The Bridge

Site-neutral payments: Not the game changer providers feared?

by Abigail Burns

Across the past decade, ambulatory care has provided hospitals and health systems with a consistent avenue for new business. While a payment provision affecting outpatient Medicare reimbursement could give hospital executives pause as they examine their growth strategies, it will not be the game changer many feared.

What is the site-neutral payment provision?

Traditionally, CMS has reimbursed providers differently for the same service depending on the site of care, with hospital outpatient departments (HOPDs) receiving significantly higher reimbursement than private physician offices or ambulatory surgery centers (ASCs). The recently announced site-neutral payment provision will change the way that some outpatient sites bill Medicare, but—despite its name—won’t lead to parity across all outpatient sites. Essentially, hospitals will not be able to charge HOPD rates for services provided to Medicare beneficiaries in off-campus facilities built or acquired after the legislation was passed, as they have been doing thanks to a legal loophole.

The provision states that, beginning January 1, 2017, any ambulatory care center built or acquired after November 2, 2015 and situated more than 250 yards away from a hospital campus must file claims under the Medicare Physician Fee Schedule or Ambulatory Surgery Center payment system, as applicable, and may not file under the higher-paying Outpatient Payment System (OPPS) used by hospital outpatient departments. For now, off-campus facilities owned by hospitals before November 2, 2015 are exempt.

How will it impact providers?

It is likely that the site-neutral provision passed in November will have little impact on providers since it will only affect the way that hospitals will bill for Medicare procedures in new or newly-acquired off-campus facilities. Still, it could temper hospitals and health systems’ enthusiasm for acquisition, something that is not lost on privately-owned physician groups.

Over the past decade, the number of hospital-owned physician groups has increased. Because hospitals have been allowed to consider hospital-owned facilities extensions of their outpatient departments, they have been charging the higher OPPS rates at off-campus sites of care, the profitability of which has driven the trend of practice acquisition. For private physician groups, hospital acquisition has served as a financial fallback plan: a card always in their back pocket in case of financial desperation. The site-neutral provision passed in November reduces the incentive for hospitals to acquire or build new outpatient facilities, leaving private groups concerned the provision has weakened their safety net.

What should suppliers know?

As it stands now, legislation around site-neutral payments has a negligible impact on suppliers. However, it is possible that facilities being shifted to a lower paying system will adjust purchasing behaviors to favor cost containment. If this payment provision hints that legitimate site-neutrality is imminent—which we don’t believe is the case—suppliers should take it as a warning that their business is about to get tighter. While cutting supply costs isn’t a long-term solution to squeezed margins, organizations looking for immediate cost relief will look here first.

In the event of site-neutrality, hospitals might also encourage or even enforce stricter clinical standardization for their physicians to make costs more predictable and to maximize profitability of practice. In this case, products with proven value or efficiency will win out, while orders of more expensive or unproven supplies will lose their places in hospital budgets.

How will the provision impact ambulatory care moving forward?

The “site-neutral” payment provision will not curb the shift toward ambulatory care, but it may slow the growth of vertical consolidation by health systems. Health systems will have to strike a balance here: while investing in ambulatory care facilities will be less profitable moving forward, ambulatory care is a huge market. If hospitals do not continue to invest there, independent facilities will quickly fill the void, claiming the market share hospitals give up. Hospitals will have to figure out how to minimize operational costs to maintain the financial viability of numerous sites of care.

One risk here is that there will be medically irrational service line planning. Hospitals may put their most profitable services in their plant-based outpatient departments, locating less profitable services in the less profitable sites of care, regardless of medical sensibility.

Early adopters of population-health-centered strategy with considerable outpatient portfolios will be better off than health systems that have yet to invest in ambulatory care. Because the 2017 payment change will initially only apply to a small number of facilities, the immediate impact of the ruling will be felt most by hospitals with major expansion plans in 2017. However, hospitals need to be prepared for the possibility that the next phase of the movement toward value-based care for ambulatory medicine is converting all outpatient facilities to non-HOPD payment, regardless of when they were built or acquired.

The ambulatory care market is here to stay, but site-neutral payment legislation could change what it looks like and how its players plan their growth strategies.

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