Winners, Losers of the Medicare Site-Neutral Payment Policy Ruling

September 26, 2019 - Hospitals rejoiced last week after a federal judge decided to toss Medicare’s most recent attempt to expand a site-neutral payment policy that would have reduced payments to hospital outpatient departments by over $1 billion over the next two years.

The ruling delivered last Tuesday said that CMS overstepped its statutory authority by finalizing a policy that decreased hospital outpatient payment rates for certain services to levels similar to those used to pay physician practices for the same services.

Among those celebrating the decision were the American Hospital Association (AHA) and the Association of American Medical Colleges (AAMC), which were both plaintiffs in the case.

“The ruling, which will allow hospitals to maintain access to important services for patients and communities, affirmed that the cuts directly undercut the clear intent of Congress to protect hospital outpatient departments because of the many real and crucial differences between them and other sites of care,” the organizations said in a joint statement.

Not only will the decision protect a major revenue stream for hospitals, but it will also preserve patient access to care, America’s Essential Hospitals stated following the decision.

READ MORE: Bipartisan Bill Aims to Halt Site-Neutral Payments to Hospitals

“Millions of people in the United States still lack adequate access to care because they live in communities with too few health care practitioners. These health care deserts persist in both rural and urban areas across the country. The Centers for Medicare & Medicaid Services policy to sharply cut payments to off-campus clinics has widened these gaps in care by creating financial barriers to operating networks of clinics on which vulnerable people rely,” the group explained.

Overall, industry experts see the ruling as a major victory for hospitals. But where there are winners, there are also losers, and in this case, industry experts are concerned that patients and physician practices will suffer.

“This has serious implications for CMS, but more importantly for consumers,” Rita E. Numerof, PhD, co-founder and president of Numerof & Associates, told RevCycleIntelligence.com.

“For CMS, it means paying hospitals $75 to $85 more per patient for otherwise identical procedures. And for beneficiaries, it means sharing some of that cost to account for the financial difference, despite the fact they may see no significant difference in outcomes quality.”

The ruling will also impact patient access to care, the American Academy of Family Physicians (AAFP) stated.

READ MORE: More Outpatient Site-Neutral Payments to Cut Costs, Coalition Says

“The decision reflects a priority that safeguards hospital revenue over affordable, accessible health care for Medicare patients,” the group’s president John Cullen, MD, wrote in a statement. Payment disparities between hospital outpatient departments and physician practices create financial pressure on patients and the community physicians who serve them.

“They force Medicare beneficiaries to pay more at hospital outpatient departments that charge higher rates. And—because of the lower payment to community-based physician offices—payment disparities force many community clinics to close their doors or sell their practices to hospitals,” he continued. “The small private practices, which provide high-quality care at a lower cost, are most at risk as a result of this decision. As a result, patients have fewer choices of where they receive their care.”

In addition to closing their doors, community practices are also at risk of losing their physicians to hospitals and health systems, Numerof added.

“There are too few independent physicians left, and without an incentive to operate on their own, many are choosing to work for larger health systems,” she said citing an American Medical Association (AMA) report released earlier this year that showed the number of physicians employed by hospitals exceeded the number of self-employed doctors in 2018.

“This is a direct threat to patients’ healthcare accessibility and affordability. Consumers benefit from competitive scenarios like those that site-neutral payments would present, and when only a few entities have power, each are less inclined to deliver innovative, low-cost solutions,” she stated.

READ MORE: 200 Hospitals Face 5.5% Medicare Payment Cut Under Site-Neutral Rule

Hospitals and physicians may be at odds over the court ruling, but this is just the beginning of a long journey for site-neutral payment reform, according to legal experts.

Moving forward

The court’s decision to overturn the Medicare site-neutral payment policy came as no surprise to Adria Warren, partner and healthcare lawyer at Foley & Lardner LLP.

“I was not surprised by the outcome, in part because it is the same court that issued the decision around 340B,” she said in an interview.

Earlier this year, the federal court ruled that CMS overstepped its statutory authority to reduce Medicare reimbursement to hospitals receiving outpatient drug discounts through the 340B Drug Pricing Program, a federal initiative that helps safety-net providers stretch federal resources as far as possible.

Warren expected the court to take a similar position in this case, but the judge’s approach has potentially broader impact for hospital outpatient department reimbursement, she said. The decision took a broad approach, commenting on the scope of CMS’ authority to reduce reimbursement rates in a budget-neutral manner, rather than specifically addressing the carve-out Congress created for certain hospital outpatient departments in the Bipartisan Budget Act of 2015, she explained.

“The Bipartisan Budget Act, in our view, created a line in the sand [by 'grandfathering' hospital outpatient facilities that were in existence in November 2015 (when the Bipartisan Budget Act was implemented)],” she explained. “Congress was very clear and that's the piece that the court did not speak to in this recent decision. How much CMS can work around that line in the sand is still unclear and it's going to play out more.”

With healthcare expenditures – especially on the hospital outpatient side – continuing to grow, Warren would not be shocked if CMS continues to try and implement site-neutral payments or other payment reforms, for example by limiting future changes in the suite of services offered by those “grandfathered” hospital outpatient departments.

“We're going to be dancing this dance for a while,” she said.