Hospitals are not happy with CMS’ recent changes to hospital outpatient payments.  Two hospital associations and three hospitals claim in a federal lawsuit filed December 4, 2018, that CMS had no authority to change the payment scheme for off-campus provider-based departments (PBDs).  The change took effect January 1, 2019, and is estimated to reduce payments to hospitals by $380 million in the first year of a two-year phase-in period.

The plaintiffs, including the American Hospital Association and the Association of American Medical Colleges, are seeking judgment that the payment change is unenforceable as well as preliminary and permanent injunctive relief.  The complaint against US Department of Health and Human Services Secretary Alex Azar was filed in the U.S. District Court for the District of Columbia.

The plaintiffs’ assert that the reduced payments threaten patient access to care and harm the providers’ ability to meet the health care needs of their patients, including some of the most vulnerable populations. 

The focus of the complaint is whether CMS has the authority to use rule making to change the statutory payment scheme for off-campus PBDs, which are medical practice sites that are located away from hospitals but still integrated with the hospitals.   Stand-alone ambulatory surgical centers (ASCs) are an example.

In their complaint, the plaintiffs recall the origin of the statutory payment scheme, the Bipartisan Budget Act of 2015.  Up to that point, off-campus PBDs were considered part of the hospital and paid as hospital departments using the Medicare Outpatient Prospective Payment System (OPPS).  In the Act, however, Congress created a distinction between two types of off-campus PBDs.  The sites created before the effective date of the Act, November 2, 2015, were excepted off-campus PBDs and would continue to be paid under the OPPS.  Sites newly created or acquired after the effective date, on the other hand, were labeled non-excepted off-campus PBDs.  These new sites would be paid using the Medicare physician fee schedule, which results in lower payments relative to the OPPS.

On November 2, 2018, CMS issued a final rule that eliminates the distinction created in the 2015 Act.  The final rule, Changes to Hospital Outpatient Prospective Payment and Ambulatory Surgical Center Payment Systems and Quality Reporting Programs, published November 21, includes a provision to pay excepted off-campus PBDs for clinic visit services (HCPCS code G0463) at the same rate paid to nonexcepted off-campus PBDs.

As stated in the rule, CMS explicitly intended the provision to “control unnecessary increases in the volume of outpatient services.”  CMS was explicit in stating that “[t]o the extent that similar services are safely provided in more than one setting, it is not prudent for the OPPS to pay more for such services because that leads to an unnecessary increase in the number of those services provided in the OPPS setting.”  By capping the OPPS payment at the rate determined by the Medicare physician fee schedule, CMS believes it will remove “the payment differential that is driving the site-of-service decision.”

The plaintiffs argue CMS’ action violates Congress’ intent in crafting the Medicare statute, which makes clear that:  a.) There is a distinction between excepted and nonexcepted off-campus PBDs, and b.) The distinct off-campus PBDs should be paid using different payment systems.

Plaintiffs also argue that CMS’ decision to reduce payments to excepted off-campus PBDs violates the statutory requirement that annual adjustments to the Medicare payment methodology be budget neutral.  The plaintiffs note that CMS is permitted under the statute to make non-budget neutral cuts to payments under the OPPS if the cuts are made to all services and items under the OPPS, but that is not what CMS does under the final rule, plaintiffs say.

Further, plaintiffs object to CMS’ claim that it has authority granted under another statutory provision to get around the budget-neutral adjustments requirement.  That authority enables CMS “to develop a method for controlling unnecessary increases in the volume of covered (hospital outpatient department) services,” according to the plaintiffs.

Other issues addressed in the final rule include increasing the services that can be provided in ASCs, removing measures from the hospital outpatient and ASC quality reporting programs, expanding the 340B discounted prescription drug program, and adopting policies relating to non-opioid pain management treatments.

For information on the status of the hospitals’ complaint in the AHA v. Azar case and the potential impact of CMS’ final rule, please contact a member of the Husch Blackwell Health Law Team.