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The Great Divergence: Quantifying Hospital - Physician Payment Inequity in Medicare 2019-2023
*Rachel L. Wolansky, *Lorenzo Hiraldo, *Joseph Sujka, Paul C. Kuo
Surgery, University of South Florida, Tampa, Florida
BackgroundMedicare compensates hospitals through Diagnosis Related Groups (DRGs) and physicians through Current Procedural Terminology (CPT) codes. Past studies show a divergence with physician payments ($$) declining 25-33% across surgical specialties while hospital $$ remained stable through annual cost-based recalibration. We analyzed $$ ratios for matched surgical procedures to quantify ongoing divergence trends.
MethodsTime series analyses of Medicare DRG and CPT $$ from 2019-2023 using Medicare Physician Fee Schedule (MPFS) and Inpatient Prospective Payment System (IPPS) final rule data. 22,841 hospital-year observations from 4,000-5,800 hospitals annually included 489,111 discharges. 16 matched procedure pairs across eight surgical specialties were analyzed: appendectomy, cholecystectomy, colorectal, small bowel resection, gastric, hepatobiliary, transplant (heart/liver/kidney), and vascular including EVAR procedures. Each CPT code was matched to corresponding MS-DRGs representing both maximum complexity (with major complications/comorbidities) and minimum complexity cases, yielding 31 distinct DRG/CPT $$ ratio time series. Statistical methods included ordinary least squares regression, Mann-Kendall trend tests, Sen's slope estimation, and Benjamini-Hochberg false discovery rate correction (α=0.05). $$ analyzed in both nominal and inflation-adjusted 2023 dollars.
Results77.4% (24/31) of DRG/CPT $$ ratios showed statistically significant increases after False Discocery Rate correction, with annual growth rates ranging 1.1-4.6 ratio points. Every procedure showed hospitals gaining relative to physicians or remaining stable with none showing physicians gaining. The five procedures with largest DRG/CPT ratio increases: CPT 34701/EVAR (+4.6 points/year, p=0.021), CPT 33945/heart transplant (+4.3 points/year, p=0.031), CPT 47135/liver transplant (+1.8 points/year), CPT 47562/laparoscopic cholecystectomy (+1.1 points/year, p=0.019), CPT 44120/small bowel resection (+0.9 points/year, p=0.008). Vascular procedures had the largest increases across both complexity levels. High-volume routine procedures showed significant divergence with cholecystectomy ratios increased for both complex and straightforward cases.
ConclusionsThere is $$ divergence between hospitals and physicians. DRG weights recalibrate annually using hospital cost data while physician conversion factors consistently lag inflation. The divergence may be amplified in All Patient Refined DRGs (APR-DRGs) used by state Medicaid programs and commercial insurers. APR-DRG severity adjustments generates higher hospital $$ for complex cases while physician CPT $$ remain unchanged, creating even greater disparity. Future policy alignment of DRG and CPT methdologies is critical to preserving equity and sustaining surgical care delivery.
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