Doctors and hospitals: Allies or adversaries?

While organizations representing hospitals and physicians often agree, there are three key areas in which they don't: site-neutral payments, buying physician practices, and hospital prices.


While physicians and hospitals have often had an uneasy relationship—they need each other, but have very different business interests and perspectives—for the most part, they've been allies on major health policy issues. Trade associations representing hospitals, such as the American Hospital Association (AHA) and Federation of American Hospitals (and the Association of American Medical Colleges, AAMC, which has a foot in both the hospital and physician camps), and professional organizations representing physicians, like the American Medical Association (AMA) and ACP, have been united on issues like funding the Children's Health Insurance Program, opposing cuts in Medicare's disproportionate share payments, lifting caps on GME payments, and, generally, advocating to preserve coverage gains and consumer protections from the Affordable Care Act (ACA).

Of late, though, hospitals' and physicians' advocacy interests are becoming more divergent.

Site-neutral payments

Many physician organizations, including ACP, strongly support a recent decision by Medicare to require “site-neutral” payments for office visits provided in hospital outpatient clinics and independent physician offices.

In a final rule published on Nov. 1, 2018, CMS finalized regulations to eliminate added “facility fee” Medicare payments for office visits provided in hospital-owned outpatient clinics compared to the same service when provided in an independent physician office. In a statement supporting CMS’ decision when the proposed rule was released in July 2018, ACP stated that it “agrees [with CMS] that there is no justification for patients and the Medicare program paying more for a visit to a doctor when the service is provided in an office owned by a hospital than it would for the same type of visit in an independent physician practice. Such additional ‘facility fee’ add-on payments do not result in better service or value to the patient.”

As a founder of the Alliance for Site Neutral Payment Reform, ACP has been a national leader in the push for site-neutral payments, which treat physicians the same regardless of whether they provide clinical visits in independent practices or in a hospital-owned setting.

Hospitals see things quite differently. In a statement issued Dec. 4, 2018, the AHA and AAMC announced that they had “filed a lawsuit against the U.S. Department of Health and Human Services (HHS) over an ill-advised and unlawful payment reduction to the outpatient prospective payment system (OPPS) that threatens access to care and hospitals' and health systems' ability to continue to meet the needs of their patients, especially those with the most complex needs and those in vulnerable communities.”

ACP believes that hospitals should be paid fairly for their services, especially for treating patients with the most complex needs. But so should physicians in independent practices. Facility fees violate the concept that the same services should be the same without regard to where they are provided, and in our view CMS is right to want to eliminate them.

Hospital acquisitions of physician practices

Another area of conflict is over the explosive growth of hospitals buying up physician practices. (Medicare's facility-fee payments are one reason why it's been attractive for hospitals to do so.) Recent studies have shown that horizontal integration in markets, when a large hospital system makes itself even bigger by acquiring more practices, results in higher charges to Medicare, Medicaid, private insurers, and patients.

From the hospitals' perspective, this all makes perfect business sense, allowing them to gain revenue, fill beds, and control referrals. But hospital-led market dominance that leads to higher prices and less choice and competition is not such a good thing for patients and payers, who will have to pay more, or for physicians, especially those who seek to remain in independent practice. As the medical profession seeks policy changes to block anticompetitive hospital-led consolidation and advocates for policies to level the playing field with independent practices, conflicts will intensify.

Hospital prices

Hospitals are the biggest contributor to total health care spending in the United States, representing 33% of total spending, compared to 20% for physicians, 10% for prescription drugs, 5% for nursing home care, 3% for home health care, and 27% for all “other health,” according to a December 2018 analysis from the Kaiser Family Foundation. Hospital prices are also notoriously opaque, difficult to anticipate or understand, and highly variable, within and across geographic regions. One recent study published in the Journal of Health Politics, Policy and Law found that “The average price for hospital care in the United States is $5,220 per day versus only $765 in Australia.”

In January, CMS for the first time ever posted the prices charged by hospitals, representing 92% of all inpatient charges, for the 100 most common Medicare inpatient DRGs. Health Leaders, a trade publication, looked at the numbers and reported that “in Birmingham, AL, the charges for … a hospital stay to treat chronic obstructive pulmonary disease with major complications range from $23,245 at St. Vincent's Birmingham to $87,065 at Brookwood Medical Center. In Jacksonville, Fla., the charges for treating simple pneumonia and pleurisy range from $13,923 at St. Vincent's Medical Center to $41,411 at Memorial Hospital.”

The United States is beginning to have a robust public debate about the future of health care leading up to the 2020 election, with many candidates and voters on the progressive, Democratic side advocating for “Medicare for All,” or at least an option for people to enroll in public coverage instead of private insurance. Either approach would likely require health care budgets and price controls that will pose a direct threat to hospitals. While physicians also have reasons to be concerned about being subjected to more cost controls, my sense is that many are open to considering a public option, or even “Medicare for All,” if it results in health coverage for everyone with simplified billing requirements and lower administrative costs.

Physicians and hospitals will always need each other, but I think they are more likely to be adversaries than allies on many of the big issues affecting the future of American health care.