HHS' site-neutral pay cuts are legal, appeals court rules 

A panel of appellate judges on July 17 overturned a lower court ruling and held that a HHS' site-neutral payment policy that cuts Medicare payments for hospital outpatient visits can go forward. 

Under the 2019 Medicare Outpatient Prospective Payment System final rule, CMS made payments for clinic visits site-neutral by reducing the payment rate for evaluation and management services provided at off-campus provider-based departments by 60 percent.

In an attempt to overturn the rule, the American Hospital Association, the Association of American Medical Colleges and dozens of hospitals across the nation sued HHS. They argued CMS exceeded its authority when it finalized the payment cut in the OPPS rule. They further claimed the site-neutral payment policy violates the Medicare statute's mandate of budget neutrality. 

HHS argued that under the Bipartisan Budget Act of 2015 it has authority to develop a method for controlling unnecessary increases in outpatient department services. Since "method" is not defined in the statute, the government argued its approach satisfies generic definitions of the term. U.S. District Judge Rosemary M. Collyer rejected that argument and set aside the regulation implementing the rate reduction in September 2019.

HHS filed an appeal in the case, and the appellate court reversed the lower court's decision on July 17. 

The question at issue on appeal was whether HHS can reduce the OPPS reimbursement for a specific service, and implement the cut in a non-budget-neutral manner, as a method for controlling unnecessary increases in the volume of the service. 

"Reducing the payment rate for a particular OPPS service readily qualifies … as a 'method for controlling unnecessary increases in the volume' of that service," a panel of judges for the U.S. Court of Appeals for the District of Columbia wrote in the decision. "The lower the reimbursement rate for a service, the less the incentive to provide it, all else being equal. Reducing the reimbursement rate thus is naturally suited to addressing unnecessary increases in the overall volume of a service provided by hospitals." 

The court held that HHS' reduction in reimbursement for evaluation and management services provided by off-campus provider-based departments falls within its authority to develop a method to control unnecessary increase in the volume of outpatient services. 

"Because we conclude that the regulation rests on a reasonable interpretation of HHS's statutory authority to adopt volume-control methods, we now reverse," the panel of appellate judges wrote in the decision. 

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