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AHA Asks CMS to Increase Site-Neutral Medicare Reimbursement

CMS should boost site-neutral Medicare reimbursement rates for off-campus hospital departments from 50 percent of outpatient rates to 64 percent, AHA suggested.

By Jacqueline Belliveau

- The American Hospital Association (AHA) recently advised CMS to increase Medicare reimbursement rates to off-campus provider-based outpatient departments that will be paid under site-neutral payment rules starting on Jan. 1, 2017.

Site-neutral Medicare reimbursement rates should be 64, not 50 percent of outpatient rates, the AHA argued

The industry group called for site-neutral Medicare reimbursement rates to be 64 percent of outpatient rates, instead of 50 percent as finalized by the 21st Century Cures Act.

“We find that if CMS substituted 63.7 percent for the 45 percent in their comparison, a more appropriate and justifiable percentage upon which to base payments for nonexcepted services would be 64 percent, consistent with accounting for differences in packaged costs and compensating hospitals for their continued indirect costs, as opposed to the 50 percent that the agency stated it will use in 2017,” Thomas P. Nickels, AHA’s Executive Vice President, wrote to CMS.

Under the 21st Century Cures Act, Congress recently amended and approved site-neutral payment provisions in the Bipartisan Budget Act of 2015. The act requires CMS to no longer reimburse a hospital’s new off-campus provider-based outpatient department under the Medicare outpatient prospective payment system.

CMS designed site-neutral payment rules to prevent hospitals from acquiring physician practices in order to receive higher outpatient Medicare reimbursement rates. The difference between outpatient and physician fee rates also led to increased Medicare spending and cost-sharing liability for beneficiaries.

READ MORE: CMS Clarifies Site-Neutral Medicare Reimbursement Exceptions

Rather than continue to pay hospitals higher rates for services that could be performed for less at a physician’s office, CMS developed site-neutral payment rules. The rules stated that off-site hospital departments that began billing under the Medicare outpatient system on or after Feb. 11, 2017, as long as the department was at least under development prior to Nov. 2, 2015, will be reimbursed under the Medicare Physician Fee Schedule starting in 2017.

The new law, however, mandated new site-neutral Medicare reimbursement rates to be about half of the outpatient rate, inclusive of packaging.

The 50 percent payment reduction accounts for the weighted average payment different for overall outpatient system payments and the CMS-determined “equivalent” practice expense under the Physician Fee Schedule for 22 of the most frequently billed services. The threshold also represents the payment differential between the outpatient and ambulatory surgical center rates.

While the 50 percent payment reduction is temporary as CMS gathers more data, the AHA argued that the reduction threshold does not account for packaging in the outpatient Medicare reimbursement system.

Packaging occurs when specific services are billed on the same claim with other items and Medicare reimburses providers at the rate for the specific service, with all other services packaged into the payment rate.

READ MORE: Large Hospitals Fare Worse in Value-Based Reimbursement Model

The AHA found that the amount of packaging for the 22 most frequently billed services under the outpatient Medicare reimbursement system was 20 percent of the total cost of payments. By including packaging, the payment reductions are skewed.

CMS should remove packaging from outpatient rates when determining payment differentials between the outpatient and physician fee rates, the AHA suggested.

The reduction threshold also did not account for the whole non-facility rate under the Medicare Physician Fee Schedule, causing site-neutral payment reductions to be too much, the industry group stated. Medicare reimburses some services under the fee schedule at a non-facility rate to cover the practice expenses in a physician’s office.

“For services where Medicare’s PFS [Physician Fee Schedule] payment is not differentiated by facility and non-facility locations, the full PFS payment for practice expenses was used in this comparison,” wrote Nickels. “However, where the PFS payment is differentiated by facility and non-facility locations, CMS used the difference between the facility and non-facility practice expense payment to make the comparison.”

“Thus, in many cases, CMS did not use the full amount Medicare pays under the PFS for practice expenses for the comparison to the OPPS [Outpatient Prospective Payment System] rate, but rather an amount that represents only the direct practice expense costs of the service,” he added.

READ MORE: Post-Acute Care Payment Reform Threatens Rural Hospitals

The 50 percent payment reduction, therefore, does not include provider compensation for indirect practice expense costs that hospitals will still incur when providing services at hospital outpatient departments.

Additionally, the AHA expressed concerns about CMS plans to monitor and potentially limit service expansions at off-campus provider-based departments that are exempted from site-neutral payment rules.

CMS decided not to finalize a proposal that would limit service line expansions at exempted departments in 2017, even though the proposal aimed to prevent unlimited service expansions that would be paid at the higher outpatient Medicare reimbursement rate.

However, the federal agency recently called for more information on what data could be used to implement future service expansion limitations.

In contrast, the AHA argued that unlimited service expansions would allow off-campus provider-based departments that are not subject to site-neutral payments participate in innovative care delivery models without facing lower revenue.

“Doing so allows hospitals to address changes in clinical practice and meet the evolving needs of their communities without losing their ability to be reimbursed under the OPPS,” wrote Nickels. “Given the rapid pace of technological advances in medicine, the treatments and services offered by PBDs today will inevitably evolve into newer, innovative and more effective care in the future. CMS’s policy must not hamper access to innovative technologies and services.”

The industry group also questioned if CMS had the authority to limit service expansions because the law passed by Congress “intended to except off-campus PBDs [provider-based departments] that were furnishing services under the hospital’s provider number prior to Nov. 2, 2015, including all current and future services provided at that PBD’s location because, by definition, they are ‘of the same type as those furnished by the main provider.’”

The legal language indicates, the AHA claimed, that since exempted provider-based departments are still part of the main hospital, they should follow clinical, financial, and administrative functions of the hospital. If services at the main hospital change, then the department will also need to change.

CMS has not issued a response to the AHA letter, but site-neutral payment rules are scheduled to launch on Jan. 1, 2017.

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