Hospitals Hit By 340B and Site-Neutral Medicare Cuts in New Rule

A payment change for off-campus provider-based departments could lead some hospitals to move services on-campus but is unlikely to affect the ongoing physician practice acquisition trend, say industry advisers.

Nov. 5—Medicare pay cuts included in a new payment rule will affect the federal discount drug program and off-campus provider-based departments (PBDs).

The Centers for Medicare & Medicaid Services (CMS) included the cuts in the recently issued CY19 Outpatient Prospective Payment System (OPPS) and Ambulatory Surgical Center (ASC) final rule, which increased OPPS rates by 1.35 percent.

The rule included a two-year phase-in of a payment cut for hospital outpatient clinic services furnished at off-campus PBDs that originally were grandfathered from cuts, as established in the Bipartisan Budget Act of 2015. Medicare will pay for clinic visits at 70 percent of the OPPS rate in 2019 and 40 percent in 2020 and beyond. The pay cut for clinic visits—the most commonly billed service under the OPPS—will reduce Medicare spending by $380 million in CY19, according to CMS estimates.

“This rule, which phases in over two years payment cuts to hospital outpatient clinic visits, is based on unsupportable analyses and erroneous policy rationales,” Tom Nickels, executive vice president of the American Hospital Association (AHA), said in a written statement. “These ill-advised cuts will hit patients in rural and vulnerable communities especially hard.”

AHA and other hospital advocates said the PBD cuts exceeded the administration’s legal authority and that they plan to file a lawsuit challenging the new rule’s site-neutral provisions.

“At this point, [a lawsuit] is trying to stop the hemorrhage because [the new rule] indicates that this is not going to be the last foray into equalizing payments,” said Miranda Franco, senior policy adviser for Holland & Knight. “So we’ll see people try to get out in front of future proposals that would be wide-sweeping and would affect change before [CMS] moves forward with the next rulemaking in this space.”

Franco also expected a legislative push to roll back the off-campus PBD rate cut.

CMS dropped plans to cut payments for grandfathered off-campus PBDs that expand the clinical families of services they offer, which drew expressions of relief.

“While we appreciate the agency’s decision not to reduce payments for clinics that expand services to meet patient needs, this new rule exacerbates existing cuts to clinic payments and to hospitals that provide affordable drugs in underserved communities,” Bruce Siegel, MD, president and CEO of America’s Essential Hospitals (AEH), said in a written statement.

Siegel was referring to a Medicare cut for drugs acquired under the 340B program to average sale price (ASP) minus 22.5 percent when they are administered in non-grandfathered off-campus PBDs. CMS also cut payment for separately payable biosimilars acquired under 340B to ASP minus 22.5 percent of the biosimilar’s own ASP, rather the reference product’s ASP.

When ASP data is not yet available, Medicare will pay for new drugs and biological products at wholesale acquisition cost (WAC) plus 3 percent, instead of WAC plus 6 percent, according to a fact sheet.

PBD Cut Assessments

The off-campus PBD cuts likely stem from the administration’s concern about the ongoing trend of hospital acquisitions of physician practices.

“They’re really trying to get at these off-campus services because of the assumption [by the administration] that they are not really hospital services; that they’re really physician services,” said Regan Tankersley, JD, a partner at Hall Render.

The Medicare cut will factor into cost-benefit calculations when hospitals are deciding whether to implement new off-campus departments, including wound centers or cancer centers, Tankersley said.  

Given the increasing Medicare payment cuts to off-campus hospital providers, hospitals have begun to examine ways to move some specialties on-campus, Tankersley said in an interview.

“The difficulty with that is you may limit some access for your Medicare beneficiaries [for a service] that for financial and operational reasons is not cost-effective to continue to provide out in the community,” Tankersley said. “Are beneficiaries going to have to drive into a main hospital campus because it may not be cost-effective to put those services out in the community?”

In response to the cut, hospitals should calculate the financial impact of the pay cut for their organization, relative to how much they have been billing at the old rate, and assess what services are performed at different sites, Franco said.

“The reason for doing [practice acquisitions] are legion, many of which have zero to do with trying to somehow bring physician services into the hospital setting to game reimbursement, and much more to do with gaining enough economies of scale and enough access to different sectors of the marketplace to continue to support volume,” said Matthew Albers, JD, partner in the healthcare group of Vorys, Sater, Seymour and Pease.

Additionally, hospitals have found it easier to navigate federal laws against anticompetitive business practices by owning the physician practices with which they are engaged in value-based payment models, Albers said in an interview.

Albers doubted that the PBD rate change alone would offset the other advantages hospitals can gain by acquiring practices.

“I see the trend continuing in large part, and that this will have some impact on how beneficial those consolidations are, ultimately,” Albers said.

Industry advisers expect more site-neutral pay cuts from Medicare and for commercial health plans and Medicaid programs to follow suit.

“Start running those financial numbers, just assuming those rates are going to keep going down for those off-campus services, and keep that in mind as you look to restructure or build or expand,” Tankersley urged hospital finance leaders.

Franco expected CMS to continue mulling whether to institute the cut to payments for grandfathered off-campus PBDs that expand the families of services they offer.

“Operationally, it was just more challenging to administer, but they’ve made it clear they will continue to look at that policy,” Franco said.

340B Cuts

340B Health, which represents more than 1,300 hospitals in the 340B program, said the latest cut to Medicare payments for those drugs “will damage the healthcare safety net that serves uninsured, underinsured, and Medicaid patients across the country.”

Hospitals reported that previous 340B cuts resulted in service cuts and led hospitals to forgo hiring or to lay off physicians, nurses, pharmacists, and other healthcare professionals, according to 340B Health. The organization cited the example of Clifton Springs Hospital in Clifton, N.Y., which reported it was unable to fill pharmacy staff positions that would help patients with medication reconciliation.

“We continue to believe these regulations are in violation of both the Medicare statute and the law creating 340B and encourage Congress to reverse these cuts and restore stability to hospitals as quickly as possible,” Maureen Testoni, interim president and CEO of 340B Health, said in a written statement.

Bipartisan legislation to nullify the 340B cuts for 2018, sponsored by Rep. David McKinley (R-W.Va.), garnered 200 co-sponsors but never advanced. Ted Slafsky, founder of Wexford Solutions and formerly the longtime leader of 340B Health, said a successful legislative reversal of the 340B cuts would be likely if Democrats take control of the House of Representatives and the Senate remains closely divided.

“There is strong bipartisan support in both the House and the Senate to repeal the cuts,” Slafsky said in an interview.

Meanwhile, the Trump administration is likely to add further restrictions on the 340B program, although not necessarily more Medicare payment cuts, Slafsky said. Steps could include scaling back the contract pharmacy program and reducing the number of patients whose providers have access to the program’s discounted drugs.

Other Provisions

CMS in the final rule continued to target providers’ regulatory burdens through its Meaningful Measures initiative, which removes eight of the 10 measures that the agency suggested eliminating in the proposed rule. One measure will be removed in CY20 and seven more in CY21.

Additionally, CMS expanded the list of procedures it would pay for at ASCs by instituting a new definition of surgery that includes select “surgery-like” procedures. The agency added 12 cardiovascular procedures, as it proposed, as well as another five codes suggested by stakeholders who commented on the proposed rule.

CMS increased ASC rates for CY19 by 2.1 percent.