A panel of appellate judges on Friday ruled that HHS' site-neutral payment policy for 2019 can go forward, overturning a lower court decision.
The U.S. Court of Appeals for the District of Columbia Circuit ruled that HHS' payment cuts to hospitals' off-site outpatient departments were legal because the changes were volume-control measures that don't have to be budget-neutral. The decision is a major loss for hospitals that are already facing revenue reductions due to the COVID-19 pandemic.
Katrina Pagonis, a partner at Hooper, Lundy & Bookman and expert in site-neutrality initiatives, called the decision a "remarkable reversal" in light of the lower court's decision last year.
D.C. Circuit Judge Sri Srinivasan wrote in the court's opinion that HHS can legally make the pay cuts under its authority to control unnecessary increases in the volume of covered outpatient services.
The court presented 2017 data showing the evaluation and management reimbursement rate for new patients was $184 in outpatient clinics, compared with $109 at a freestanding physician's office, and cited Medicare Payment Advisory Commission reports that found hospitals reacted to the payment differential by buying up freestanding physician practices.
The American Hospital Association, Association of American Medical Colleges and several hospital systems had argued that HHS' pay cuts were unlawful because they were not budget-neutral, and a lower court had agreed with them.
But Srinivasan wrote that the law is ambiguous on whether service-specific cuts designed to reduce unnecessary volume have to be budget-neutral.
Making the change budget-neutral by increasing other costs "would require HHS to redistribute the costs traceable to the provision of unnecessary services throughout the (Outpatient Prospective Payment System), resulting in no net savings to Medicare and largely negating the point of reducing reimbursement in the first place," Srinivasan wrote.
As HHS appealed the lower court's decision in favor of hospitals, it agreed to pay hospitals for doctor's visits in 2019. The AHA estimated that implementation of site-neutral payments cost providers about $380 million in 2019.
CMS did not immediately respond to an inquiry about whether those payments have been issued yet.
Foley Hoag partner Thomas Barker said it's possible CMS could legally rescind its offer to pay hospitals higher prices for outpatient care in 2019, but the agency may choose not to.
CMS Administrator Seema Verma tweeted that the ruling is a win for American patients.
"A patient shouldn't have to pay more for an outpatient department visit than a visit to a doctor's office, & on avg can save $14/visit," Verma tweeted on Friday.
The American Hospital Association said is reviewing the decision to determine next steps.
"We have to maintain access to critical care during the fight against COVID-19 and these changes move us in the opposite direction," AHA General Counsel Melinda Hatton said.
America's Essential Hospitals, which represents safety-net hospitals, said the decision is a "gut punch" to hospitals struggling during the pandemic. AEH President and CEO Bruce Siegel said the pay cuts will hurt access to care in healthcare deserts by placing barriers to expanding outpatient care in underserved communities.
Hospitals have also sued to stop similar site-neutral payment policies from going forward in the final 2020 Hospital OPPS rule.
