Dozens of hospitals sue to end site-neutral payment policy

Thirty-eight hospitals sued HHS on Friday over a new rule that cuts Medicare payments for some services provided at off-campus hospital sites.

The lawsuit claims HHS Secretary Alex Azar acted beyond his statutory authority when he cut payment rates for evaluation and management services provided at the hospital sites so that they aligned with those paid to physicians' offices; the final rule took effect Jan. 1.

"The secretary's rule is irrational, a patent misconstruction of the Social Security Act and a blatant attempt to circumvent the will of Congress clearly expressed in Section 603," the complaint said.

Plaintiffs in the lawsuit include Montefiore Health System, Ochsner Medical Center, OSF HealthCare, Atrium Health, the University of Virginia Medical Center and Vanderbilt University Medical Center. Hospital representatives and attorneys with King & Spalding, the law firm representing the hospitals, declined to comment. An HHS spokeswoman also did not return a request seeking comment.

The site-neutral payment policy will translate to total payment reductions of $380 million in 2019 and $760 million in 2020, according to the complaint filed in U.S. District Court for the District of Columbia. In addition to allegedly violating Congress' directive, the lawsuit says the cuts weren't budget-neutral, which Congress requires for all such payment adjustments. HHS needed to make funding increases to offset the anticipated losses.

Under Section 603 of the Bipartisan Budget Act of 2015, the Medicare program now pays the same rates for medical services whether they're provided in a physician's office or a hospital department located off of the hospital's main campus. Congress made an exception for off-campus hospital departments that were providing services before Nov. 2, 2015. But Azar reversed course and issued a final rule that eliminates the higher payment rate for the grandfathered hospital departments.

The American Hospital Association is leading a similar lawsuit filed in December, before the site-neutral payment policy took effect. The Association of American Medical Colleges joined that suit, as did three independent health systems. King & Spalding is not involved in that lawsuit.

The lawsuits could end up being combined, much like what happened with lawsuits from the AHA and other associations over CMS' so-called "two-midnight" rule in 2014.

In their complaint, the hospitals wrote that in general, services provided in hospital outpatient departments are costlier to provide than in physicians' offices. That's because hospitals have to provide a wider range of services and meet stricter regulatory requirements than free-standing physician offices, according to the complaint, which cites the requirement that hospitals offer 24-hour nursing care, maintain discharge planning protocols and meet health and safety requirements as examples.

"None of these conditions for participating in Medicare and other federal healthcare programs apply to an independent physician's office," the complaint said.

One of the plaintiffs, Tampa General Hospital, runs two off-site clinics that primarily serve the most vulnerable patient populations in the metro area. The patients are very different from those treated in the average physician's office, the hospital said.

"These patients are more medically complex and have a substantially higher proportion of social determinants of health—such as housing, transportation, literacy and nutrition—which provide additional challenges and add to the complexity of care," the complaint said.

The payment cuts compound already precarious financial situations at the hospitals, according to the suit.

"Even prior to this rate cut, plaintiffs were under significant financial strain from steadily increasing costs in the healthcare marketplace and reimbursement cuts from the government and private insurers alike," the lawsuit said.