a 78% increase, medical specialists 74%, and surgeons 224%. These payment differences exhibited a modest positive relationship to hospital-physician vertical integration. An increase in this outpatient payment differential equivalent to moving from the 25th to 75th percentile was associated with a 0.20 percentage point increase in the probability of integrating with a hospital (95% CI: 0.0.10-0.30). This effect was slightly larger among primary care physicians (0.27, 95% CI: 0.18 to 0.35) and medical specialists (0.26, 95% CI: 0.05 to 0.48), while not significantly different from zero among surgeons (-0.02; 95% CI: -0.27 to 0.22).

The payment differences between outpatient settings were large and grew over time. Even routine annual outpatient payment updates from Medicare may prompt some hospital-physician vertical integration, particularly among primary care physicians and medical specialists.