Medicare's hospital markup is costing seniors

Medicare pays hospital-owned clinics up to 670 percent more than independent physician offices for the exact same care. In early July, the Department of Health and Human Services (HHS) proposed ending that markup for common imaging services without contrast, including X-rays, MRIs and ultrasounds, by paying certain hospital-owned clinics the same rates as independent physician offices. The reform would lower costs for America's seniors while saving beneficiaries and taxpayers $260 million in 2027 and $7.2 billion over the next 10 years. Seniors and taxpayers should cheer for this proposal and demand Washington go even further. Under Medicare's current rules, the same medical service can cost dramatically more simply because it is provided in a hospital-owned clinic. In that setting, Medicare sends two payments: a payment to the doctor and a facility fee to the hospital that owns the practice. As a result, Medicare can pay hospital-owned facilities 43 percent to 670 percent more than independent practices for identical services. Seniors pay for this markup directly, as Medicare beneficiaries pay a 20 percent coinsurance for outpatient care. In 2023, for example, an epidural injection would cost a senior $148.17 in coinsurance at a hospital-owned clinic, compared with just $51.17 at a freestanding physician's office. Medicare's payment disparity also gives hospital systems a powerful incentive to buy up independent physician practices, relabel them as hospital outpatient departments and bill the same care at the higher rate. In fact, we've seen from 2012 to 2024 the share of physicians working in hospital-owned practices climb from 23.4 percent to 34.5 percent. Each acquisition means higher prices, fewer independent doctors and less competition. In 2024, 7.4 million Medicare beneficiaries spent more than one-tenth of their per capita income on Part B premiums. Medicare's trustees project annual Part B premiums will climb 77.7 percent, from $2,434 to $4,327, between 2026 and 2035. Washington cannot afford to keep overpaying hospitals for care that costs a fraction of the price down the street. Fortunately, Congress already gave the executive branch a tool to fight back. When lawmakers created Medicare's outpatient payment system in 1997, they directed the secretary of HHS to develop a method for controlling unnecessary increases in the volume of outpatient hospital services paid. In both of his terms, President Donald Trump leveraged this authority on behalf of patients. In 2018, HHS began equalizing payments for clinic visits at off-campus hospital facilities. Last year, it extended site-neutral payments to drug administration services. Combined with the agency's newly proposed site-neutral payment for imaging without contrast, these reforms will save beneficiaries and taxpayers an estimated $1.3 billion every year once the imaging policy is finalized, but we can do more for America's seniors. HHS should also extend site-neutral payments to nuclear cardiology imaging used to diagnose coronary artery disease and heart failure. Medicare currently pays hospital-owned facilities an average of 313.2 percent more than independent offices for these services, costing some seniors up to $220.98 more out of pocket for a single scan. Congress has other tools it can use, too. During his first term, President Trump called on Congress to apply site-neutral payments across all on-campus and off-campus hospital outpatient departments, as part of his fiscal year 2021 White House budget proposal. This would save taxpayers an estimated $156.9 billion over 10 years, according to the Congressional Budget Office's most recent estimates. It would also deliver $137 billion in lower Part B premiums, cost-sharing and Medigap expenses to beneficiaries, according to the Committee for a Responsible Federal Budget. Medicare exists to serve patients and the taxpayers who fund it, not to subsidize hospital consolidation. President Trump's administration understands the problem. Now we should extend site-neutral payments to nuclear cardiology and end Medicare's preferential payments to hospital-owned facilities. End the markup, and one of the biggest incentives to buy up America's independent doctors ends with it. Bobby Jindal served as governor of Louisiana from 2008-2016, and assistant secretary of health and human services from 2001-2003. He serves on the board of US Heart and Vascular (USHV). Charlie Katebi is a fellow for Healthy America Policy and the deputy director of veteran health policy and engagement at the America First Policy Institute.