The CMS relaxed some of the controversial provisions in its new policy changing how Medicare will pay for services delivered at hospitals' off-campus facilities. But the change will still complicate business models built on the expectation that Medicare would pay them rates intended to cover the higher overhead of equipping and staffing hospitals.
Under a final rule issued last week, the facilities will no longer be paid as if they were hospital-based outpatient departments if they were acquired or opened after Nov. 2, 2015. While the change will save the federal government $9.3 billion over 10 years, healthcare lawyers say the new payment environment sets hospitals up for a tough battle with commercial payers as they try to cover their costs and bring care closer to patients.
“Site-neutrality, while it sounds attractive, it's actually just a cost-shifting exercise,” said Larry Vernaglia of Foley & Lardner. “The need to move services off campus remains every bit as strong today as it was two years ago, maybe more so. All they're going to say is we'll short pay you for those sites.”
Vernaglia says that means hospitals and health systems will have to subsidize the facilities with revenue from other parts of their budget or turn to commercial insurers for more money. Payers “are going to fight that too,” he said. “This is a cage fight between payers and providers. Payers don't want to pay anymore, and providers want their overheads covered.”
Congress called for the policy change in the Bipartisan Budget Act of 2015 on recommendations from the Medicare Payment Advisory Commission and HHS' Office of Inspector General. MedPAC noted the government was paying significantly more for the same procedures at hospital-owned ambulatory centers. The difference appeared to be a factor in the flurry of health systems buying physician practices.
While the site-neutral pay rule was intended to prevent physician practices from being swallowed up by larger health systems, Alston & Bird's Michael Park says the final rule may not achieve that goal. The rule calls for Medicare to pay for services at the facilities under the physician fee schedule, and Park said that means some procedures will actually be reimbursed at higher rates. “That incentive is still there.”
The final rule did alleviate some of hospitals' concerns. The CMS modified the regulations so off-campus facilities built after Nov. 2, 2015, will be able to bill Medicare directly for their services in 2017 and 2018 rather than attempt to wrest payment from the physicians.
Although the overall payment will be less than half of what off-campus facilities used to get from Medicare, it will still provide hospitals with some cash flow for their investments.
“Call it half a loaf,” Vernaglia said. “I'm not going to say that I approve of it, but it's a reasonable approach to getting it done fast. They'll probably tinker with those rates over time.”
That payment change also alleviates concerns that health systems could run afoul of federal anti-kickback laws by providing physicians with equipment and facilities for less than fair-market value. The CMS decided to provide payments directly to the hospitals in 2017 to allow more time to evaluate the policy.
The CMS also made it clear that it didn't want to prevent facilities from remaining eligible for Medicare's 340B drug-pricing program, which was a hot-button issue for hospitals. The program was designed to help hospitals serving disproportionately large numbers of low-income patients. It gives participants steep discounts from manufacturers on outpatient drugs.
Facilities that started billing Medicare before Nov. 2, 2015, meanwhile, will continue to be reimbursed as hospital outpatient departments—even for services added after that date, which was not the case under the draft rule. Still, the new policy is likely to discourage hospitals from developing or acquiring off-campus facilities in light of the diminishing returns.
“From our hospital clients' perspective, their overarching concern has been being able to meet the growing and changing needs of their communities,” Park said. “These concerns remain.”