Court tosses $380 million site-neutral payment cut

• A federal judge threw out 2019 Medicare cuts to payments for hospital outpatient department evaluation and management services.
• No decision was made on whether the reduced payment rate for in 2019 would be retroactively raised.
• Hospitals may need to take legal steps to preserve their options to recover those lost payments.

Hospital advocates are celebrating the legal reversal of $380 million in site-neutral Medicare payment cuts — although no refunds were ordered, and the cuts may soon return.

The U.S. District Court for the District of Columbia on Sept. 17 issued a decision in American Hospital Association, et al. v. Azar, ruling against the Centers for Medicare & Medicaid Services’ (CMS’s) “site neutral” payment policy that was included in the CY19 Outpatient Prospective Payment System (OPPS) rule. Ruling CMS exceeded its statutory authority to adjust payments under the OPPS, the judge vacated that portion of the rule.

However, instead of granting the hospitals’ request for a refund of the payment reductions, the judge remanded the case back to CMS.

The payment cut targeted off-campus provider-based departments (PBDs) that had been exempted from cuts under the Bipartisan Budget Act of 2015. 

U.S. District Court Judge Rosemary Collyer required the parties in the lawsuit to submit a joint status report by Oct. 1 to determine whether an additional briefing on remedies is required. 

The cases stemmed from a December 2018 lawsuit challenging the site-neutral cuts. The suit was filed by the American Hospital Association, the Association of American Medical Colleges and several hospitals.

“We are pleased with the District Court’s decision that the Department of Health and Human Services exceeded its statutory authority when it reduced payments for hospital outpatient services provided in grandfathered off-campus provider-based departments,” AHA and AAMC said in a statement. “The ruling, which will allow hospitals to maintain access to important services for patients and communities, affirmed that the cuts directly undercut the clear intent of Congress to protect hospital outpatient departments because of the many real and crucial differences between them and other sites of care. Now that the court has ruled, it is up to the agency to put forth remedies for impacted hospitals and the patients they serve.”

An appeal may be coming

Chad Mulvany, a director of healthcare financial practices with HFMA, said he expected CMS to appeal the ruling.

“If that’s the case, I assume they will insist on implementing the site-neutral policy for CY20 as proposed in the OPPS rule,” Mulvany said. “While hospitals will likely ultimately prevail, the reprieve on site neutrality is only short-term.”

Congress’s primary Medicare advisory group, the Medicare Payment Advisory Commission, has long urged implementation of site-neutral payments for evaluation and management (E/M) services.

“At some point Congress will look to pass site-neutral legislation and use the savings to pay for other items on the healthcare wish list,” Mulvany said.

The overturned cut had reduced payment for E/M services at all off-campus PBDs, including excepted (grandfathered) facilities. The rule cut E/M service payments to 70% of the OPPS rate at those locations. CMS had estimated the cut would reduce Medicare and beneficiary copayment spending by $380 million for 2019.

Legal implications remain murky

Legal analysts noted that the ruling was unclear on when and how hospitals will be compensated for payment sums that they did not receive. One possibility is that such payments will be made only to hospitals that preserved their appeal rights either administratively or in federal court.

For that reason, some legal advisers have urged hospitals that haven’t preserved appeal rights for CY19 to consider doing so, since the decision was silent on whether action is needed to preserve appeal rights under the site-neutral payment policy.