Previous Paragon research has examined how Medicare on average pays hospitals twice the rate it pays physician practices for routine ambulatory services, and about 40 percentage points more than for identical services in ambulatory surgical centers (ASCs).
This incentivizes hospitals to acquire independent physician practices, which they can re-structure as off-campus hospital outpatient departments that are functionally identical to physician offices but receive hospital rates. Paragon estimates saving $160 billion by reducing these unnecessary and inflated payments to hospitals.
One way to visualize opportunities for savings is to examine the actual buildings themselves, not who owns the buildings. In 2008, construction spending by the private sector or state and local governments on hospitals and medical buildings peaked at $47 billion, according to the U.S. Census Bureau’s Construction Spending Survey .
As the Pic demonstrates, although overall spending in 2023 was almost equal to 2008 spending, at $46 billion, its composition changed significantly. Subsequent to President Obama signing the Affordable Care Act in 2010, most of which took effect in 2014, overall construction spending bottomed at $32 billion. This was mostly due to significant reduction in hospital construction spending. Spending shifted to medical buildings, ramping up in 2018. Spending on hospital construction decreased by 32 percent, from $35 billion in 2008 to just $24 billion in 2023, while spending on medical building construction increased 88 percent, from $12 billion to $22 billion. Put another way, construction of medical buildings was less than one third that of hospitals in 2008. By 2023, spending on both types of building were almost equal.
Private spending on hospital construction declined from $29 billion to $20 billion, while medical building construction increased from under $11 billion to $20 billion. State and local government hospital construction spending decreased from over $6 billion to $4 billion, while spending on medical building construction increased from $1 billion to almost $2 billion.
As more patient care shifts from expensive hospitals to less expensive medical facilities, Congress must ensure Medicare payments take full account of the available savings.
