News & Updates

June 22, 2022

HHS OIG Confirms Medicare and Beneficiaries Paid Substantially More in HOPDs than in Freestanding Physician Offices

A report issued in June 2022 summarized the findings of an audit conducted by the Department of Health and Human Services (HHS) Office of the Inspector General that compared Medicare payments to hospital outpatient departments (HOPDs) with those made to freestanding physician offices for the exact same services. The audit examined payments for Evaluation and Management (E&M) services from 2010 through 2017 in eight states. Their findings include:

  • If hospital outpatient departments in the selected States had been paid at the freestanding PFS rate during the audit period, the Medicare program could have realized cost savings of $1.3 billion and its beneficiaries could have realized cost savings of $334 million, for combined savings totaling over $1.6 billion.
  • In addition, beneficiaries would have been required to make only one coinsurance payment rather than two (as they are currently required to do) and the cost-sharing would generally be lower because it would be based only on the freestanding rate.
  • In the CY 2018 OPPS final rule and CY 2019 PFS final rule, CMS took steps intended to equalize payments for E&M services between excepted and nonexcepted HOPDs by adjusting the rates downward such that both types of these facilities would be paid at 40 percent of what they would have been paid under the OPPS, effective January 1, 2019. If the 40-percent adjuster had been in effect during the audit period, the potential cost savings of these changes to the Medicare program and its beneficiaries in the selected States could have been a combined $1.4 billion (still less than the $1.6 billion in potential cost savings if E&M services had been paid at the freestanding rate).

The OIG report recommends that CMS pursue legislative or regulatory changes to lower costs for both the Medicare program and beneficiaries, by equalizing payments as appropriate between provider-based facilities and freestanding facilities for E&M services.

To read the full report: