Is Payment Parity a Good Idea?

Some hospitals and medical groups are paid much more than others. But isn't that what the market's about?

There's a legislative proposal to equalize fees to doctors and hospitals. Those paid the lowest would get a raise, while those paid the highest would get a cut. It sounds like a simple, good idea.

Unfortunately, it may have a detrimental effect on providers for underserved areas. If you're the only doctor or hospital in town, you can demand a higher rate. That creates an incentive to be the only game in town, sending medical care to areas that lack it.

So, say you're the only medical group in an area of the Berkshires. There aren't that many people around, and because of your size your overhead is actually higher than larger groups that can pool resources. Thankfully, the higher reimbursement rate you can charge allows you to keep the practice open. Your doctors may not make more than their urban counterparts, but at least they make a comparable amount after expenses.

What happens when you're reimbursements are cut?

A few providers may stay in that office in the Berkshires and just take the pay cut. Others will head for a larger medical group in a city. Suddenly, that town in the Berkshires just lost most of their medical care. Oops.

The fee-equalization legislation is likely aimed at a certain large hospital group widely known to charge higher fees than comparable hospitals in their area, which shall remain nameless. Maybe they're not justified in charging those higher fees. But this legislation could have some unintended consequences.