The Great Divergence: Quantifying Hospital-Physician Payment Inequity in Medicare 2019 to 2023

Medicare reimburses hospitals through diagnosis-related groups (DRGs) and physicians through Current Procedural Terminology (CPT) codes, systems that have diverged significantly over time. We quantified hospital-to-physician payment divergence across matched general surgery procedures from 2019 to 2023.

DRG and CPT payment data were obtained from the Medicare Inpatient Prospective Payment System and Physician Fee Schedule 2019 to 2023. 16 CPT codes were matched to corresponding MS-DRGs at maximum and minimum complexity. This yielded 31 DRG/CPT ratio time series for 489,111 discharges. Trend analysis employed ordinary least squares regression, Mann-Kendall tests, and Sen slope with Benjamini-Hochberg (BH) false discovery rate correction.

24/31 DRG/CPT ratio series (77.4%) demonstrated statistically significant increasing trends after BH-correction, with no series showing a significant decline. Mean DRG-Max to CPT ratios increased 23.1% while mean CPT payments declined 3.5% in real terms. The largest increases were observed for EVAR (+4.7 points/y, P=0.021), heart transplantation (+4.0 points/y, P=0.031), and liver transplantation (+1.8 points/y, P=0.006). Divergence was also significant for high-volume procedures, including cholecystectomy and small bowel resection.

Significant payment divergence exists between hospitals and physicians across general surgery. DRG weights recalibrate annually using hospital cost data, while physician conversion factors consistently lag inflation. This divergence may be further amplified in all patient refined-DRGs used by state Medicaid programs and commercial insurers, where severity adjustments generate higher hospital payments while physician CPT payments remain unchanged. Future policy alignment of DRG and CPT methodologies is critical to preserving equity and sustaining surgical care delivery.