‘Site-neutral’ payments for chemotherapy could save Medicare billions

As if to prove that every rule has an exception, the usually dysfunctional Republican-majority House of Representatives has at least one sensible piece of bipartisan legislation on its record: In December it passed a health-care measure called the Lower Costs, More Transparency Act on a 320-71 vote. It would end a longstanding, but irrational, disparity in Medicare reimbursements for certain treatments, depending on whether they are administered in doctors’ offices or hospitals. The savings would be more than $3.7 billion over the next decade, according to the Congressional Budget Office. And beneficiaries’ co-payments would go down, too — by $40 a visit. The next thing that needs to happen is for the Senate to follow suit.

At issue is how Medicare pays for drugs delivered by medical providers, such as chemotherapy for cancer or infusions used to treat autoimmune diseases. Under current law, Medicare pays two to three times as much for these treatments if they are given in a hospital rather than a doctor’s office. The medicines and the means of administering them are the same; only the price is different. In theory, the difference reflects the higher costs involved in running a hospital as opposed to a physician’s practice.

In practice, Medicare’s rules have created an incentive for hospitals to buy up physicians’ practices, at which the hospitals can then charge the higher rate. In 2021, Medicare paid hospital rates for more than half of the chemotherapy services it funded, up from a little more than a third in 2012. Indeed, research has found that consolidation among providers brings higher prices for everyone, including private medical insurers and their beneficiaries. Larger medical systems have greater bargaining power in the health-care marketplace. This legislation would also save money for private insurers, which pay hospitals almost double the Medicare rate.

The Lower Costs, More Transparency Act would basically end these discrepancies for all drugs that must be administered by a health-care provider, as opposed to, say, taken orally at home. Instead, it aims to create “site-neutral” payments. To be sure, $3.7 billion in savings for Medicare over a decade seems small compared with the program’s total projected hospital spending of more than $2.7 trillion. Yet hospitals have been fighting the change furiously, no doubt because of the precedent it would set for other medical services. In fact, that is exactly what should happen. Dozens of services cost more at hospitals, including mammograms, allergy tests, echocardiograms, epidural injections, colonoscopies and laser eye procedures. If all were site-neutral, Medicare would save an estimated $150 billion over 10 years.

Site-neutral payment policy for Medicare would not be a “cut” to hospital funding, as defenders of the status quo claim. It would only do away with a payment disparity that has unintentionally caused higher costs. The House bill would be a small but significant step toward lower, more transparent Medicare payments. Before this Congress ends, the Senate should send it to President Biden for his signature.