Medicare Payment and Reimbursement

Hospitals baffled over why Medicare continues site-neutral payments, 340B cuts despite adverse court rulings

November 7, 2019 9:29 pm
  • Hospital advocates blasted what one sector leader described as “illegal” payment cuts included in a new payment rule.
  • Hospitals in New England and those with the largest 340B payments will face the biggest cuts under the provisions.
  • Hospital advocates identified how CMS should restore 340B cuts if the agency’s appeal fails.

Medicare’s decision to continue two large hospital payment cuts that had been struck down by federal courts drew bewildered responses from large advocacy groups.

The final rule for the Medicare hospital Outpatient Prospective Payment System (OPPS), issued Nov. 1, retained $810 million in a previously proposed annual cut for clinic visits furnished in off-campus hospital outpatient departments (HOPDs) and a $1.6 billion payment cut to the 340B discount drug program. Previous versions of both cuts implemented by the Centers for Medicare & Medicaid Services (CMS) were struck down by federal courts.

Hospital advocates react

“Now that a federal court has sided with the AHA and found that these cuts exceed the Administration’s authority, CMS should abandon further illegal cuts,” Tom Nickels, executive vice president for the American Hospital Association (AHA), said about the outpatient department cuts in a written statement.

America’s Essential Hospitals (AEH), which represents safety net hospitals, warned that the policies would diminish access to care for vulnerable populations.

“By plowing ahead with damaging cuts to hospitals in the 340B Drug Pricing Program and ignoring clear congressional intent by expanding cuts to grandfathered provider-based outpatient clinics, CMS undermines the foundation of care for the nation’s most vulnerable people,” Beth Feldpush, senior vice president of policy and advocacy for AEH, said in a written statement. “The agency also prolongs confusion and uncertainty for hospitals by maintaining unlawful policies it has been told to abandon in clear judicial directives.”

CMS officials wrote in the rule that they will pay back to outpatient departments the 2019 cuts stemming from site-neutral payments, which were struck down by the U.S. District Court for the District of Columbia, but they will continue with rate cuts of 60% for the affected codes in 2020 pending a possible appeal of the ruling.

Similarly, they wrote, they are continuing with the 340B cuts because they are appealing the decision striking those down to the U.S. Court of Appeals for the D.C. Circuit.

Implications of site-neutral payments

Details of the outpatient department cuts for clinic visits include:

  • Implementation of the cuts will be non-budget-neutral.
  • For 2019, CMS will pay back the 30% OPPS rate cut “consistent with the court’s order.”
  • For 2020, the OPPS rate will be reduced by 60%.
  • New England hospitals are projected to feel the biggest financial impact, while hospitals in the “East South Central” geographic region could feel the least impact, according to the rule.
  • Hospitals receiving high amounts of disproportionate share hospital (DSH) payments likewise are projected to be significantly affected, while those not receiving DSH payments could feel a much lesser impact, according to the rule.

Alternative 340B approaches

As CMS considers ways it could revisit its budget-neutral 340B payment cuts if they are rejected at the appellate level, hospital advocates have urged various approaches. For instance, a proposal from the Academy of American Medical Colleges included:

  • Providing full, retroactive non-budget-neutral increases equal to average sales price plus 6%
  • Paying interest on the such claims after 30 days from receipt
  • Allowing hospitals to forgo collecting patient copays that may be affected by the larger payment rate

AHA urged a 340B repayment approach that would be calculated on a hospital-by-hospital basis rather than on a claim-by-claim basis.



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