More Hospitals Sue HHS Over Outpatient Site-Neutral Payments

January 29, 2019 - Thirty-eight hospitals filed a lawsuit against HHS over a $380 million reduction in Medicare reimbursement to hospitals under a new outpatient site-neutral payment policy.

The lawsuit alleges that HHS Secretary Alex Azar overstepped his statutory authority when he issued the new policy that would pay off-campus provider-based departments at the lower Physician Fee Schedule-based rate for outpatient services starting Jan. 1, 2019.

“The Secretary’s unlawful rate cut directly contravenes clear congressional directives and will impose significant harm on affected off-campus hospital outpatient departments and the patients they serve,” wrote Atrium Health, Montefiore Health System, Ochsner Medical Center, the University of Virginia Medical Center, Vanderbilt University Medical Center, and others.

Promulgated in the 2019 Outpatient Prospective Payment System (OPPS) final rule, the site-neutral payment policy will extend lower rates for hospital outpatient services to more off-campus provider-based departments (PBDs).

The policy would pay certain off-campus PBDs a lower rate comparable to the one paid to independent physician practices despite their exemption from site-neutral payments under Section 603 of the Bipartisan Budget Act of 2015.

Section 603 states that off-campus PBDs that began operations on or after Nov. 2, 2015 would be paid the higher OPPS rate. These off-campus PBDs are known as “excepted” or “grandfathered,” whereas off-campus PBDs that started operations later are “nonexcepted” and are subject to site-neutral payments.

HHS recently decided to essentially do away with the higher OPPS reimbursement rate for excepted off-campus PBDs and extend site-neutral payments. The department will now only pay hospitals the lower rate to address what the Secretary referred to as the unnecessary shift of services from physician offices to the hospital outpatient department. Services shifted because of the difference in payment rates, he argued.

The site-neutral payment policy will reduce Medicare reimbursement to hospitals by millions of dollars in 2019 alone, and it is expected to decrease payments even more when fully implemented.

The American Hospital Association (AHA) filed a similar lawsuit in December 2018. Before HHS implemented the site-neutral payment policy, the hospital association along with the Association of American Medical Colleges (AAMC) and three healthcare organizations sued HHS, arguing the payment cuts are unlawful.

The two lawsuits explain that medical services delivered in the hospital outpatient department setting are more resource-intensive, and therefore costlier to perform, compared to the independent physician office setting.

Hospitals must offer a wider range of services and comply with stricter regulatory requirements than freestanding physician offices. For example, hospitals must have 24-hour nursing care, maintain discharge planning protocols, and meet other health and safety requirements.

Hospitals must also have a formal “institutional plan and budget,” as well as a pharmacy overseen by a licensed pharmacist.

All the requirements result in greater overhead expenses for hospitals. Therefore, Medicare typically reimburses the facilities at a higher rate compared to physicians practicing in freestanding offices.

The Medicare reimbursement cuts under the outpatient site-neutral payment policy would put patient care in jeopardy at hospital outpatient departments, the complaints allege.

The most recent complaint states that hospitals are already under significant financial strain from constantly increasing costs and declining reimbursement rates. Site-neutral payments are now “depriving critical funding to Plaintiffs that is necessary for these institutions to effectively serve their communities,” the complaint explains.

One plaintiff, Sarasota Memorial Hospital (SMH), noted in the complaint that its off-campus PBDs provide necessary services to the community that are not commonly provided by independent physicians. The services include radiology, bone density, mammography, ultrasound, nuclear medicine, CT scan, MRI, cardiopulmonary rehab, cardiac rehab, anti-coagulation, a COPD clinic, a heart failure clinic, and, most importantly, urgent care services.

The site-neutral payment policy would reduce reimbursement to the hospital by about $3.7 million in 2019, which would “dramatically erode[] SMH's ability to provide services to [its] growing and aging patient population and will instead have the likely effect of increasing more costly visits to the ED.”

HHS Secretary Azar maintains the policy is lawful. He argues a regulation issued 20 years prior to the Bipartisan Budget Act of 2015 grants him the authority to override the site-neutral payment exceptions by allowing him to “develop a method for controlling unnecessary increases,” which in this case involve the volume of hospital outpatient department services.