Why hospitals are so mad about Medicare's proposed site-neutral payment policy

Hospitals are livid about the Obama administration's plans to eliminate their Medicare payments for services at new off-campus outpatient departments, saying it ignores the intent of Congress and will limit access to care.

Under an outpatient payment rule proposed last week for 2017, Medicare would not pay hospitals for most services provided at off-campus departments that started billing Medicare after Nov. 2, 2015. Instead, physicians would be paid for services there at an enhanced rate. And off-campus departments that were already billing Medicare as of that date would not be paid for any services they add. They also would be cut off from all payments if the facility is relocated or expanded.

Joanna Hiatt Kim, vice president of payment policy at the American Hospital Association, said the proposal is not sustainable for hospitals and would have a “hugely negative impact on access to care.”

Beth Feldpush, senior vice president for policy and advocacy at America's Essential Hospitals, which represents safety net hospitals, said outpatient departments in rural areas may not be able to open under the new payment arrangement. Underserved communities often receive primary care from community health centers but rely on hospitals for specialists, she said.

Also, hospitals building in these areas need to be able to relocate or change their services to continue meeting the needs of the community, Feldpush added. CMS officials, she said, “are ignoring the reality that nothing in healthcare is static and hospitals need to be able to evolve.”

CMS officials had no immediate response to requests for comment.

Congress called for the so-called site-neutral payments in the Bipartisan Budget Act of 2015. But the hospital organizations say the way the CMS plans to carry out the provision violates what the law actually says. The legislation states that new off-campus departments should be paid “under the applicable payment system.” While some analysts thought it was possible the CMS might interpret that to mean the physician fee schedule, they also thought the agency might choose the fee schedule Medicare uses for ambulatory surgery centers.

“The law does not say stop paying hospitals, it says pay them differently,” Feldpush said.

Both organizations said they, along with many others, met frequently with the CMS to discuss how the site-neutral provision would be handled and were disappointed that their suggestions were not reflected in the proposed rule.

The policy was adopted by Congress in response to a 2013 Medicare Payment Advisory Commission report that found Medicare was paying 141% more for a Level 2 echocardiogram in an outpatient setting than the program paid for one performed in a physician's office.

Consumer advocates and lawmakers argued that the higher payments weren't justified and pushed hospitals to buy physician practices. The AHA countered that hospitals have higher cost structures than physician offices because they have emergency departments and trauma capacities.

Travis Lloyd, a health lawyer with Bradley Arant Boult Cummings, said he was surprised at the strictness of last week's proposed rule, particularly since the CMS seemed to go out of its way to solicit input on the policy. It would have made more sense to hold off on implementing the change until a more appropriate payment system could be incorporated, he said. Instead, the agency just “threw its hands in the air.”

There is nothing in the proposal that spells out how a hospital is supposed to be paid for its overhead expenses because all of the reimbursement goes to the physician, Lloyd said. And that physician-based payment structure also raises the risk of violating the anti-kickback statute and Stark law limits on physician referrals, he said. “If the current proposal is finalized, hospitals will need to re-examine their relationships with physicians.”

The CMS is likely to receive a barrage of comment letters on the proposal, and Kim said the AHA hopes the CMS will “be more reasonable” and provide a fair payment model.

The association also will push for hospitals to have more exceptions for retaining payment when improving or rebuilding outpatient departments beyond the “extraordinary conditions” stated in the proposed rule, she said.

Some buildings may need to be updated for building code changes or because of weather damage. The strict interpretation will also discourage hospitals from expanding outpatient buildings, providing additional services or moving toward new payment systems, she said.

While the CMS has encouraged hospitals to adopt value-based models and move away from fee-for-service payment, the new rule “will thwart or halt that” at outpatient departments, Kim said.

Lawmakers have already responded to one concern of the hospital industry. Last month the House passed a bill that would exempt hospital outpatient departments from the new site-neutral payments if the provider had an agreement for construction of the facility before Nov. 2, 2015.

The author, Rep. Pat Tiberi (R-Ohio), said during markup of the bill that Congress needs to allow providers to transition toward change.

“This bill will help hospitals attain the revenue they anticipated when they made the decision to invest in new construction projects,” he said. “It's just common sense to recognize the reality of business practices. No one likes to think of healthcare as a business, but hospitals have to keep the lights on to treat patients, just like any other business.”