Hospital Groups Decry Proposed Outpatient Reimbursement Cuts

July 30, 2018 - Hospitals groups are voicing their concerns with potential site-neutral payments and other outpatient reimbursement reductions proposed in a new rule from CMS.

CMS released its proposed CY 2019 Outpatient Prospective Payment System (OPPS) rule on July 25. If finalized, the rule would reduce Medicare reimbursement to hospital outpatient departments by implementing site-neutral payments for clinic visits.

The federal agency would reduce the OPPS rate for clinic visits, which the federal agency said were “essentially check-ups with a clinician,” by the Physician Fee Schedule relativity adjuster of 40 percent. The resulting payment amount for an average clinic visit at a hospital outpatient department would be about $46, about a $70 difference from the OPPS rate.

The rule would also update the policy regarding grandfathered off-campus provider-based department, which are currently not subject to site-neutral payments. If finalized, the rule would pay the hospital outpatient departments a site-neutral rate of 40 percent of the OPPS rate if the department adds a new service from a clinical family which it did not offer before.

Reducing outpatient reimbursement for services that can be safely performed in the cheaper physician office setting is key to lowering costs, CMS Administrator Seema Verma recently said in a speech at the Commonwealth Club.

READ MORE: The Difference Between Medicare and Medicaid Reimbursement

“Medicare pays for things differently based on the site of care, paying more or less for the same service, but different locations,” she said. “Now sometimes it makes sense, as some facilities provide a higher level of service.  But other times, it creates misaligned incentives – decisions about whether a patient receives a service in a hospital or in a doctor’s office is influenced by how Medicare pays.”

The disparity in outpatient and physician reimbursement results in the hospital consolidation. Under an extremely consolidate market, “prices will go up and the competitive forces that encourage higher quality and lower costs will disappear,” she said.

However, hospitals will lose as Medicare saves, America’s Essential Hospitals reported. The group estimated that the site-neutral payment rule would reduce hospital outpatient reimbursement for clinic visits by $610 million.

Hospital groups are saying that the payment reductions would harm care quality.

“With today’s proposed rule, CMS has once again showed a lack of understanding about the reality in which hospitals and health systems operate daily to serve the needs of their communities,” the American Hospital Association’s (AHA) Executive Vice President Tom Nickels said in a statement.

READ MORE: How Hospital Merger and Acquisition Activity is Changing Healthcare

“While the agency inappropriately characterizes these clinic visits as ‘check-ups,’ the reality is that hospitals serve some of the sickest, most medically complex patients in our clinics, evaluating them for everything from metastatic breast cancer to heart failure…We will urge the agency to revise these punitive policies so that hospitals can continue to provide the highest quality health care,” he added.

The outpatient reimbursement cuts would particularly impact teaching hospitals, the Association of American Medical Colleges (AAMC) contended.

“CMS’ proposal to cut Medicare payments to existing outpatient departments for clinic services runs counter to congressional intent and would seriously damage the ability of the nation’s teaching hospitals to serve the most complex and vulnerable patients,” the group’s President and CEO Darrell G. Kirch, MD, said.

While hospital groups opposed the proposed outpatient payment rules, founder and CEO of Aledade Farzad Mostashari, MD, applauded the potential site-neutral payments.

“This is a significant and welcome proposal from the Administration to end incentives in the Medicare reimbursement system which increased costs for patients and promoted consolidation of health care providers. This will level the playing field between independent practices and huge health care systems,” the former National Coordinator for Health Information Technology told RevCycleIntelligence.com.

READ MORE: Exploring the Fundamentals of Medical Billing and Coding

Mostashari added that the outpatient reimbursement proposals would inject competition into the market.

“While hospitals, undoubtedly, will oppose this new rule, they should welcome it as it could help them become more competitive in value-based payment contracts -- which is the future of health care,” he elaborated.

The American Academy of Family Physicians also supported the proposed rule, saying site-neutral payments for clinic visits would help independent practices.

“The American Academy of Family Physicians is generally supportive of CMS efforts to align payment policies for physicians in independent practice with those owned by hospitals. The proposed site neutral payments will have a positive impact for solo and small group practices who are facing consolidation pressures,” the organization’s President Michael Munger, MD, said in an emailed statement.

“We have previously encouraged CMS to create incentives for outpatient clinic visits to be performed in the most cost-effective location, which is a primary care physician’s office,” he added.

In addition to criticizing potential site-neutral payment policies, hospital groups also expressed disappointment with the proposal to further reduce 340B drug payments.

Hospitals criticize proposed 340B drug payment changes

The proposed CY 2019 OPPS rule would extend the new 340B drug payment methodology to non-grandfathered off-campus provider-based departments. The hospital outpatient departments administering a 340B drug would be paid the average sales price less 22.5 percent, rather than plus six percent.

The proposed rule would also apply the new payment methodology to separately payable biosimilars acquired through the drug discount program.

In addition, CMS would pay for new drugs and biologicals at the rate of the wholesale acquisition cost plus three percent under the new rule. Currently, the federal agency pays at the rate of the wholesale acquisition cost plus six percent prior to average sales price information becoming available.

The proposed 340B drug payment reductions would be on top of a recent $1.6 billion reduction under a rule finalized in late 2017.

A trade group of 340B hospitals criticized CMS’ recent proposal, saying it would make “a bad rule worse by extending the cuts to drugs provided in certain off-campus hospital clinics, including facilities providing infusion therapy for cancer patients and other high-cost drug therapies to treat chronic and life threatening conditions.”

“Today’s proposal would threaten access to care for millions of patients who live with low incomes or in rural communities.,” 340B Health added.

AAMC’s Kirch also condemned the proposed 340B drug payment cuts, arguing again that the rule would especially harm teaching hospitals.

“Inexplicably, the administration has decided to double-down on its flawed policy by extending harmful cuts to safety net hospitals, many of which are teaching hospitals, that participate in the 340B Drug Pricing Program,” he wrote. “This proposal flies in the face of bipartisan legislation, introduced by Reps. David McKinley (R-WW) and Mike Thompson (D-CA) and with nearly 200 cosponsors, which would rescind the cuts the Centers for Medicare and Medicaid Services (CMS) began imposing on Jan. 1 as part of the CY2018 OPPS final rule.”

Taken together, the site-neutral payment policy and the 340B drug payment reductions would result in close to $1 billion in hospital outpatient payment cuts, the AHA reported.

Several hospital industry groups, including the AHA, AAMC, and 340B Health, called on CMS to rescind the proposals.

CMS plans to open a comment period of on the proposed CY 2019 OPPS rule in the coming days. The comment period will be open until Sept. 24, 2018.