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The share of the nation’s doctors employed or affiliated with a hospital system increased from 29% in 2012 to 47% in 2024, according to a new study from the Government Accountability Office.

This is a troubling trend. Greater consolidation of medical services is a recipe for less competition, higher costs and lower quality care.

The federal government is only making the problem worse. For years, Medicare has paid more for services and procedures provided in a hospital than in a doctor’s office. This gap has enriched hospitals and strengthened their ability to acquire medical practices.

Adopting site-neutral payments – that is, paying hospitals and private doctor’s offices the same amount for the same care – would allow independent doctors to compete on equal terms with hospital-affiliated doctors. Such competition will ensure that patients have a choice of where they can seek care and will reduce premiums and co-pays in the long term.

Site-independent payment allows healthcare services to be provided in the least expensive setting that can deliver them safely and effectively. Medicare payment disparities distort these decisions by rewarding hospitals simply for being hospitals, without regard to whether a service could be provided as well – or better – in a doctor’s office or outpatient surgery center.

Removing these financial incentives would help organize care around quality and access rather than distorting care toward the forms most favored by bureaucrats.

Under current law, the amount that Medicare reimburses doctors in private practice is based on what is called the Medicare Physician Fee Schedule. Hospital-affiliated physicians bill Medicare under the hospitals’ outpatient prospective payment system, collecting both professional fees based on the physician fee schedule and separate hospital fees.

For example, Medicare reimburses $1,375 for a colonoscopy performed at a hospital outpatient department – ​​and $862 for a colonoscopy performed at a freestanding outpatient surgery center. A study of 32 common procedures found that total Medicare reimbursement for the hospital outpatient department was between 124% and 861% of total reimbursement for the lower-cost physician office or ambulatory surgery center.

These pay disparities have led to many negative consequences for the physician market.

First, they place independent doctors at an extremely disadvantageous financial situation. Hospital reimbursement is not only higher, it has also been increased each year to account for inflation. The same cannot be said for physician reimbursement.

Between 2001 and 2025, Medicare reimbursement for doctors actually fell 33% after adjusting for inflation, according to a recent analysis by the American Medical Association.

This has left a growing number of medical practices vulnerable to acquisition by larger hospital systems. In a separate study by the AMA, the need to negotiate higher payment rates was cited as the primary reason doctors sold their practices.

The result is a healthcare industry that is becoming less competitive and more consolidated – a trend that is driving up costs for both patients and taxpayers.

A 2021 analysis in the journal Inquiry found that a “10 percentage point increase in vertical integration” [between hospitals and physician practices] was associated with a price increase of 1.0% for primary care, 0.6% for orthopedics, and 0.5% for cardiology.

When hospitals become larger and compete less with smaller medical practices, they have less incentive to keep prices low. The result, of course, is increased healthcare costs and insurance premiums for patients.

Location-neutral payments can correct these market distortions and generate significant savings. Adopting site-neutral payments across Medicare could save the program $202 billion over a decade — and reduce premiums and beneficiary cost-sharing by a total of $134 billion, according to one study.

There is no economic reason why Medicare should pay different amounts for the same care based solely on where it is provided. The hospital lobby may be the main reason for this disparity. Site-neutral payments would restore sanity to the fee structure and create a more competitive health care market for patients and taxpayers.

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