CMS Must Pay Hospitals What It Withheld Under Site-Neutral Rule

Ken Terry

October 22, 2019

A federal judge on Monday reaffirmed her earlier order that the site-neutral payment policy of the Centers for Medicare and Medicaid Services (CMS) was impermissible. Unless CMS appeals, it will have to pay hospitals all of the money that the court said had been improperly withheld.

On October 7, CMS asked US District Court Judge Rosemary Collyer to modify her September 17 ruling and allow CMS to develop its own remedy for the defects in its regulation on site-neutral payments.

Under that rule, CMS has paid all off-campus provider-based departments (PBDs) and independent physician practices the same amounts for evaluation and management (E&M) services this year. Alternatively, CMS requested a 60-day stay of the court's order while it considered an appeal.

Collyer said in her ruling that she would neither modify nor stay her order. At press time, CMS had not said whether it would appeal the decision.

Collyer rejected CMS's argument that her decision striking down the site-neutral payment policy was on shaky legal ground. She also dismissed the agency's claim that rescinding the E&M rate reduction for hospital outpatient departments would invalidate the underlying hospital reimbursement rates under the Outpatient Prospective Payment System (OPPS).

And she refused to modify her ruling to let CMS develop its own remedy, noting that the cases its lawyers cited did not support its claim that courts should defer to government agencies when a rule is found to be unlawful.

According to Collyer's memorandum, CMS anticipated savings of $300 million in 2019 from the site-neutral payment rule. But the suit brought against the rule by the American Hospital Association (AHA), the Association of American Medical Colleges, and several hospitals estimated the cost of the rule at about $380 million this year and $760 million in 2020.

"Now that Judge Collyer has ruled against the government's motion to reconsider her opinion and for a stay, the AHA expects CMS to comply with today's order and promptly repay the impacted hospitals to support the work they do for the patients they serve," AHA General Counsel Melinda Hatton said in a statement.

CMS Sought to Restrain Costs

The court battle over site-neutral payments has its roots in the Bipartisan Budget Act of 2015. In that law, Congress allowed hospital PBDs, which include employed practices, to bill CMS for E&M services at the higher outpatient department rate if the PBDs existed prior to November 2, 2015.

CMS was allowed to change the payment system for newly established PBDs. But many hospitals added newly recruited physicians to the PBDs that had been grandfathered in. That prevented CMS from lowering their rates to the level that independent practices were paid.

Under the site-neutral payment regulation that CMS finalized last year as part of its OPPS rule, Medicare E&M payments to all PBDs — whether or not they'd been excepted under the budget act — were to be reduced to the same level as payments to independent physicians. CMS planned to phase in this change over 2 years.

Judge Collyer, in her September 17 ruling, disagreed with CMS's assertion that it had the statutory authority to develop a method for controlling unnecessary increases in volume. She said the agency had no authority to reduce payment rates other than that which Congress had provided in establishing the Outpatient Prospective Payment System.

In the wake of the earlier court decision, both the American Academy of Family Physicians and the American College of Physicians said they were disappointed in the ruling. Neither association posted a statement about the latest turn of events. But medical associations and some health policy experts have stated in multiple media reports that the higher charges for services provided in PBDs encourage hospitals to buy practices and place independent physicians at a disadvantage.

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