The impact of the payment cut on outpatient departments could be significantly larger than CMS has estimated, according to an analysis by one hospital advocacy group.


Sept. 25—Among reactions to a range of thorny policy proposals, hospital advocates are urging Medicare to withdraw a $760 million payment cut for outpatient services.

The cut, described as “arbitrary and capricious” by one hospital advocate, was included in the proposed rule for the CY19 Outpatient Prospective Payment System (OPPS) by the Centers for Medicare & Medicaid Services (CMS). The criticism was among hundreds of comments on the OPPS rule that were submitted by the Sept. 21 deadline.

The OPPS policy change would pay for clinic visits furnished in excepted off-campus provider-based departments (PBDs) at the “physician fee schedule-equivalent” rate of 40 percent of the OPPS rate. CMS estimated the cut, commonly referred to as a site-neutral payment, would reduce CY19 hospital payments by $760 million.

The American Hospital Association (AHA) said CMS lacks statutory authority to reduce payments to excepted PBDs and has no basis for its assertion that utilization of outpatient department (OPD) services has increased unnecessarily.

“Making cuts to hospital reimbursement of the magnitude proposed would be excessive and harmful; it would endanger the critical role that PBDs play in their communities, including providing local access to care for the most vulnerable beneficiaries,” AHA commented.

The financial impact of the policy change also could go far beyond the expectations of CMS.

When accounting for the effect of the policy change on services provided to Medicare Advantage patients, an analysis by the Healthcare Association of New York State (HANYS) found the OPD cut for New York’s hospitals would increase from $41 million to more than $70 million in the first year and total more than $785 million over 10 years.

“Medicare’s traditional hospital-based outpatient reimbursement for off-campus PBDs has helped make it financially feasible for hospitals to maintain access to primary care and other physician services in their communities for the entire patient population—including Medicare, Medicaid, and underinsured and uninsured individuals,” Bea Grause, RN, JD, president of HANYS, wrote to CMS. “Congress clearly intended to preserve full OPPS reimbursement for these excepted off-campus PBD sites that play a critical role in providing care to their communities.”

Additionally, CMS proposed to reduce payments for services that are from expanded clinical families and furnished in excepted off-campus PBDs to 40 percent of the OPPS rate.

CMS said the change was needed because allowing expanded services in excepted off-campus PBDs has incentivized hospitals to purchase additional physician practices and add those physicians to an existing excepted off-campus PBD.

“Effectively, this creates two categories of services at PBDs: those that will receive OPPS reimbursement and any new services that will receive payment under the reduced PFS payment rate for non-excepted services,” stated Bruce Siegel, MD, president and CEO of America’s Essential Hospitals (AEH), which represents safety-net entities.

The two PBD policy changes were unanimously opposed Aug. 20 by CMS’s Advisory Committee on Hospital Outpatient Payments. Instead, the panel recommended that CMS study the issue to better understand why utilization for outpatient services has increased—the agency’s justification for the changes.

For the excepted off-campus PBD of one hospital located in the Upper Northwest, the practical impact of the proposed policies will include its expected closure or a “drastic reduction in the scope of services,” AHA stated. The hospital recently launched a $15 million expansion of PBD, which is located in a small town 16 miles away from the main hospital, with almost all of the freestanding physician practices in town losing money and either shutting down or asking that their clinicians be made employees of the hospital.

An analysis prepared for AHA by KNG Health Consulting Inc. in June found that compared to Medicare patients seen in physician offices, patients seen in HOPDs are 1.8 times more likely to be dually eligible for Medicare and Medicaid, 1.6 times more likely to be under age 65 and disabled, and 1.1 times more likely to be over 85.

Medicare margins for outpatient services were a record-low -14.8 percent in 2016, according to FY16 Medicare cost report data, and overall Medicare margins were a record-low -9.6 percent. Even hospitals deemed “efficient” by the Medicare Payment Advisory Commission had—for the first time—a negative margin in 2016.

“The site-neutral payment policies implemented by CMS for 2017 and beyond will reduce these margins further,” AHA wrote.

340B Cut Expanded

Hospitals also were sharply critical of a CMS proposal to extend earlier cuts in the 340B discount drug program to hospitals’ nonexcepted off-campus PBDs in CY19. Separately payable drugs and biologicals (other than drugs on pass-through payment status and vaccines) that are acquired under the 340B program and furnished by nonexcepted PBDs would be paid at average sales price (ASP) minus 22.5 percent.

Hospitals are still reeling from a $1.6 billion cut in Medicare payments to 340B hospitals that went into effect at the start of 2018.

For instance, the earlier 340B cut cost St. Mary-Corwin Hospital in Pueblo, Colo., nearly $1 million and contributed to drastic reductions in patient services, such as the closing of the surgical unit and reductions to the intensive care unit. The hospital, which already was operating on narrow financial margins, eliminated 300 jobs to remain financially viable after the 340B reductions.

In a recent survey by 340B Health, which advocates for more than 1,300 hospitals in the program, hospitals’ responses to the earlier 340B cuts were led by reductions in clinical and other patient services (72 percent) and reductions in staff (61 percent).

The site-neutral aspect of the 340B cuts exposed divisions among hospital advocates, with the proposal (and a previous 340B change) drawing praise from the Federation of American Hospitals (FAH). That support stemmed from its projection that about 2,800 hospitals, or 80 percent of all hospitals paid under the OPPS, would garner a net payment increase in 2019 under the earlier 340B payment change, while 578 hospitals would experience a payment cut. Additionally, 89 percent of rural hospitals would have higher payments.

Price Transparency Issues

CMS also drew strong provider responses on price transparency, where it is expected to issue future rules.

For instance, CMS sought perspectives on whether healthcare providers should be required to inform patients how much their out-of-pocket costs for a service will be before those patients receive the service. HFMA wrote that patients should receive information about their out-of-pocket costs before the service is furnished but that insured patients should get the information from their health plan. For uninsured patients or those seeking out-of-network care, the provider should be the principal source of price information.

Similarly, CMS sought comments about whether it should require providers to give patients information on what Medicare pays for a service. HFMA argued that Medicare payments would not be useful for patients since they vary from provider to provider depending on numerous factors.

“Additionally, those non-Medicare beneficiaries would not see this information as relevant for their purposes. So, providing this information would likely be more confusing than useful,” HFMA wrote.


Rich Daly is a senior writer/editor in HFMA’s Washington, D.C., office. Follow Rich on Twitter: @rdalyhealthcare

Publication Date: Wednesday, September 26, 2018