On the surface, it makes sense that Medicare should pay the same rate for the same service, regardless of whether it’s performed in an outpatient department or an inpatient setting. But a proposal to do just that has encountered opposition from the American Hospital Association, which recently said it would increase fraud and abuse risks.

According to a legal analysis that Hogan Lovells prepared for the AHA, a so-called site-neutral payment policy would potentially trigger violations of the Stark law as well as the anti-kickback statute.

The two fraud and abuse laws prohibit hospitals from providing free goods or services to physicians who refer business to the hospitals, such as office space, equipment and nursing staff, yet the analysis said the proposal would leave hospitals responsible for staffing and operating their outpatient departments while the entire Medicare reimbursement payment would go to the contracting physician. This kind of arrangement could be equated with the provision of free services, thus triggering the anti-fraud laws.

I spoke with Kirk Ogrosky, an attorney with Arnold & Porter in Washington, who said the site-neutral policy would force hospitals to re-examine their existing relationships and take a look at the perceived risks.

Ogrosky said he was more worried about whistle-blowers looking to exploit any mistakes in hospital payment arrangements than any crackdowns from government agencies. He said the proposed site-neutral policy puts hospitals in a terrible position because existing arrangements between hospitals and physicians could constitute fraud and abuse violations.

The site-neutral payment provisions were included in the proposed 2017 hospital outpatient prospective payment system rule, which was published July 6. Comments are due Sept. 6.

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