The Government Accountability Office (GAO) has issued a report examining trends in “vertical consolidation” — hospital acquisition of physician practices or hiring of physicians as salaried employees - and the impact on Medicare spending. According to the GAO, the number of vertically consolidated hospitals increased from about 1,400 to 1,700 from 2007 through 2013, while the number of vertically consolidated physicians increased from about 96,000 to 182,000. The GAO observed that vertically consolidated hospitals tend to have more evaluation and management (E/M) visits performed in higher-paid hospital outpatient department (HOPDs) rather than lower-paid physician offices. Based on 2013 data, the GAO contends that beneficiaries from counties with higher levels of vertical consolidation and more E/M office visits performed in HOPDs were not sicker on average than beneficiaries who lived in counties with lower levels of consolidation, where fewer E/M office visits were performed in HOPDs. The GAO argues that while “vertical consolidation has potential benefits,” this trend “exacerbates a financial vulnerability in Medicare’s payment policy,” since Medicare pays different rates for the same service depending on the site of service. To prevent this shifting of service settings from increasing Medicare costs, the GAO recommends that Congress consider directing the HHS Secretary to equalize payment rates between settings for E/M office visits and other services that the Secretary deems appropriate and return associated savings to the Medicare program (the GAO points out that CMS currently lacks the statutory authority to equalize total payment rates between HOPDs and physician offices and achieve Medicare savings). For additional information, see the full report, “Medicare: Increasing Hospital-Physician Consolidation Highlights Need for Payment Reform.”