3 ways hospitals can prepare for site-neutral payment

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Over the last few years, developing and executing an ambulatory strategy has been a core focus of many hospitals and health systems.

Recently, however, Congress pulled the plug on one of the key elements of outpatient revenue. Under the Bipartisan Budget Act of 2015, Medicare reimbursement for off-campus outpatient services will soon be "site-neutral." That means the government will no longer pay more for care provided at freestanding clinics, physician offices and ambulatory surgery centers that happen to be owned by a hospital.

The bottom line is that most health systems will soon see much lower operating revenue from their ambulatory network. But the news is not all bad. Hospital leaders can still build successful outpatient networks by focusing on the fundamentals of ambulatory strategy. The key is to understand your options and make careful decisions about how to move forward.

Here are the facts:

  • Services provided in off-campus hospital outpatient departments are currently reimbursed under the Hospital Outpatient Prospective Payment System.
  • Under Section 603 of the Bipartisan Budget Act of 2015, services provided in HOPDs will soon be reimbursed under the Medicare Physician Fee Schedule or the Ambulatory Surgical Center Fee Schedule, both of which provide significantly lower payment than the OPPS.
  • The new reimbursement goes into effect on January 1, 2017.

Important exceptions:

  • Existing off-campus HOPDs will be "grandfathered in" and continue to be paid under the OPPS system. According to the legislation, in order for a facility to be grandfathered, it had to be billing under the OPPS system as of November 2, 2015.
  • The reimbursement change also does not apply to off-campus facilities dedicated to emergency services.
  • In addition, the law does not apply to on-campus HOPDs or provider-based entities that offer services different from the main provider, such as rural health clinics.

Several uncertainties
Unfortunately, the act leaves several questions unanswered. First, there is no guidance on off-site HOPDs that are already in development or under construction. The legislation implies that facilities not billing under OPPS as of November 2, 2015 will be subject to the revised reimbursement structure. However, given that the new program does not go into effect until January 1, 2017, it would seem that facilities that are completed and start billing after November 2, 2015 could be reimbursed under OPPS until December 31, 2016.

Another area of ambiguity pertains to the size and services of existing facilities grandfathered into the OPPS reimbursement structure. The act provides no provision for these facilities to relocate or substantially expand their service offerings. This could significantly slow down and hinder existing ambulatory expansion plans for many off-site HOPDs.

In the months ahead, CMS will need to provide significant guidance and clarity on these questions and a defined structure on how these issues affect a facility's reimbursement.

What hospital leaders must do now
Site-neutral payment will have a big impact on hospital ambulatory strategies. Going forward, some hospitals may choose to preserve higher reimbursement at all costs by expanding on-campus sites and reining back the development of off-campus HOPDs. But this approach can undercut important strategic goals, including expanding the hospital's geographic footprint, increasing patient access, treating patients in the lowest-cost setting and providing better coordination across the continuum of care.

We recommend that hospital leaders avoid a strategic pull-back. Instead, rebalance your existing ambulatory strategy by paying attention to three priorities:

1. Put renewed focus on downstream revenue
Hospital-based reimbursement has long served as a viable "Plan B" in ambulatory strategy. If a hospital-owned freestanding clinic, ASC or physician office failed to generate expected referrals, the hospital could at least count on higher reimbursement to supplement the facility's financial performance. Now that payment will be site-neutral, health systems must reevaluate their financial investments in off-campus outpatient services.

Hospital leaders now need to ensure that downstream revenue generated by HOPDs will more than offset the reduced reimbursement. One solution is to make it very easy for outpatient clinics and medical practices to refer patients within your network. Key components include subsidized electronic medical record systems, dedicated referral teams and billing support. Communication is also important—make sure outpatient referrers understand the quality of care available through your network of providers.

2. Consider alternative ownership structures
During the last few years, many hospitals have focused on expanding their ambulatory network by buying or building facilities and practices. Now that hospitals can no longer rely on higher reimbursement for these assets, it makes sense to consider alternative ownership structures. Health systems nationwide are beginning to explore creative solutions to outpatient challenges. Many are expanding their ambulatory networks through joint ventures, partnerships and clinical affiliations. In some cases, facility ownership is being replaced by leaseback arrangements. While these structures take some control out of the hands of hospital leaders, they reduce hospital risk and create possibilities for rapid, flexible growth. Again, focus on cultivating relationships. If you can build strong referral patterns from outpatient providers, ownership structure becomes a non-issue.

3. Don't wait to revise your payer strategy
It is almost inevitable that private payers will seek to mirror the new Medicare reimbursement schedule for offsite outpatient departments. Additionally, as payers seek to develop narrow networks and accountable care organizations, they may try to restrict participation to ambulatory facilities they can reimburse at freestanding facility rates.

Hospitals need to meet these challenges proactively. Be prepared to address outpatient reimbursement in contract negotiations. Emphasize that while payers seek to minimize costs, health systems must receive an adequate margin in exchange for providing cost-efficient care. Look for ways to achieve shared goals in cost and quality. For example, negotiate incentive payments for treating patients in lower-cost settings. Some payer contracts now include incentives for steering appropriate patients to an urgent care clinic as opposed to a higher-cost emergency department.

More important than ever
The move to site-neutral payment makes one thing clear—cost control is more important than ever. Healthcare leaders must increase their efforts to streamline operations, coordinate services and reduce total costs by minimizing complications and achieving better clinical outcomes.

Chuck Bollinger is director of advisory services at Hammes Company, a healthcare consulting firm that helps hospitals, health systems and physician groups build high-performing organizations. He can be reached at 800-761-7467 or cbollinger@hammesco.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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