The Sheer Insanity of What You Pay For Medical Services

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By Michael Gorback, M.D.:

Confused and outraged by the prices, often unknown upfront, that you and your insurance company pay for medical services? You’re not the only one. Enter the bizarre world of “Place of Service” pricing.

Merely by declaring the office of a hospital-employed physician a “facility,” a hospital can tack on an extra 70% or so to the bill for an office visit via the “facility fee.”

In this market aberrancy known as “Place of Service” (POS), there is a two-digit billing code for POS that informs the third-party payer in which type of facility a procedure was performed, such as a hospital, free-standing center, or physician’s office.

Prices vary for the same service, provided for the same patient, by the same doctor, as if some magical extra value were conferred upon identical services provided at certain locations.

I am a doctor, not an expert on medical billing, so I will confine my remarks to those aspects of POS with which I’m familiar – pain management.

The Medicare fee schedule for cervical epidural steroid injection (CPT code 62310) is as follows (these are approximate because Medicare adjusts its fees regionally), depending only on where the procedure was performed:

  • $111 if performed at Physician’s office
  • $364 if performed at Ambulatory Surgery Center (ASC)
  • $659 if performed at Hospital Outpatient Department (HOPD)

The physician’s fee for 60213 when performed at an ASC or HOPD is roughly $75. This brings the total to:

  • $111 at the Physician’s office (the fee is already included)
  • $439 at the ASC
  • $734 at the HOPD

Question for the class: What do these facilities bring to the table that justifies 4 times (ASC), or almost 7 times (HOPD), the cost? Are there better outcomes? No. Lower mortality rate? Most pain procedures have about as much mortality risk as getting a cavity filled at the dentist. Can you do the procedure faster at a hospital? Heavens, no. Hospitals are geared for major procedures. Turnover times at most hospitals are so slow that a pain specialist would starve to death. Most ASCs are good at fast turnovers yet they are paid less.

Do these facilities need higher reimbursement because they do more complicated patients? The patient who is such high risk that the procedure must be performed in a hospital is rare.

One popular site for performing pain procedures is the ASC. Why? Because doctors discovered that while their fees were being whittled down by Medicare and private insurance companies, The ASCs were making good money. The solution was to buy shares in ASCs. Over the past 20 years or so, it seemed like ASCs were popping up on every corner.

You’d think the government might consider this a prohibited self-referral. You’d be wrong. Using the kind of logic that only a government could get away with, a doctor is not guilty of self-referral if the ASC is an “extension of the office”. What does that mean? For a multi-specialty ASC, a doctor who owns shares must take at least 1/3 of his or her patients there. Yes, you read that correctly: the government demands that you take your patients to the more expensive POS.

Why not just pay one physician fee and one facility fee for this service? If there is a compelling clinical reason for doing a procedure at a hospital instead of the office, allow the hospital to bill a surcharge for the added complexity. Such cases are rare.

CMS has been cutting the fees for certain specialties over time.

In 2013, the payment to the physician for 62310 was about $254 in the office (professional fee plus overhead) and $111 in a facility – a difference of $143.

In 2014, it is $111 in the office and $75 in a facility – rather spectacular pay cuts. That’s a difference of $36 between office and facility. After expenses, it’s not worth the trouble in the office. At $75 for placing a needle just a few millimeters from the upper spinal cord, it’s probably not worth the drive to the facility either.

One other aspect of the POS requires mention. Many states require a Certificate of Need before a new facility can be built. According to the National Conference of State Legislatures:

Certificate of Need programs are aimed at restraining health care facility costs and allowing coordinated planning of new services and construction. Laws authorizing such programs are one mechanism by which state governments seek to reduce overall health and medical costs.

Feel free to pause for a moment to wipe away the tears of laughter that just ran down your legs. Yes, in Government World you don’t want anyone to “waste” money building a competing facility with competing services. If an entrepreneur saw no need for another facility in a given area, why would they even think about building one? Entrepreneurs are not known for wasting money duplicating services for a saturated market.

This is government-sanctioned monopoly and restraint of trade at its finest. And it takes place in the bizarre world of “Place of Service” pricing.

By Michael Gorback, M.D., board-certified in Anesthesiology and Pain Medicine. He practices pain management at the Center for Pain Relief in Houston, TX.

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