Proposed payment changes could influence hospitals' acquisition strategies

CMS' 2019 Medicare Outpatient Prospective Payment System proposed rule, which calls for site-neutral payments and various other hospital payment changes, would likely put pressure on nonprofit and for-profit hospital operating margins, according to S&P Global Ratings.

Under the proposed rule, CMS would make payments for clinic visits site-neutral by reducing the payment rate for hospital outpatient clinic visits provided at off-campus provider-based departments to 40 percent of the OPPS rate. This change would likely contribute to pressure on hospital operating margins, but it is not expected to have a significant effect on credit quality, said Martin Arrick, managing director at S&P.

He said hospitals' balance sheets are generally stronger than in the past, with days cash on hand and unrestricted cash and investments to debt at levels that exceed pre-2008 peaks. He expects this would help offset any operating margin pressure from CMS' site-neutral payment proposal.  

Additionally, hospitals financially benefiting from existing payment guidelines would most likely adjust, according to Kenneth Gacka, senior director and analytical manager with S&P.

"In talking with hospital management teams, we find in most cases they have their finger on the pulse of these things and it's one of many incremental factors they consider as they develop strategies to offset or adjust for these potential changes," he said.

If CMS' site-neutral payment proposal is finalized, hospitals would need to examine relative profitability of different outpatient service lines as they develop their strategy for the future, according to Mr. Arrick.

He believes physician acquisition activities by hospitals would slow down if the proposed rule is finalized because a lot of those activities were initially, in part, an opportunity to have a more favorable billing environment.

"That kind of created a win-win for the doctors and the hospital, and if this undercuts that — and that has to be a doctor-by-doctor and service-by-service analysis — then that could be an issue slowing down physician acquisitions," he said.

Overall, CMS estimates the site-neutral payment proposal would save the Medicare program and Medicare beneficiaries a combined $760 million in 2019.


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