The Outpatient Payment Rate Debate: What Lower Reimbursement Would Mean for Hospitals

Alvin Hoover, CEO of King's Daughters Medical Center in Brookhaven, Miss., says his hospital faces a number of fiscal challenges as a rural provider. Bad debt is in the 8 percent to 9 percent range, and last year the hospital delivered about $12 million of uncompensated care.

Because of those financial issues, he says it makes sense that Medicare pays his hospital more than ambulatory surgery centers for outpatient services. "If they start paying us ambulatory surgery rates for outpatient surgeries, then we've got some real challenges," he says. "I've got to keep up an emergency department that I don't get paid for a lot of the time. Some other service in my hospital has to supplement the money it takes to pay for that."

However, lowering hospital outpatient department rates is exactly what some officials overseeing the Medicare program have called for, spurring a fierce debate with hospitals. The Medicare Payment Advisory Commission has consistently recommended that Medicare lower its reimbursement rates to hospital outpatient departments, citing the fact Medicare paid HOPDs 78 percent more on average than ASCs for the same procedure in 2013.

In April, the HHS Office of Inspector General reignited the argument over HOPD payments by recommending CMS reduce hospital outpatient prospective payment system rates for ASC-approved procedures to ASC levels for low-risk patients. Supporters of the recommendation say there's no justification for hospitals receiving more reimbursement if the patient's level of risk and the quality of care is comparable to ASC settings. But hospitals have pushed back hard against the idea of lowering outpatient department payments, saying they need higher payment rates to sustain less profitable but necessary service lines such as emergency departments and trauma care.

"Hospital outpatient departments are already paid less than the cost of providing care by Medicare," says Joanna Hiatt Kim, AHA vice president of payment policy. "We disagree with the recommendation and are concerned with it."

The case for site-neutral payments
In its annual report to Congress this past March, MedPAC evaluated 450 ambulatory payment classifications and found 66 that don't require emergency standby capacity, don't have extra costs associated with greater patient complexity and don't need the additional overhead that comes with services that must be provided in a hospital setting. Aligning HOPD payments with physician fee schedule rates for these APCs would reduce Medicare spending and beneficiary cost sharing by $1.1 billion in one year, according to the report.

Furthermore, MedPAC has said the pay gap gives hospitals an incentive to acquire physician practices and begin billing for the same services as HOPD procedures. "The Commission's position is that Medicare should ensure that patients have access to settings that provide the appropriate level of care," the report states. "From this perspective, if the same service can be safely provided in different settings, a prudent purchaser should not pay more for that service in one setting than another."

The OIG report issued the following month echoed MedPAC's stance, stating that reducing hospital outpatient prospective payments rates for ASC-approved procedures for low-risk cases could save Medicare as much as $15 billion from 2012 through 2017. Lower HOPD reimbursements could also save beneficiaries $2 billion to $4 billion in copays and coinsurance during the same time period, according to the OIG.

As hospitals continue to employ more physicians, the higher HOPD payments from Medicare and private payers alike are unlikely to be sustainable, according to an April 2013 article from professional services firm Alvarez & Marsal.

Additionally, physician services performed in hospital outpatient settings instead of freestanding practices cost considerably more because of facility fees for hospital-based care. According to a 2012 MedPAC report, evaluation and management office visits are reimbursed at rates 80 percent higher by Medicare if they are performed in a HOPD, as opposed to a freestanding physician clinic.

"Historically, there's been a differential between hospital outpatient departments and freestanding physician centers, and then over the past number of years hospitals have been acquiring physician practices," says A&M Director of Research David Gruber, MD. "Payers, including CMS and employers, are beginning to question the incremental value generated by the higher prices charged by HOPDs."

In response to the hospitals' argument about subsidizing EDs and trauma care, Dr. Gruber says that argument doesn't apply to all hospitals. Even in the case of safety-net hospitals, he says expanded insurance coverage under the Patient Protection and Affordable Care Act should help increase reimbursement. Additionally, he noted that Medicaid and Medicare disproportionate share hospital payments compensate safety-net providers for uncompensated care, although the PPACA is in the process of reducing DSH reimbursements.

Hospitals: Higher payments than ASCs are justified
AHA policy director Roslyne Schulman says hospitals need the higher payments because all of them — even those not designated as safety-net hospitals — play a unique role in their communities, compared with ASCs. "They support all kinds of public health needs and offer other kinds of services that support the health and the well-being of the community," she says of hospitals. "Hospitals provide care for all patients, regardless of ability to pay. They are prepared to care for victims of any kind of disaster. All of those things are part of what the Medicare program pays for."

Based on his experience as a physician working in hospitals, Bill Bithoney, MD — chief physician executive and managing director with BDO Consulting, where he co-leads clinical strategy for the firm's National Healthcare Advisory Practice within BDO's Center for Healthcare Excellence & Innovation — agrees with the AHA that hospitals wouldn't be able to play that essential role without higher outpatient payments. He says ASCs can be selective and choose to treat only patients with commercial insurance, while hospitals must provide emergency care to everyone.

"They can never turn away patients who are uninsured," he says of hospitals. "The ambulatory surgery centers play on a different field."

Reginald Coopwood, MD, president and CEO of Memphis, Tenn.-based Regional One Health made a similar argument while testifying on behalf of the AHA at a hearing in May on Medicare payment reform. Dr. Coopwood told the House Energy and Commerce Health Subcommittee that implementing site-neutral payment policies would reduce Medicare hospital outpatient department payments by 5.5 percent, causing hospitals' Medicare outpatient margins to drop from negative 11.2 percent in 2011 to negative 17.7 percent. "Medicare beneficiaries and the public consistently express concern that cuts to hospital payments could mean fewer nurses and longer waits in emergency departments," he said.

Mr. Hoover of King's Daughters Medical Center says lower outpatient payments would mean his hospital would no longer be able to offer some of the services it has historically provided. "Then you've got a lot of patients who will have to travel 50 miles or more from our community to be able to get to a place that can afford to offer those services," he says. "You're going to restrict access, when, over the last 10 years, one thing we've done is improve access."

Ultimately, though, it seems unlikely that King's Daughters or any other hospitals will have to contend with site-neutral outpatient department payments in the near future. CMS Administrator Marilyn Tavenner has disagreed with the OIG's recommendations, saying a change of that scope would require legislative approval. She also said most ASC payment rates are based on hospital outpatient rates, and therefore paying hospitals based on ASC rates would be challenging. Ms. Hiatt Kim says this seems to indicate that CMS doesn't plan on enacting the suggested payment change.

Similarly, Dr. Bithoney says dropping HOPD payment rates to ASC levels would be "quite challenging" in the short run. "It would be complicated, and it would be politically charged," he says.

However, Dr. Gruber says he thinks lower HOPD reimbursement will likely happen as the healthcare industry works to contain costs and moves toward value-based reimbursement. "CMS clearly recognizes an opportunity to lower costs for specific types of visits, tests and procedures, and patient sub-populations," he says. "Hospitals should view this move toward site-neutral reimbursement as a harbinger for the future."

More Articles on HOPD Payments:
AHA to Congress: Don't Lower Hospital Outpatient Department Payments  
OIG Says Bring Down HOPD Rates for Surgery to ASC Rates, CMS Disagrees: 11 Things to Know  
OIG: Medicare Should Reduce HOPD Surgery Payments to ASC Rates 


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