Nine family-practice doctors are set to leave their large physician group and join Noblesville-based Riverview Hospital later this month, continuing a wave of such acquisitions nationwide.
But this deal comes with a consumer warning: The physician group, Indianapolis-based American Health Network, calculates that the nine doctors could bring in an additional $6.9 million in revenue, if Riverview bills their services at the higher reimbursement rates hospitals receive for imaging, lab tests, physical therapy and other so-called ancillary services.
That’s more than triple the ancillary revenue those physicians produced in the most recent year for American Health.
“It’s huge,” Mike Kirschner, chief financial officer of American Health, said of the difference. “It’s making it hard for the independent physician to stay in business.”
The disparity also is driving up costs for employers and taxpayers, he said, as hundreds of physicians in the Indianapolis area—and thousands more around the country—have become employees of hospitals in the last three years.
A Riverview spokeswoman declined to comment on its addition of the nine physicians, seven of which are in Noblesville and two of which are in Sheridan. Calls to two of them, Dr. Bill Wunder of Noblesville and Dr. Kent Erb of Sheridan, were not returned.
Riverview, a 154-bed hospital, also operates 15 outpatient facilities throughout Hamilton County. Riverview posted an operating profit of $4 million last year on patient service revenue of $133.5 million.
Kirschner said American Health will also transfer to Riverview the lease on its imaging center on Noblesville’s River Avenue, which was used mainly by the nine physicians. The changeover for the doctors and the imaging center is set to take effect July 30, he said.
Ed Abel, a hospital accountant at Indianapolis-based Blue & Co., acknowledged the difference in payment rates—although he noted that hospitals do face stricter standards for licensing technicians and for accepting patients covered by the low-paying Medicare and Medicaid programs.
“Is there a short-term windfall? Probably, if you want to put it that way,” Abel said. But, he added, “I think it is a very temporary condition. The private insurers are trying to standardize the rates they’re paying.”
Officials at Anthem Blue Cross and Blue Shield and UnitedHealthcare, two of the major health plans in central Indiana, declined to comment for this story.
The differences in payment rates for ancillary services are not new, but they got larger for outpatient services in 2008 when the federal Medicare program reduced reimbursement to physicians in order to discourage them from “overutilization” by referring lots of patients to imaging, lab and surgery facilities in which they had an ownership stake.
That change, which was generally mimicked by private health insurers, greatly slowed physicians’ construction of new imaging and surgery centers, and also pinched off a way they were boosting their revenue in an era of modest reimbursement raises.
When Medicare in 2009 also cut reimbursement for cardiologists and some other specialists, the wave of physician-hospital consolidation accelerated. And the health reform law included financial incentives to push doctors and hospitals to work together to improve quality and reduce costs, which led to even more mergers.
Indeed, American Health is a kind of dying breed. The 200-physician practice, with offices in Indiana and Ohio, is the largest group in central Indiana that is not aligned with a hospital.
A year ago, The Care Group merged its 130 family and heart physicians with St. Vincent Health. Community Health Network and Indiana University Health now employ more than 500 physicians each. And Franciscan St. Francis Health has made acquisitions of cardiology and orthopedic surgeons.
When those doctors become hospital employees, they remain in their physician office buildings but start billing health plans under the auspices of the hospital, something called “billing under arrangement.”
The practice is legal—as long as the physicians make it clear to patients that they are, for billing purposes, receiving treatment in a hospital, Abel said.
Doctors who are hospital employees receive about the same amount for an office visit as physicians working on their own. But when patients are referred to diagnostic facilities that are owned by a hospital, the price difference can be startling.
For example, the typical maximum cost that Anthem pays for a CT scan of a patient’s head at a physician-owned facility is $432, according to the Anthem Care Comparison tool on its website. But to have the same scan done at a facility owned by St. Vincent, Franciscan and, yes, Riverview, the maximum is $1,298.
For a colonoscopy, the results are more mixed. Two physician-owned facilities receive typical maximum payments of $1,008 from Anthem. But others are up in the stratosphere with hospitals, where the typical maximums are at least $3,000 and at IU Health West Hospital, nearly $4,400.
At Riverview, the typical maximum for a colonoscopy is $1,680 for Anthem customers.
There are many good reasons hospitals receive higher payments for some services. It’s a way to compensate them for unfunded requirements in federal law that do not fall on physicians. For example, hospitals must stabilize any patient before referring him or her to another facility. Hospitals must be open 24 hours a day. And hospitals must accept all government-sponsored health plans, such as Medicaid and Medicare.
“The hospital has a greater cost structure because of their requirements,” said Doug Leonard, president of the Indiana Hospital Association.
But when physicians simply become employees of hospitals, they don’t stay open 24 hours a day and they don’t necessarily accept Medicaid patients. So hospitals get to collect the higher reimbursement while still enjoying the lower operating costs of physician offices.
Anthem has challenged such arrangements through a series of legal actions in recent years. The most high-profile accusation, filed against Franciscan St. Francis in 2009, was later settled for undisclosed terms.
Also, Anthem, while not yet changing the disparities in its contracts, has been on a campaign to inform patients of the difference. Because the insurer requires doctors to get precertification before they can refer a patient for expensive diagnostic tests, Anthem has begun calling patients to inform them of cheaper options than the facility the doctor recommended.
American Health has been talking to major employers to encourage them to support higher reimbursement for doctors, saying paying them more will still represent a cost savings over the high hospital rates. They’re getting some willing listeners.
“It’s terrible,” said Ed Isakson, human resources director of the Archdiocese of Indianapolis, who has talked to American Health about the disparity in payment rates.
The archdiocese has created a web tool that marks low- to medium-cost providers with the color green, but codes the highest-cost facilities red. Employees get $25 if they choose a green provider instead of a red one.
Those kinds of efforts make Abel and Leonard convinced the current hospital advantage will be short-lived.
“There are other market forces that are always going to be diminishing payments [to hospitals],” Leonard said. “Whether they like it or not, they’re going to have to price in a retail environment.”
It’s also not certain that the higher payments to hospitals for diagnostic services are boosting medical spending overall, said Bob Cimasi, president of St. Louis-based Health Capital Consultants, which advises both physicians and hospitals.
If higher payments to hospitals cut off alleged “overutilization” of physician-owned facilities, that would lead to savings. And if hospital employment of physicians stimulates a shift from procedure-based payments to reimbursement that rewards keeping patients healthy, that would also save money.
“The jury’s still out,” he said.•