AHA, AAMC Sue HHS Over Site-Neutral Payment Expansion

December 05, 2018 - The American Hospital Association (AHA), Association of American Medical Colleges (AAMC), and three healthcare organizations are suing HHS over a new site-neutral payment policy slated to take effect on January 1, 2019.

The site-neutral payment policy at the center of the lawsuit was finalized earlier in 2018 as part of the 2019 Hospital Outpatient Prospective Payment System (OPPS) rule. The policy will gradually implement site-neutral payments to all off-campus provider-based departments (PBDs) for clinic visits starting in 2019.

Starting January 1, CMS will pay a Physician Fee Schedule-equivalent rate for clinic services furnished at off-campus PBDs. The new rate is lower than the OPPS rate, resulting in about $380 million in hospital payment cuts in 2019 and another $760 million in cuts in 2020.

CMS finalized the site-neutral payment expansion policy to counteract the “unnecessary” recent uptick in outpatient service utilization at off-campus PBDs.

“To the extent that similar services can be safely provided in more than one setting, we do not believe it is prudent for the Medicare program to pay more for these services in one setting than another,” the federal agency stated in the rule.

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However, the AHA, AAMC, and three hospitals disagree. The plaintiffs argue that the increase in outpatient utilization at off-campus PBDs has been “necessary and appropriate” considering the increase in the Medicare-eligible population and the ability of providers to safely deliver more services in the outpatient versus inpatient setting.

The plaintiffs also contend that the expansion of site-neutral payments to off-campus PBDs is unlawful because excepted off-campus PBDs would be subject to the policy.

CMS has been paying site-neutral payments for certain services delivered at off-campus PBDs since 2015.

But specific off-campus PBDs are not subject to the lower payment rate because of Section 603 of the Bipartisan Budget Act of 2015. Section 603 established an exception to the site-neutral payment rule, stating that off-campus PBDs billing as a hospital department under the OPPS when the statute took effect on November 2, 2015 would be able to continue receiving OPPS payments. The eligible off-campus PBDs became known as “excepted PBDs.”

Congress members created the exception to balance concerns that off-campus PBDs have higher costs than physician offices and provide services not generally available at the offices. Hospitals also worried that the lower Physician Fee Schedule-equivalent would not cover the expectations they had when they acquired or built the PBD.

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The 2019 OPPS rule, however, would extend site-neutral payments to the excepted PBDs, the lawsuit states.

“[T]he Final Rule effectively abolishes any distinction between excepted and non-excepted entities by subjecting them both to the same payment system and rate,” the plaintiffs argue. “That violates the clear intent of Congress and therefore is ultra vires.”

Additionally, the AHA, AAMC, and hospitals contend that the site-neutral payment policy is unlawful because the millions of dollars in hospital payment cuts is not budget-neutral.

The Medicare statute dictates how CMS can adjust OPPS payment rates, and the statute requires annual adjustments to be made in a budget-neutral fashion.

“And yet in an unprecedented assertion of the agency’s authority, the Final Rule purports to do precisely what Congress has expressly prohibited: CMS seeks to reduce total payments for covered hospital outpatient services for calendar year (CY) 2019 by hundreds of millions of dollars by targeting a select group of services for non-budget-neutral payment adjustments,” the lawsuit states.

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“CMS cannot exercise its limited authority in a manner so flagrantly inconsistent with the Medicare statute. That, too, is textbook ultra vires action,” the plaintiffs stress.

CMS has argued that the agency does not need to abide by the budget-neutrality rule in the case of the site-neutral payment policy because the Medicare statute authorizes CMS to develop methods for controlling increases in the volume of covered outpatient department services.

“The implications for CMS are clear: If CMS wants to make cuts to payment rates in order to control unnecessary increases in the volume of hospital services, it must do so across-the-board, to all services and items under the OPPS, by using the conversion factor,” the plaintiffs counter.

“If CMS instead wants to make adjustments to payment rates for specific services, it must do so in a budget-neutral manner,” they add. “And for good reason. The statute’s structure and directives prevent the agency from engaging in cost-control measures by making draconian payment reductions targeting only specific services.”

Leading industry groups may be opposed to expanding site-neutral payments. But the Trump Administration’s HHS is floating the idea of additional site-neutral reimbursement rules.

Site-neutral payments were at the top of the department’s policy wish list, which was released earlier this week. The White House agencies involved in the report contended that site-neutral payments would help to boost healthcare competition and choice.