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Site neutral payment policies straining Maine hospitals, accelerating consolidation

Hospitals in the state are looking to leverage economies of scale in order to survive the expected losses in reimbursement.

Jeff Lagasse, Associate Editor

Maine Medical Center in Portland.Maine Medical Center in Portland.

Hospitals across the country are tightening their belts, and their revenue cycles, in the midst of some fierce margin pressures.

One of the current sources of financial anguish is a new federal rule outlining a site-neutral payment policy, which hits small hospitals and rural providers particularly hard.

In November, the Centers for Medicare and Medicaid Services issued a final rule that enacts a site-neutral payment policy, meaning physician offices and outpatient hospital clinics will receive the same payments for certain Medicare visits. Before, CMS paid higher rates for outpatient services provided at off-campus facilities associated with a hospital than for a visit to the physician's office.

Subsequently, four healthcare organizations across the country filed a lawsuit against the Trump Administration. One was York Hospital in Maine, which has a large Medicare population and claimed the new rules could significantly slash their Medicare rates for clinic services at certain outpatient hospital sites.

Jeff Austin, vice president of government affairs and communications at the Maine Hospital Association in Augusta, said that CMS' final rule, which took effect January 1, would result in a loss to all hospitals in the state of about $40 million per year -- a significant sum given Maine's rural nature and small population.

The situation is forcing many hospitals in the state to join forces to survive.

"Maine has always been one of the top five states in terms of the negative impact of site neutral payments," said Austin, attributing this largely to the small number of physicians practicing in the state, and the high proportion of them who are employed by hospitals.

Austin said Maine hospitals and health systems can ill afford to lose any revenue streams. It highlights the fragility of rural markets and speaks to broader financial pressure being applied to more remote pockets of the country.

"It just doesn't make sense if you're a state like Maine," said Austin. "In Maine, it's a unicorn. There's no physician across the street. There are no private practices."


A September study from the American Hospital Association found Medicare patients who seek care in a hospital outpatient setting -- as opposed to an independent physician office -- are more likely to be poor and have multiple chronic conditions. The AHA said the site-neutral payment policy would threaten access in rural areas.

The situation would be compounded in Maine because there are relatively few independent physician offices to begin with. Most physicians in the state are employed by hospitals out of necessity.

Austin said the only real mitigation strategy would be to move more doctors on to hospital campuses, but that would be less convenient for the public.

A Bangor Daily News report highlighted Maine hospitals' reimbursement struggles and found that consolidation has been a common strategy for many organizations looking to survive.

Consolidation in the form of mergers and acquisitions is common across the country, and the rate of deals has accelerated in recent years. In Maine, several organizations have all but stopped operating as hospitals and are instead doing business as community health clinics.

St. Andrews Hospital in Boothbay Harbor, for example, is now part of LincolnHealth; Goodall Hospital in Sanford is now part of Southern Maine Health Care; and Brunswick's Parkview Adventists Medical Center is now under the umbrella of Mid Coast-Parkview Health.

Hospital margins in the state are low, with many facilities operating at a loss, and so hospitals are looking to leverage economies of scale to attract more patients and staff. Technological advances that are too pricey for smaller providers, lower federal reimbursements and unfavorable payer mixes are all contributing to the accelerating consolidation trend.

If MHA members were "rolling in money," said Austin, "maybe you could ignore that. But half operate on negative margins. The total margin across the state is about 1 percent. My guess is that site neutral payments would cut them in half."


Calling the policy misguided and based on "unsupportable analyses and erroneous policy rationales," the American Hospital Association fired back at CMS in November when the site neutral payment rule was finalized.

The end of the briefing phase in the lawsuit is expected this month.

The AHA, which is among the organizations mounting a legal challenge, said the policy exceeds the administration's legal authority. The AHA and other hospital associations are already challenging the 340B policy included in the current outpatient rule.

Twitter: @JELagasse

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