September 18, 2019

Our take: A federal judge just struck down Medicare's site-neutral payment rule

Daily Briefing

    A federal judge on Tuesday vacated HHS' site-neutral payment rule that cuts Medicare payment rates for off-campus hospital facilities.

    Background: CMS finalizes site-neutral payment policy

    The final rule, which took effect Jan. 1, contains several policy updates intended to address payment differences between different sites of service. Before the final rule took effect, CMS generally paid more for clinic visits conducted in the hospital outpatient (HOPD) setting than those conducted in the physician office setting.

    However, under CMS' Hospital Outpatient Prospective Payment System (OPPS) and Ambulatory Surgical Center Payment System final rule for calendar year (CY) 2019, the agency will shift payments for services provided at off-campus hospital outpatient departments (HOPD) to match those for clinical visits that it pays under Medicare's Physician Fee Schedule. CMS is implementing the payment reduction over a two-year period by:

    • Reducing the payments for routine clinical visits to off-campus HOPDs by 30% in CY 2019 compared with CY 2018, bringing Medicare payments down to $81 for such visits and beneficiary copays down to $16; and
    • Reducing the payments by 60% in CY 2020 compared with CY 2018, bringing Medicare payments down to $46 for such visits and beneficiary copays down to $9.

    CMS estimated the change would save Medicare about $380 million in 2019 and $760 million in 2020.

    Hospitals file lawsuits to block final rule

    The American Hospital Association (AHA), the Association of American Medical Colleges (AAMC), and three independent health systems in December 2018 filed a lawsuit seeking to block the Trump administration from implementing the site-neutral payment policy, claiming the final rule exceeds CMS' statutory authority and violates Congress' intent. The lawsuit also argued that the policy would result in "serious reductions to Medicare payment rates" and could cause hospitals to eliminate services, which would restrict health care access for patients with complex needs.

    In January, 38 hospitals—including Montefiore Health System, Atrium Health, the University of Virginia Medical Center, and Vanderbilt University Medical Center—filed a separate lawsuit in the U.S. District Court for the District of Columbia that similarly claimed HHS Secretary Alex Azar overstepped his authority when he finalized the new policy, and that the move conflicted with Congress' intent. The lawsuit centers on Section 603 of the Bipartisan Budget Act of 2015, which exempted off-campus hospital departments from site-neutral payment policies. The hospitals in the lawsuit alleged that the final rule is "irrational … and a blatant attempt to circumvent the will of Congress clearly expressed in Section 603."

    The hospitals also argued that services provided in HOPD settings cost more than those provided in physicians' offices, because hospitals have to meet stricter regulatory requirements and offer more services than physician offices.

    The plaintiffs ultimately consolidated the two lawsuits into one suit, Inside Health Policy reports.

    The Trump administration, meanwhile, has argued that CMS had the authority to implement the payment cuts as a method for controlling unnecessary increases in hospital use.

    Judge overturns final rule

    However, U.S. District Judge Rosemary Collyer on Tuesday sided with hospitals and overturned the final rule, saying the administration had overstepped its authority when by finalizing the policy.

    Collyer in her ruling wrote, "CMS believes it is paying millions of taxpayer dollars for patient services in [HOPDs] that could be provided at less expense in physician offices. CMS may be correct. But CMS was not authorized to ignore the statutory process for setting payment rates in the [OPPS] and to lower payments only for certain services performed by certain providers."

    Further, Collyer added that the final rule does not qualify as a method for controlling unnecessary increases in hospital use, as the administration had argued. Collyer wrote that the administration's argument "does not make it clear what a 'method' is, but it does make clear what a 'method' is not: it is not a price-setting tool, and the government's effort to wield it in such a manner is manifestly inconsistent with the statutory scheme."

    Collyer did not order CMS to pay the hospitals the amounts withheld from them under the final rule. However, she asked hospitals and CMS to develop a joint status report by Oct. 1 to help her determine whether she needs further briefings to decide what remedies are needed in the case.

    Hospital groups praise ruling

    AHA and AAMC in a joint statement said, "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 [HOPDs] because of the many real and crucial differences between them and other sites of care. Now that the court has ruled, it is up to [CMS] to put forth remedies for impacted hospitals and the patients they serve" (Luthi, "Transformation Hub," Modern Healthcare, 9/17; Stein, Inside Health Policy, 9/17 [subscription required]).

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