Hospitals sue over site-neutral payment policy

(Updated at 6 p.m. ET)

The American Hospital Association on Tuesday led a lawsuit against the Trump administration over the CMS' final rule imposing a site-neutral payment policy, which cuts some Medicare rates for outpatient hospital sites to match the rates for physicians' offices.

The lawsuit, filed in the U.S. District Court for the District of Columbia, challenges the "serious reductions to Medicare payment rates" as executive overreach. The rate reduction is scheduled to start Jan. 1. In 2019, hospitals' reimbursements will drop approximately $380 million in 2018, according to the CMS.

"This court should reject CMS' attempts to replace Congress's unequivocal directives with the agency's own policy preferences," the hospitals wrote in their complaint. "CMS may not contravene clear congressional mandates merely because the agency wishes to make cuts to Medicare spending."

The outpatient pay rule was finalized in November. The timing and strategy of this lawsuit resembles the hospitals' effort in late 2017 to block roughly $1.6 billion in Medicare Part B drug reimbursement cuts for 340B providers before they went into effect in early 2018. At the last minute, the presiding federal judge tossed that suit as premature because the cuts had not yet gone into effect. Hospitals lost their appeal over the summer and in September lodged their complaint again.

The Association of American Medical Colleges, the trade group of academic centers that will see a big hit from the site-neutral policy, joined AHA, along with three independent health systems: Michigan's Mercy Health Muskegon, Washington State's Clallam County Public Hospital and Maine's York Hospital.

The policy roiled the hospital industry when it was introduced in a proposed rule over the summer. Hospitals have been lobbying Congress to intervene with the administration and reverse the policy.

"These cuts directly undercut the clear intent of Congress to protect hospital outpatient departments because of the real and crucial differences between them and other sites of care," Rick Pollack, AHA president and CEO, said.

The same day hospitals filed the OPPS lawsuit, HHS Secretary Alex Azar promised that the administration would continue its work on site-neutral payment policies despite intense industry opposition.

"Fixing this perverse situation has been talked about for years, by administrations of both parties—and yet this administration is the one finally bold enough to do it," he said Tuesday in a speech at the right-leaning American Enterprise Institute.

This week the White House released its sweeping policy wish list, which included a push for site-neutral payment policies at the federal level and on the state level through Medicaid.

The most common provider services governed by the outpatient pay rule are clinic visits, or checkups. Under the finalized regulation the CMS will cut reimbursements for hospital outpatient facilities by 60% over a two-year period. This translates to about 70% of the current outpatient rate.

The final rule also extended 340B providers' Part B cuts to their off-campus facilities, in order to block the hospitals from moving their pharmacy dispensing elsewhere as a pre-emption.