8 things for hospital executives and surgery center owners to know about site-neutral reimbursement

The concept of "site neutrality" — providing equal reimbursement for the same services regardless of care setting — is not new, but it has taken on greater significance for hospital executives, as well as ambulatory surgery center (ASC) owners, over the past several months.

Site neutrality is a complex topic, and there has been a great deal of information shared in the media and industry publications about it. We receive frequent questions about site neutrality and how it will impact current operations and strategic planning. Much of what people are asking about is based on misconceptions and misunderstandings. We will hopefully address many of those questions in this piece.

Timeline
Before discussing some of the most important things for hospitals and ASCs to know about site-neutral reimbursement, it's helpful to understand how we got to where we are today. Here's a timeline of some of the recent and upcoming events concerning site neutrality affecting hospital outpatient departments (HOPDs).

Note: The Centers for Medicare & Medicaid Services (CMS) does not refer to an ASC acquired and converted by a hospital as an HOPD (the acronym used frequently in conversations). Rather, the "correct" term for this transition is that the ASC becomes a "provider-based department" (PBD). For ease of understanding, we will continue to reference provider-based entities as HOPDs in this article.

November 2015: President Barack Obama signs the Bipartisan Budget Act of 2015 into law. Included in the law, within Section 603, is a site-neutrality provision that, generally speaking, states off-campus outpatient facilities acquired or established by hospitals on or after the date of enactment of the law (November 2, 2015) are not be eligible for Medicare reimbursement under the outpatient prospective payment system (OPPS). These new off-campus HOPDs would be eligible for reimbursement from the ASC or physician payment systems, both of which typically pay less — sometimes substantially less — than the OPPS for like procedures. Implementation is scheduled for January 1, 2017.

Early 2016: The House of Representative's Energy and Commerce Committee gathers feedback for possible action on a new site-neutral Medicare payment policy.

The American Hospital Association (AHA) submits a letter expressing its displeasure with the law, stating, "The AHA and the hospital field are extremely concerned about site-neutral payment proposals that would reimburse hospitals at the payment rates of facilities with lesser clinical capabilities. ... Therefore, the AHA urges Congress to reject any further site-neutral payment policies." AHA publishes an infographic to support its case.

July 2016: CMS issues its 2017 OPPS proposed rule, which included the proposal to implement Section 603.

The American Medical Association (AMA) issues a statement in support of the proposal, with AMA President Dr. Andrew W. Gurman noting, "Providing similar payments for similar professional services located outside of a hospital campus, regardless of facility ownership, could lead to a more level economic playing field and help preserve independent practice. The new policy is more equitable for patients, who, CMS notes, often pay more for the same service provided in an off-campus department of a hospital."

September 2016: CMS to accept comments on the proposed rule until September 6, 2016 (not long after this article published!).

October/November 2016: CMS released its final 2016 OPPS and ASC Payment System rule on Oct. 30, 2015, which provides a general timeframe of when to expect the 2017 final rule.

January 1, 2017: Unless it is rejected, Section 603 takes effect, possibly with revisions.

What to know
Here are eight things for hospital executives and ASC owners to know about Section 603 and its possible impact.

1. Reasons. There are several reasons why lawmakers have pushed for site neutrality. They include the following:

• Higher cost, no change in quality — As the Medicare Payment Advisory Commission (MedPAC) noted, "If Medicare pays a higher rate for a service in one setting over another, program spending increases and beneficiaries pay more in cost sharing without a corresponding increase in quality of care."
• Consolidation — Over the past several years, there has been an increase in the number of ASCs acquired by hospitals and converted into HOPDs, and an increase in hospital acquisitions of physician practices. As the AMA noted in its statement on the 2017 OPPS proposed rule, "The CMS proposal could help stem the tide of consolidation by large systems and help small practices maintain their independence. ... CMS proposes to reduce the incentives for hospitals to purchase physician practices by paying the same Medicare rates after future hospital acquisitions, whether physician services are provided in freestanding independent practices or in off-campus, hospital-owned practices."

2. Exemptions. Section 603 notes that certain off-campus HOPDs would be permitted to continue to bill for excepted items and services under the OPPS. These excepted items and services are as follows:

• All items and services furnished in a dedicated emergency department.
• Items and services that were furnished and billed by an off-campus HOPD prior to November 2, 2015.
• Items and services furnished in a hospital department within 250 yards of a remote location of the hospital.

3. Affected services. In the event of Section 603 implementation, numerous clinical families of services would be affected. As noted in the proposed rule, which identifies 60-plus associated APCs, these include:

• Advanced imaging
• Clinical oncology
• ENT
• General surgery
• GI
• Gynecology
• Musculoskeletal surgery
• Ophthalmology
• Urology

It is worth noting that the families identified here are some of the most common ASC specialties.

4. Impact on hospitals. If the policy, as written, takes effect January 1, 2017, there could be a number of impacts on hospitals.

Hospitals with HOPDs under development or facilities acquired that were or will be converted into HOPDs after November 2, 2015, will feel the effects the most. As the AHA noted, "... this law will result in substantial reductions to payments for services furnished in provider-based [HOPDs]."

As MedPAC noted, "... in 2016, the Medicare rates are 79 percent higher in HOPDs than in ASCs."

The significant reduction in Medicare reimbursement may make prospective outpatient initiatives no longer financially viable, especially for those facilities catering to a large Medicare patient base.

The policy will likely have a chilling effect on hospitals considering such acquisitions and/or projects, and may deter future investments in HOPDs.

For hospitals with HOPDs not grandfathered into the policy, it will be extremely important that the HOPD is run more like a freestanding facility (ASC) rather than an HOPD. Such functions should include the following:

• Scheduling, pre-certification and registration
• Billing
• Equipment and supplies
• Staffing
• IT

This can be tricky because of the requirements associated with Medicare's requirements for provider-based entities (42 C.F.R. §413.65). But hospitals should look for every opportunity to adopt a freestanding culture in these facilities and migrate that culture as much as possible back to the main campus.

5. Impact on ASCs. As mentioned, ASCs will likely become less appealing acquisition targets for hospitals because, from a reimbursement perspective, the significant bump in Medicare payment that has come with past conversion of an ASC to an HOPD will effectively be eliminated.

But ASCs will still be targeted for acquisition by hospitals lacking a strong outpatient surgical infrastructure because of value- and population health-based reimbursement methodologies.

6. Impact on payers. This will be a particularly interesting aspect to watch as it has the potential to have a significant impact on hospitals.

Payers often follow the lead of Medicare and base their reimbursement off current Medicare rates. Payers may seek to reduce hospital reimbursement closer to the physician fee schedule and ASC rate for outpatient surgical procedures that HOPDs established after November 2, 2015, will receive.

If HOPDs see their commercial rates reduced, their operating margins will become tighter, which will place an even greater emphasis on running these facilities — operationally, financially and clinically — like a low-cost, high-volume ASC. Surgery centers have found success in this model, but it is challenging, requires careful planning and execution, and frequent review of operations to identify and eliminate waste and improve efficiency.

7. Impact on consumers. This will also be a particularly interesting aspect to watch. "New consumers" — those who are concerned as much, if not more, about cost and choice as they are about their care — often take the time to research their care options because high-deductible health plans are placing more of the financial burden on patients.

If these new consumers were to compare services offered at various HOPDs, they would likely choose to receive care at an HOPD opened after November 2, 2015, and paid under the physician payment or ASC payment system, rather than a grandfathered HOPD paid under OPPS because the amount consumers would need to pay to cover their personal portion of the healthcare bill, i.e., the amount not covered by insurance, would be much lower.

8. Questions unanswered. While January 1, 2017, is not very far away, there remains a number of unanswered questions about the provision and its impact. At the time this article was written, they include the following:

• How will HOPDs under development prior to November 2, 2015, be affected? Note: There is proposed, separate legislation — the Helping Hospitals Improve Patient Care Act — that would address this issue. It passed through the House of Representatives and is awaiting action in the Senate.
• Can a grandfathered facility make changes to/expand services and space?
• What will happen if a grandfathered facility changes location or owner?
• How will CMS pay for non-excepted services after 2017?
• How would new HOPDs seeking grandfathered status apply/be identified by CMS?

Proceed with caution
As long as these and other questions remain unanswered, organizations potentially affected by Section 603 will likely want to take a cautious approach on making decisions that may need to be reversed or revised significantly, depending upon future legislation or lack thereof. Regardless of the outcome of the rule, hospitals need to work toward moving to an operating model sustainable under site neutrality.

Joan Dentler is president and CEO of Avanza Healthcare Strategies, which provides hospitals and federally qualified health centers with strategic guidance, with a focus on outpatient services and population health management. She can be reached at jdentler@avanzastrategies.com.

The views, opinions and positions expressed within these guest posts are those of the author alone and do not represent those of Becker's Hospital Review/Becker's Healthcare. The accuracy, completeness and validity of any statements made within this article are not guaranteed. We accept no liability for any errors, omissions or representations. The copyright of this content belongs to the author and any liability with regards to infringement of intellectual property rights remains with them.​

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