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American Hospital Association among those suing HHS over site neutral payments

The hospitals that rely on Medicare payments may have to cut services due to the $380 million payment reduction, the lawsuit says.

Susan Morse, Managing Editor

The American Hospital Association and the Association of American Medical Colleges are among five healthcare organizations suing the Department of Health and Human Services over site neutral Medicare payments going into effect on January 1, 2019.

CMS is planning on reducing payments for off-campus, hospital-based clinics and other facilities that were previously grandfathered to receive a higher rate.


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The planned $380 million payment reduction harms hospitals that have a large Medicare population, according to the lawsuit filed December 4 in federal court in the District of Columbia. 

Two of the hospitals, Clallam County Public Hospital in Washington and York Hospital in Maine, say that more than half of their patients rely on Medicare.

The Centers for Medicare and Medicaid Services proposed the reductions to the Medicare outpatient prospective payment system in July and finalized the rule on November 2.

CMS's site neutral rule was originally slated to reduce payment to hospitals by $760 million in 2019. After receiving about 3,000 comments, CMS said it would phase-in the payment reduction over two years so that hospitals in 2019 would get about $380 million less.

The hospitals that rely on Medicare payments may have to reduce services in response to the lower rates, the lawsuit said.


Historically, CMS has paid higher rates for outpatient services provided at off-campus facilities associated with a hospital than for a visit to the physician's office.

Until November 2015, visits to all off-campus hospital provider-based departments were paid at the higher rate under the outpatient prospective payment system, than to physicians paid under the physician fee schedule.

Hospitals acquired or built the off-campus provider-based departments with the understanding they would be paid the OPPS rate.  These include stand-alone oncology clinics, urgent care clinics and centers for specialty services such as cardiology.

The plaintiffs argue that these facilities have higher costs than physician offices and in many cases, provide more services, especially as technology has advanced.

The volume of outpatient services has increased. Among the reasons has been the acquisition of stand-alone physician offices that have been integrated into hospital operations.

To balance concerns of the differing payment rates and the trend towards hospitals acquiring physician practices, Congress created two classes of off-campus provider-based departments in the  Bipartisan Budget Act of 2015.

Those acquired or built before November 2, 2015, were grandfathered at the old rate. They were deemed "excepted" off-campus provider-based departments and continue to be paid Medicare rates under the outpatient prospective payment system.

Those built or acquired after that date were paid under what CMS deemed an "applicable payment system," to deter hospitals from opening new off-campus facilities just to take advantage of the higher rate. They're paid under a separate OPPS payment system which approximates the Medicare physician fee schedule.

The AHA and plaintiff hospitals argue that changes CMS has made to this policy for 2019 are illegal for two reasons.

First, in equalizing the payments between the excepted and non-excepted facilities, CMS is ignoring Congress's grandfathered distinction, they said.

Secondly, Congress mandated that any payment changes must be budget neutral. CMS can't get around congressional mandates to reduce Medicare Part B spending by selectively slashing rates for specific types of services without increasing payment elsewhere, the lawsuit said.


The AHA represents close to 5,000 hospitals and health systems.

The AAMC represents about 152 medical schools, 400 teaching hospitals and more than 80 academic societies.

Mercy Health Muskegon, a Catholic nonprofit hospital in Michigan, operates 27 off-campus provider-based departments, 25 of which are grandfathered.

Clallam County Public Hospital in Washington is a rural safety-net hospital furnishing outpatient services at eight grandfathered off-campus provider-based departments.

York Hospital in Maine has 14 grandfathered off-campus provider-based departments furnishing outpatient services.


In the November 2 final rule, CMS said, "To the extent that similar services can be safely provided in more than one setting, we do not believe it is prudent for the Medicare program to pay more for these services in one setting than another."

Twitter: @SusanJMorse
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