Site-neutral pay proposal sets stage for battle royale between CMS, hospitals
AS THE CMS charts a path to level pay for outpatient services, it’s also leading toward a battle with powerful hospital lobbying groups.
If the agency finalizes its proposal to pay the same rate for services delivered at off-campus hospital outpatient departments and independent doctors’ offices, the CMS would save Medicare $610 million and patients about $150 million. That represents about 1% of the $75 billion that hospitals receive annually from the CMS for outpatient services. Clinic visits are the most common service billed under the outpatient pay rule.
“It was a matter of time until this gap was addressed,” said Fred Bentley, a vice president at Avalere Health. The CMS is trying to keep Medicare solvent, he added. “Admittedly, they are going against a powerful lobby.”
Hospitals argue that their higher rates help pay for expensive overhead costs. Yet, over time, that premise became distorted, critics of the payment disparities argued. Health systems bought more physician groups to take advantage of the higher reimbursement rates, which were doled out even if the hospital-owned clinic didn’t look or operate any differently than a community-based doctor’s office.
The CMS estimates that it was paying $75 to $85 more for the same services in hospital outpatient settings versus physician offices. Patients footed about 20% of that and often received surprise bills for separate hospital fees.
“This has a very real human impact,” said Dr. Farzad Mostashari, CEO and founder of Aledade, which helps establish physician-led ACOs. “The phenomenon of surprise billing doesn’t con- form with consumer expectations.” The CMS outlined who wins and who loses among health systems if the rule is finalized (See chart).
Large physician groups also stand to win if they are paid the same as hospital-employed physicians, Bentley said.
The agency also proposes freezing higher payments for “grandfathered” outpatient sites. In 2016, the CMS passed a site-neutral rule that paid hospital off-campus facilities less than hospital-based outpatient units if they started billing Medicare after Nov. 2, 2015. Health systems responded by hiring physicians and placing them in the grandfathered facilities.
“There are issues about whether Medicare inpatient payment rates are just getting to be too low with the years
of subtractions,” said Paul Ginsburg, director of the Center for Health Policy at the Brookings Institution and director of public policy at the USC Schaeffer Center for Health Policy and Economics. “I am not saying hospitals are OK, but I think they would be much better off to pay hospitals appropriate amounts and avoid this real impediment to a competitive physician market.”
Outpatient care has come a long way since the site-of-service rules were implemented, said Martin Gaynor, professor of economics and health policy at Carnegie Mellon University. “Even with hospitals’ overhead costs, if they can’t do the same care as cheaply as a physician office, why should patients and the American taxpayers pay more than they need to?” Gaynor asked.
Additional facility fees are paid for a wide range of physician services that do not draw on specialized hospital overhead and are commonly provided outside of hospitals, Ginsburg, Gaynor and Mostashari pointed out in their 2017 white paper. As hospitals bought more physician practices, they could also negotiate higher rates with payers.
Higher payment rates allow hospitals to pay physicians more, which accelerates the decline of the independent practice and reduces competition, according to the paper.
Also, hospital-owned practices have incentives to refer patients within their network, Ginsburg said, adding that the lack of competition hinders progress on physician-led alternative payment arrangements such as accountable care organizations or bundled payments.
And if a hospital-owned outpatient department has inflated costs, that could hurt them on value-based arrangements like ACOs, bundled payments, reference pricing and narrow-network plans, Mostashari said, adding that if hospitals are embracing the future of healthcare, they will see these payment changes as a “short-term hit that will yield long-term benefits.”
The CMS also wants to expand last year’s cuts to 340B drug discounts given to outpatient facilities that care for a disproportionate share of low-income patients. That proposal could save Medicare and its beneficiaries about $48.5 million.
With the changes to outpatient payment rules and 340B, it could make physician practices a less attractive acquisition target. But there are still incentives to those deals, said Matt Fiedler, a fellow at the USC-Brookings Schaeffer Initiative on Health Policy.
The proposed rule didn’t address payment discrepancies related to on-campus outpatient facilities, ambulatory surgery centers, or non-clinic visits at pre-existing off-campus facilities. The CMS indicated in its comments section that it could be interested in expanding the site-neutral policy. America’s Essential Hospitals, which represents safety-net providers, said the “draconian” cuts would limit healthcare access for millions of Americans.
“The CMS frames its proposals as empowering patients and providing more affordable choices and options,” Dr. Bruce Siegel, CEO of the trade group, said in a statement. “But we believe these proposals only would create roadblocks to care.”
The cuts to 340B payments coupled with the site-neutral payment proposal would drain struggling providers, he added.
Premier, the group purchasing and consulting organization, agreed and argued that provider-based outpatient services support an overall reduction in healthcare spending and improve care coordination and quality.
“The CMS’ proposal fails to recognize the substantial differences between physician practices and provider-based outpatient clinics that translate into higher overhead expenses for provider-based outpatient clinics,” Blair Childs, senior vice president of public affairs for Premier, said in a statement.
Hospitals adapted their operations expecting to receive higher reimbursement rates and abruptly changing that dynamic isn’t fair, said Paul Hughes-Cromwick, co-director of sustainable health spending strategies at Altarum.
The CMS indicated that its legal argument lies in Section 4523 of the Balanced Budget Act of 1997, which requires a limit on unnecessary spending for outpatient services. Considering the significant increase in outpatient versus inpatient costs, it may have a case, Mostashari said.
The Trump administration also proposed another change that didn’t sit well with providers: They must share patient information when they are discharged as a condition to participate in Medicare.
Mostashari gave credit to the current administration for taking these controversial steps.
“The conventional wisdom is that the hospital lobby is too powerful, but this administration may turn that on its head,” he said. ●
“We believe these (CMS) proposals only would create roadblocks to care in communities across the country.”
Dr. Bruce Siegel CEO America’s Essential Hospitals