SITE-NEUTRAL PAYMENT POLICY WILL IMPACT STRATEGIC GROWTH PLANS—CMS EXTENDS SITE-NEUTRAL PAYMENTS TO ALL OFF-CAMPUS HOSPITAL-BASED OUTPATIENT CLINICS

E R D M A N Alert:

SITE-NEUTRAL PAYMENT POLICY WILL IMPACT STRATEGIC GROWTH PLANS;

CMS EXTENDS SITE-NEUTRAL PAYMENTS TO ALL OFF-CAMPUS HOSPITAL-BASED OUTPATIENT CLINICS

Site neutral payments by Medicare for hospital outpatient services become effective January 1, 2019. This represents a major policy change that will impact strategic growth and facility plans for every hospital and health system.

THE NEW POLICY
On November 2, 2018, the Centers for Medicare and Medicaid Services (CMS) released the Hospital Outpatient Prospective Payment System (OPPS) and Ambulatory Surgical Center (ASC) Payment System final rule for 2019. The annual update, among other changes, makes effective the site-neutrality payment system, which will align payments between physicians and hospitals for specific services. CMS cited its authority under Section 1833(t)(2)(F) of the Social Security Act, as a means of controlling unnecessary increases in volume of outpatient services.

Effective January 1, 2019, off-campus hospital outpatient departments (HOPDs)i paid under the Outpatient Prospective Payment System (OPPS) will be paid the lower Physician Fee Schedule (PFS) rate equivalent.ii CMS will phase in the reductions over two years. “Clinic visit” (HCPCS G0463) payments will be reduced by 30% for CY 2019 and reduced another 60% in 2020 – hospital outpatient departments will be paid approximately 70% of the OPPS rate for “clinic visit” services, which account for more than half of all services billed.2 iii

THE FINANCIAL IMPACT OF THE RULE
Deloitte found that hospital revenue from outpatient services grew from 30% in 1995 to 47% in 2016, while inpatient visits declined 6.6% over the past ten years. Hospitals have enjoyed outpatient revenue growth – between 2010 and 2015 outpatient revenue per visit grew 45%, from $1,352 per visit in 2010 to $1,962 per visit in 2015.4

Regardless of size and profit, the site-neutral payment policy will inevitably squeeze hospital margins and affect quality of care. Modern Healthcare reported that the 60% rate cut will “equal a $760 million hit to hospitals in 2019.” The anticipated loss will force hospitals and health systems to recalculate budgets and revisit their strategic growth plans.

THE LEGAL CHALLENGE
The American Hospital Association (AHA) and the Association of American Medical Colleges (AAMC), in addition to three health systems, filed a lawsuit citing “CMS does not have the legal authority to extend site-neutral payments for clinic visits to excepted hospital outpatient departments” and the agency “misconstrued the intent of the law behind the payment systems.” Hospital groups are also evaluating whether CMS “has the authority to make the payment cuts in a non-budget neutral manner.2

During the comment period, letters from hospital groups and health systems were submitted to CMS, a comparative analysis between hospital outpatient facilities and free-standing physicians’ offices based on patient demographics was conducted, studies were commissioned, and two prominent NFP system executives joined the AHA in hosting a congressional briefing on the Hill. Lawmakers were lobbied to sign a letter drafted by Sens. Rob Portman (R-Ohio) and Debbie Stabenow (D-Mich.), which requested CMS “reverse course on its site-neutral policy in the proposed rule.1

Comments from key interest groups3 have been critical of the policy:
• “The new policy does not account for different patient types need and receive care from physician offices and hospitals” (Dr. Bruce Siegel, president and CEO of America’s Essential Hospitals). Hospital-based outpatient care settings treat more complex cases including patients with chronic conditions and others who require more specialized care.
• “CMS lacks an understanding about the reality in which hospitals and health systems operate daily to serve the needs of their communities,” the AHA added. Hospitals are subject to state and federal regulations including: charity care and community needs assessments; EMTALA – hospitals are mandated to treat any person experiencing an emergency regardless of their ability to pay. Monetary penalties are enforced by the Justice Department and the Office of Inspector General for noncompliance. Physician groups are not held to the same onerous standards.
• The lawsuit states that CMS has “overstepped its statutory authority to reduce reimbursements for clinic visits at off-campus hospital outpatient departments.”

ERDMAN INSIGHT: IMPLICATIONS FOR HOSPITAL OUTPATIENT FACILITY PLANNING
Health systems have engaged in efforts to build scale and implement payment reforms during the transition to value-based care. Systems have created partnerships, formed joint ventures, and engaged in horizontal integration in order to spread financial risk, create new streams of revenue, increase efficiency, streamline services, and lower operating costs. A trending mergers and acquisitions transaction type has been the acquisition of physician groups. And although health systems reported losses in the short-term, they relied on the higher rates of reimbursement to balance in time. Expansion of outpatient services has been a key strategy used by hospitals to enhance their efforts in retail health and consumer-directed care. Key investments in accessible, convenient outpatient facilities and programs have been at the center of these efforts.

The push to equalize payments between hospitals and physicians is likely to continue, regardless of the political climate. Further rate reductions for “commonly billed services” will continue. CMS has already indicated, although not finalized in the 2019 update, cuts to new clinical families will be revisited during future rulemaking cycles.

Hospital planners and strategists must monitor this policy change closely and revisit outpatient master facility plans, physician group acquisition, employment and compensation arrangements, and long-range clinical program strategies in the context of this important policy change.

Footnotes

i–Off campus HOPDs used similarly with “off-campus provider-based departments (PBDs)” & off-campus outpatient hospital departments (OCODPs).
ii–The reduced, non-excepted rate for all off-campus outpatient departments.
The annual update extends site-neutral payments to all off-campus hospital outpatient departments (HOPDs). The policy also applies to “excepted” locations that were previously not subject to site
neutral reductions (payment reductions will apply to all – grandfathered or not).

iiiIt is important to note that on-campus PBDs (including those on the campus of a remote location) and “dedicated” emergency departments are excluded from these payment cuts — they do not use the PO modifier—
The final rule does allow excepted status for those HOPDs that billed prior to the Bipartisan Budget Act of 2015.

Resources Cited

1.AHA News. (Oct. 1, 2018). “Senators urge CMS to reconsider proposal to expand site-neutral policies.” https://www.aha.org/news/headline/2018-10-01-senators-urge-cms-reconsider-proposal-expand-site-neutral-policies.
2.–Luthi, S. (Dec. 4, 2018). “Hospitals sue over site-neutral payment policy.” Modern Healthcare. https://www.modernhealthcare.com/article/20181204/NEWS/181209973.
3.–Luthi, S. and Dickson, V. (Sep. 25, 2018). “Medicare’s site-neutral pay plan targeted in hospitals’ lobbying.” Modern Healthcare. https://www.modernhealthcare.com/article/20180925/TRANSFORMATION04/180929928.
4.–Moses, R., Kahn, A., Hurley, B. (2018). “Growth in outpatient care: The role of quality and value incentives.” Deloitte Center for HealthSolutions. https://www2.deloitte.com/content/dam/insights/us/articles/4170_Outpatient-growth-patterns/DI_Patterns-of-outpatientgrowth.pdf.

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