Hospitals win challenge to site-neutral pay cuts

A Washington, D.C., federal judge ruled Sept. 17 that CMS overstepped its authority last year when it expanded a site-neutral pay policy that cut Medicare payments for hospital outpatient visits by hundreds of millions of dollars.

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 claim the site-neutral payment policy violates the Medicare statute's mandate of budget neutrality and Congress's directive that excepted provider-based departments be reimbursed at OPPS rates and not at lower payment rates CMS applies.

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 in granting the hospitals' motion for summary judgment Sept. 17.

Oftentimes, the meaning of words or phrases only becomes evident when placed in context and with a view to their place in the statutory scheme, the judge wrote in the 28-page decision. "That context does not make clear what a 'method' is, but it does make clear what a 'method' is not: it is not a price-setting tool, and the government's effort to wield it in such a manner is manifestly inconsistent with the statutory scheme."

The judge concluded that CMS failed to follow the statutory process for setting Medicare payment rates when it finalized the OPPS rule.

"CMS believes it is paying millions of taxpayer dollars for patient services in hospital outpatient departments that could be provided at less expense in physician offices. CMS may be correct. But CMS was not authorized to ignore the statutory process for setting payment rates in the Outpatient Prospective Payment System and to lower payments only for certain services performed by certain providers," the judge wrote.

The decision will stop CMS from reducing reimbursement rates to hospitals by $380 million this year and $760 million in 2020.

The hospitals had also requested a court order requiring CMS to issue payments improperly withheld due to the final rule. Ms. Collyer did not grant that request. Instead, she asked the parties to submit a joint status report by Oct. 1 to determine if additional briefings are necessary to determine an appropriate remedy.

The American Hospital Association and the Association of American Medical Colleges said they are pleased with the court's decision.

"The ruling, which will allow hospitals to maintain access to important services for patients and communities, affirmed that the cuts directly undercut the clear intent of Congress to protect hospital outpatient departments because of the many real and crucial differences between them and other sites of care. Now that the court has ruled, it is up to the agency to put forth remedies for impacted hospitals and the patients they serve," the groups said in a joint statement.

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