Blog Post

MedPAC's proposal could reduce FSED reimbursement by a third: What you need to know

May 17, 2018

    MedPAC's new freestanding ED (FSED) proposal has very different implications for rural and urban FSEDs.

    On the one hand, the proposal opens up more options for rural hospitals. If approved, the rule would let FSEDs located more than 35 miles from an on-campus hospital emergency department (ED) bill on the Outpatient Prospective Payment System (OPPS), a significant financial boost from the Medicare Physician Fee Schedule (MPFS). For isolated rural hospitals with declining inpatient volumes, this provision makes converting to an FSED much more financially attractive than before.

    But for urban FSEDs, the proposal sounds alarm bells. FSEDs located within six miles of a hospital ED—constituting about 75% of all FSEDs—would experience a 30% cut to reimbursement.

    Get the decision tools you need when considering an FSED investment

    With about two-thirds of FSEDs being hospital-affiliated, a lot of health systems have skin in this game. If your hospital owns an FSED, here's are three things to monitor in the coming months:

    1. Broader payer pressure on ED reimbursement: Medicare isn't the only payer that's scrutinizing ED reimbursement. Hospitals need to monitor impending reimbursement cuts across payers for both on-campus and freestanding EDs. Anthem made one of the most aggressive moves to cut ED reimbursement by ending payment for select "inappropriate" ED visits. UnitedHealthcare is also reining in ED payments by auditing select claims with the highest severity E&M codes for potential reimbursement cuts.

    2. New regulations on other sites of care: Some hospitals might consider converting FSEDs to microhospitals in response to payment cuts, but microhospitals are already experiencing new regulations of their own. Some small microhospitals may struggle to get licensed with CMS because of new CMS surveyor guidance focused on ensuring hospital-licensed facilities are "primarily engaged" in inpatient care. Additionally, during the FSED proposal discussion, MedPAC commissioners expressed concerns about microhospital growth and the need to limit FSED-to-microhospital conversions—further tempering some planners' eagerness to convert their FSED to a microhospital.

    3. Final approval of the proposal and potential changes: We still don't know whether this MedPAC proposal will become law, and hospitals should watch whether Congress approves the measures. Nevertheless, MedPAC's commissioners expressed strong interest in limiting further FSED growth through reimbursement cuts or incentives to divert patients to urgent care, so hospitals can expect MedPAC to continue pushing for new FSED regulations. And though MedPAC's commissioners approved the proposal unanimously, many viewed the six-mile rule as an interim measure that should be refined over time.

    MedPAC will submit its final proposal in June. In the meantime, we continue to monitor FSED trends and the role of FSEDs in broader ambulatory strategy.

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