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Each week, Health Affairs' Rob Lott brings you in-depth conversations with leading researchers and influencers shaping the big ideas in health policy and the health care industry.
A Health Podyssey goes beyond the pages of the health policy journal Health Affairs to tell stories behind the research and share policy implications. Learn how academics and economists frame their research questions and journey to the intersection of health, health care, and policy. Health policy nerds rejoice! This podcast is for you.
Hello, and welcome to a health podocy. I'm your host, Rob Lott. Among the most frequently proposed reforms to the Medicare program is that of site neutral payment. This is the idea, driven by pretty compelling evidence that Medicare pays a lot more for a procedure conducted within a hospital outpatient department compared to the very same procedure conducted in an ambulatory surgical center. And to be clear, we're not talking about complex heart surgery.
Rob Lott:We're looking at procedures that theoretically could be done well in either setting, colonoscopies, cataract removal, and knee arthroscopy, for example. And so in response to the evidence, reformers looking for ways to cut federal Medicare expenditures keep coming back to the simple idea that, hey, maybe we could pay the lower rate for the same procedure no matter where it happens. Although this idea hasn't been widely implemented, it's frequently at the top of the list among most proposals for Medicare reform. Now, of course, Medicare is just one program. It is a behemoth for sure, but there are plenty of people covered by programs other than Medicare.
Rob Lott:And historically, we've known a lot less about how this dynamic plays out under their insurance. And so the question remains, do the same trends exist in commercial insurance markets? That's the subject of today's health policy. I'm here with Matthew P. Maun, a PhD student in health services research at the Brown University School of Public Health.
Rob Lott:Together with his coauthors, he has published a research article in the October issue of Health Affairs, and its title is one of its main findings. Quote, Commercial insurers paid more for procedures at hospital outpatient departments than at ambulatory surgical centers. I can't wait to hear more about their study and to consider what it might teach us about the relationship between Medicare payment policy and that of the commercial insurance market. Matthew Piedmont, welcome to The Health Odyssey.
Matthew Maughan:Yeah. Thanks for the introduction. Glad to be here.
Rob Lott:So let's just dive right in and maybe start with some background. Can you give us a sense of how we ended up with these two parallel tracks, hospital outpatient departments on one hand, ambulatory surgical centers on the other? How did this split evolve and do we have a sense of the factors that have driven that split?
Matthew Maughan:Yes, so you know way back when pretty much all these procedures were performed in a you know a hospital that had you know, a whole gamut of services performed, not just surgeries, you know, just the whole full range of services that you would have in a hospital. In 1970, the first freestanding ambulatory surgical center was was built. This was instantiated in Medicare payment in 1982. Now the big theme of this paper, and you alluded to before, Medicare is the tail that wags the dog for the rest of health care. Medicare, because it centralizes so much in terms of procedure and in terms of practice.
Matthew Maughan:In our case, specifically payment practice, commercial insurers tend to follow that in in many ways, big and small. So in 1982, you officially had an ASC fee schedule. It was a very fragmented schedule. So ASC ambulatory surgical center, I will be referring to HOP D as hospital outpatient department. So both the ASCs and the HOP Ds did have fee schedule associated with them starting in 1982, but they were very fragmented up until February.
Matthew Maughan:So there were as many as eight different systems that you could have to pay for each of these things. But you were starting to see the logic of the HOPD versus ASC system at this time. So HOPD has always gone on a cost plus logic. So the cost plus logic is, you know, this is what it costs to deliver a given surgery. We're gonna have some percentage on top of that, and that's what you pay.
Matthew Maughan:Now we know that technology in in health care is only getting, you know, better and better, but that's also means more expensive and more expensive. And the cost plus logic really doesn't incentivize cost cutting in any way. Now the ASCs never really went off of that logic. So you're starting to see the system that we have today. Now in February, the outpatient prospective payment system was instituted, see the OPPS for short.
Matthew Maughan:It officially put Hopd on one fee schedule. ASCs sort of in 2008 got put on a percentage of that fee schedule, and we've been living on some version of that sense. So that's sort of what leads into my paper. So it's actually really worth just taking one step back and thinking about this cost plus logic that I alluded to. We see that the hospitals will still use that to justify the site differentials that we have today, but a, that doesn't really make much sense.
Matthew Maughan:You would have to, number one, prove that the sort of overhead that you're allocating because you have a higher cost structure leads to better outcomes. And the literature has not found that. I'm not saying that it hasn't happened, but the literature hasn't found it. So there really isn't good evidence for it. And two, they sometimes will make an implicit cross subsidy argument saying that because, you know, we have other services that, you know, we're losing money on or maybe not be as profitable or we have to provide charity care that we have to subsidize it with these other services, which is really just an anti transparency argument, which if you value transparency either for its own sake or because you think it doesn't help really the price system, then that should cause you some concern.
Matthew Maughan:So that really is kind of the preview to the system that we do have today.
Rob Lott:So you alluded to the literature and I wonder if you can say a little more about what we know about the variation in terms of both the quality of care and the costs overall when you're comparing these two sites.
Matthew Maughan:So variation in terms of quality of care. It is a difficult problem in terms of of the research of matching people based on the fact that there will be a selection issue. So if you have some patients that are more complicated, they're naturally gonna flow more towards the hospital setting, and that's sort of why the hospital's there. And the ASCs, maybe you have less complicated. So that actually does make some sense.
Matthew Maughan:But, you know, through some more advanced sort of clever matching research that I found, Silber twenty twenty three was one specific paper I found that actually did match one to one and found that the ASCs don't necessarily provide worse care. In some cases, you could actually find better care, even controlling for that selection by matching sort of similar patients and then seeing their outcomes.
Rob Lott:Gotcha. So you're looking for patients maybe with the same age, the same sort of medical history, other socioeconomic factors potentially. Is that sort of what you mean when you say matching?
Matthew Maughan:Yeah, exactly. So they use different morbidities specifically. So looking at sort of different health issues.
Rob Lott:Okay, well, so when policymakers and researchers talk about these payment structures, it's most often in the context of Medicare. As I said earlier, site neutral payment is sort of often bandied about as a, you know, having great potential as a tool to reduce federal Medicare spending. So I'm wondering if you can say a little bit about what we knew about this dynamic in the commercial market as opposed to Medicare before you conducted your own study. What were the gaps in our knowledge at that time?
Matthew Maughan:So there definitely was some evidence that the gaps or that the site differential in the commercial space did exist in the ASCs versus the HOPDs in a similar percentage to Medicare. There was some variation, but the issue was the data sets were sometimes limited. So you would sometimes have just claims data based on, you know, one insurer. You would have only, you know, one geographic area or only one set of procedures. So the new dataset that we use, the transparency and coverage dataset, had just much wider breadth, and you were you were able to see across insurers at the same time, which just allowed us to, you know, just get a much more externally valid.
Matthew Maughan:By externally valid, I mean, you know, across a wide range of geographies and insurers and procedures to be able to look at at this issue. So we did have some literature to really validate off of, but we helped fill in the gaps specifically with the cross insurer comparisons.
Rob Lott:Alright. Well, let's let's dig right into your paper. So as you said, you used the 2024 transparency and coverage data on commercial prices for three insurers, and you compared payments for 13 common procedures across settings. What did you find?
Matthew Maughan:So the first thing we looked at is we looked at the procedures themselves. So under 13 procedures, was there a lot of variation? And there's more variation than Medicare as you would expect because Medicare statutorily set set, you know, by law. Whereas in the commercial space, there is some variance by insurers. But there was a reasonable range.
Matthew Maughan:Overall, we found, you know, 78% markup from the ASCs to the hot d's for facility fees, and the individual procedures would, you know, vary from, you know, 60% to over a 150%, but there wasn't, you know, an order of magnitude difference in terms of that spread.
Rob Lott:Sorry. So just to clarify, you said 78% markup. Essentially, ASCs were getting paid at rate x, and then HOPTIs were getting essentially 78% more. Again, I understand Yeah.
Matthew Maughan:A 178%.
Rob Lott:Yeah. Got
Matthew Maughan:it. So, yeah, if you had one was paid a thousand, the other be paid 1,780. Exactly.
Rob Lott:Got it.
Matthew Maughan:So, yeah, that's that's what we were seeing. So no no surprise in the procedures. What we did see surprise is when we compared across insurers. So we saw that there was similar percentage, maybe a little bit more for both Blue Cross Blue Shield and United, where we would expect somewhere in the 80% range in terms of that markup. But when we looked at Cigna, which is a smaller insurer than either BCBS or United, that it was much, much smaller spread.
Matthew Maughan:It was about 15 to 16%. So that was kind of like a woah moment of, like, why is this so much different than the others? So when we dug in, we said, oh, you know, are they somehow systematically, you know, driving lower prices? How are they doing this? So we actually decided to think, hey.
Matthew Maughan:Are we actually comparing like with like? Are we looking at the same providers? And that's when we figured out we weren't. We actually looked at the range of contract contracts that Cigna had versus the other two larger insurers, and it was a much, much smaller footprint that that they had. So in terms of the ASCs, were they were similar.
Matthew Maughan:They were a little less, but similar. But in terms of the hot d's, they were contracting with, you know, 14% in applicable markets, whereas, BCBS and United were closer to 70 or 80. So it was clear there was some sort of strategy going on. So then what we decided to look at, because we knew that, a, the spread was lower for Cigna. How are they doing this?
Matthew Maughan:The ASCs were the same or similar pricing. Hop Ds were much lower. And what we actually found is that they were just excluding high priced Hop Ds. So they were just saying, okay. You know, they they have their plan sponsor customers, and by plan sponsor, mean, their employers that have their employees that are covered by their insurance.
Matthew Maughan:We're just not gonna have these Hop Ds in network. So that, you know, leads to a lot lot more questions of, you know, was this due to the employer preferences? Like, when they cut these hot teas out of network, like, people traveling more? So it's definitely what you're seeing is like an intentional strategy by one insurer to say, okay, we're gonna we're gonna gain these cost savings, but we're gonna do it by, you know, severely narrowing the network.
Rob Lott:Got it. Okay. So the the Cigna, the spread between ASCs and HOPDs was much smaller. And your theory is that or the evidence shows, I should say, that their networks were much smaller, therefore they were able to be a little more selective, maybe apply some pressure in negotiating with providers about sort of how much they'd be willing to pay in order to include someone in that network. Is that fair?
Matthew Maughan:Well, I would say that they are not applying leverage. They're just saying, you know, the the ones that where where they it would be a negotiation where the lever would be applied against them because it'd be these large providers with a lot of market power, they just likely opted out of. So that I mean, I would say that
Rob Lott:would be easier to answer. You're out. Yeah. Yeah. Got it.
Rob Lott:Okay. Well, I I can't wait to hear a little more about, how you approach this dataset to to find these, answers. But first, let's take a quick break. And we're back. I'm here with Matthew Mahn.
Rob Lott:We're talking about, commercial insurance payments, at hospital outpatient departments compared to those paid at ambulatory surgical centers. You just described your findings. I know this is a pretty new data set. We haven't had access to this transparency and coverage data until recently, I think within the last year or so. And I'm curious if you encountered any unique challenges in using the data and if you had any thoughts on how it might be made more useful going forward.
Matthew Maughan:Yeah. So it's actually funny. The ACA, which was, you know, passed in 2010 and went to effect in 2014, or, you know, most of its major provisions went into effect then, is actually what mandated that this price transparency take effect, but it didn't actually promulgate rules out of CMS until 2018. So it's kind of you see how sometimes the law can say something, but until there is an actual mechanism to make it happen. So it didn't happen until 2018.
Matthew Maughan:And the law said or the, you know, the rule that promulgated said, has to be machine readable, which apparently didn't mean human readable because we still had to have, you know, so data vendors who are experts in this actually take the data, clean it up. And the the vendor that we used actually also married it with commercial claims. So we were able to see service volume. But one huge limitation is we don't have volume by insurer. So wasn't able to actually, you know, look at, you know, the volume for each, you know, contracted price.
Matthew Maughan:So there there is a little more noise than we would like to in the data now. We did mitigate this by dropping very, very low volume providers so that those numbers didn't skew our data. But it would be, you know, good in the future if there's any way to sort of marry it with commercial claims or whatever data set we have so that we could, you know, more properly really weight these price numbers that we have.
Rob Lott:You highlighted a pretty significant difference between sort of Cigna's approach and the other two insurers that you looked at. And it's I mean, it seems pretty clear that now not all insurers are the same, not not all networks are the same. And I'm wondering, you know, you talked about having this sort of big woah moment when you realized what was going on. Can you say a little more about, you know, how we might interpret that variation and, you know, what we might extrapolate from the decisions of these unique health insurers to kind of the dynamics taking place in the commercial insurance market more broadly?
Matthew Maughan:Yeah. I think the first takeaway is, you know, what Cigna is doing may or may not scale. So Cigna excluded six out of seven Hop Ds in their in their applicable markets, and every insurer may not be able to do that. So if you could say, oh, if there's somehow we could, you know, make some kind of rule where, you know, everyone has to follow Cigna's policy, that that seems a a little bit ahead of ourselves because it's a very unique strategy. So I think that's the the first big takeaway is that what Cigna's doing, yeah, may may not necessarily scale.
Matthew Maughan:And I think, yeah, the next sort of takeaway is that looking at the dynamic between the employer plan sponsor and the insurer. So clearly, they're doing this in response to, you know, some preferences by these employers. You know, what are they and, you know, why do basically some of the employers accept, you know, these these markups that Cigna doesn't? And getting insight into that might help further sort of solve the puzzle.
Rob Lott:Maybe you can say a little more about how we tell the difference between maybe an opportunity for cost savings through reform versus an instance of insurers meeting the needs of their consumers with broader networks or lower prices, I guess would be the flip side. And if it's the latter, the sort of meeting the demand, is it fair to say that reform might not be necessary even if costs are higher? How do you think we should go about navigating that tension?
Matthew Maughan:So this I love this question. This is a great question because I agree that pretty much each of these insurers is doing what they can with the constraints and and the opportunities that they have to best serve their customers given the system that we have. That does not mean that the system we have cannot be improved. So I think it's it's a question of how far upstream you wanna go. So we know that consolidation I'm sure you've had many, many guests on this podcast talking about consolidations on the provider side in hospitals.
Matthew Maughan:It's the market power that derives from that consolidation that allows them, these hospital networks, to extract higher prices. Right? So it is done by law on the Medicare side. But on the commercial side, it's it's a question of of market power. So looking upstream and seeing all the different ways that maybe these networks have kind of been driven to consolidate.
Matthew Maughan:I mean, just to to bring it back full circle, the Medicare, you know, site differential that was, you know, in law, it made all the economic sense for them to acquire more and more ASCs. And in some cases, they could just turn them into hop d's and get the hop d rate overnight even though nothing changed. I mean, depended on a lot of factors. Not all of them, when they got acquired, changed to hop d's, but some of them did. And then the larger those networks get, the more market power they can extract, and they can sort of squeeze out more ASC.
Matthew Maughan:So it's like a it's a it's a positive feedback loop. And this isn't just me talking. Med PAC is which is the Medicare payment advisory commission out of congress has noted this same dynamic. So this is just one example, but just going upstream and looking at all of the issues that have sort of driven this consolidation trend would be the sort of long term answer to that question.
Rob Lott:Well, that's a great setting of the stage perhaps for future research questions. Matthew Vaughn, thanks so much for taking the time to chat with us today about your paper. I had a great time.
Matthew Maughan:Oh, thank you.
Rob Lott:To our listeners, thanks for tuning in. If you enjoyed this episode, please recommend it to a friend, leave a review, hit that subscribe button, and, of course, tune in next week. Thanks, everyone.
Matthew Maughan:Thanks for listening. If you enjoyed today's episode, I hope you'll tell a friend about a health policy.