Site-Neutral Payment Case Lacks Merit, HHS Tells Supreme Court

May 19, 2021 - HHS is asking the Supreme Court to bypass a case brought on by hospital groups challenging site-neutral payment rates for certain outpatient evaluation and management (E/M) services, which the department lowered in 2019 to control “unnecessary” increases in volume.

“The court of appeals concluded that HHS permissibly exercised its express statutory authority to ‘develop a method for controlling unnecessary increases in the volume of covered [outpatient-department] services,’ … by adopting a rate reduction designed to eliminate a Medicare payment differential that HHS had found incentivized an unnecessary increase in the volume of certain outpatient-department services. That conclusion is correct and does not conflict with any decision of this Court or of another court of appeals,” HHS wrote in the 33-page brief filed last week.

The federal department referred to a 2020 decision from the US Court of Appeals for the District of Columbia that reversed a previous court’s decision invalidating the site-neutral payment rate cuts. The appeals court determined that HHS was within its statutory authority to reduce rates for E/M services furnished in hospital outpatient departments in a non-budget neutral manner.

The American Hospital Association (AHA) and other hospital groups have argued since the 2019 rule cutting the rates that HHS is acting beyond its authority by reducing rates for all hospital outpatient departments, even those exempted from other site-neutral payment policies under the Bipartisan Budget Act of 2015.

These groups filed a petition asking the Supreme Court to review the appellate court’s decision in February 2021.

HHS said in the latest brief that hospitals’ argument “lacks merit and does not warrant this Court’s review.”

The 2019 site-neutral payment policy lowered Medicare rates under the Outpatient Prospective Payment System (OPPS) for E/M services to align with rates paid to freestanding physician offices reimbursed under the Medicare Physician Fee Schedule.

HHS said the lower rates, which have been phased in over two years, will reduce an unnecessary increase in outpatient E/M volumes. The services can safely be delivered in freestanding physician offices at a lower cost, therefore the department sought to reduce the payment differential between the two care sites.

However, a report released last month showed that Medicare patients who receive care at hospital outpatient departments are more likely to be sicker and poorer than those treated at physician offices.

“The findings of this new study, conducted for the AHA by KNG Health Consulting LLC, highlight why actions implemented in the last few years by the Department of Health and Human Services (HHS), as well as other proposals under consideration by Congress to reimburse hospitals the same amount as physician offices, could threaten access to care for the most vulnerable patients and communities,” the report authors wrote.

The Association has used similar data to support the case challenging the 2019 site-neutral payment policy. It has also argued in court that cutting rates for hospital outpatient services oversteps HHS’ authority to control unnecessary increases in services under the OPPS, rather the department can only devise ways to assess unnecessary increases and execute strategies through across-the-board, budget-neutral cuts.

The site-neutral payment policy is estimated to reduce hospital reimbursement for E/M services by $200 million in 2019 and by another $640 million in 2020.

The Medicare Payment Advisory Committee (MedPAC) has reported substantial increases in hospital outpatient E/M services over the last few years. Meanwhile, E/M services delivered at freestanding physician offices have declined. The Committee attributed the trend toward hospital outpatient settings to higher OPPS rates for the same services.