Appeals Court Rules in Favor of Hospital Site-Neutral Payments

July 20, 2020 - HHS acted within its statutory authority when it implemented hospital site-neutral payments to reduce rising levels of outpatient care provided at off-campus provider-based departments (PBDs), according to a recent opinion from the US Court of Appeals for the District of Columbia.

The ruling reverses a lower court’s decision to overturn the site-neutral payment policy from 2019, paving the way for HHS to continue its two-year phase-in of the lower hospital outpatient reimbursement rates for all off-campus PBDs, even those grandfathered by the Bipartisan Budget Act of 2015.

The 2019 site-neutral payment policy reduced reimbursement for clinic visits furnished in off-campus PBDs to control “unnecessary increases in the volume” of covered outpatient services. HHS argued that paying off-campus PDBs at a rate equal to that paid to physician practices for the same service would help to lower the increasing volume of common hospital outpatient services, and therefore $610 million in Medicare spending.

The American Hospital Association (AHA) and various hospitals challenged the hospital site-neutral payment policy in court, arguing that the policy, which was enacted in a non-budget-neutral manner, exceeded HHS’ authority to alter hospital outpatient reimbursement rates.

A lower court ruled in favor of the hospitals, reversing the site-neutral payment policy. Shortly after, CMS announced that it would repay hospitals for the payment reductions made by the hospital site-neutral payment policy. The agency was slated to repay about $380 million for claims made under the policy in 2019.

According to the new appeals court decision, however, HHS was correct in determining that it had the authority under the Outpatient Prospective Payment System (OPPS) to “develop a method for controlling unnecessary increases in the volume of covered [outpatient] services,” even in a non-budget-neutral manner.

“The question at issue is whether HHS may reduce the OPPS reimbursement for a specific service, and may implement that cut in a non-budget-neutral manner, as a ‘method for controlling unnecessary increases in the volume of’ the service,” the appeals court opinion stated. “In our view, Congress did not ‘unambiguously forbid’ the agency from doing so.”

The judges ruled that “a service-specific, non-budget-neutral rate reduction falls comfortably within the plain text of” the OPPS and reducing the reimbursement rate for a particular OPPS service “readily qualifies, in common parlance, as a ‘method for controlling unnecessary increases in the volume’ of that service.”

A budget-neutral reduction would also counter the federal department’s efforts to control the volume of covered outpatient services delivered at off-campus PBDs, the panel of appellate judges stated. Therefore, the reimbursement reduction does not need to be implemented in a budget-neutral fashion.

The decision is a win for HHS, which has fought the hospitals to implement site-neutral payments. But defendant AHA expressed disappointment with the appeals court’s ruling.

“America’s hospitals and health systems are disappointed in this decision because it will cause serious harm to their ability to provide care for patients,” Melinda Hatton, AHA’s general counsel, said in statement. “It fails to account for the fundamental differences between hospital outpatient departments and other sites of care. Hospitals are open 24/7, held to higher regulatory standards and are often the only point of access for patients with the most severe chronic conditions, all of whom receive treatment regardless of ability to pay.”

America’s Essential Hospitals also described the ruling as “a gut punch” to safety-net hospitals, which are already struggling with ongoing funding shortages exacerbated by COVID-19.

“This court’s decision could not have come at a worse time. The communities most likely to suffer from diminished access due to this ruling also are those at greatest risk during the COVID-19 pandemic—communities where health disparities leave racial and ethnic minorities vulnerable,” Bruce Siegel, MD, MPH, president and CEO of America’s Essential Hospitals, stated on the association’s website.

“We call on Congress and the administration to reverse course on this terrible site-neutral payment policy and restore access to care for all people,” Siegel urged.

AHA said it is reviewing the decision to determine its next steps.