Hospitals Seeking to Move Outpatient Departments May Face Pay Cuts

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By Michael D. Williamson

Nov. 8 — Many hospital outpatient departments won’t be able to move in the future unless they take a Medicare pay cut, a hospital industry group said Nov. 8.

The Centers for Medicare & Medicaid Services didn’t provide a clear exception process for moving the departments not subject to lower, or site-neutral, payments in the recently released outpatient prospective payment system final rule (RIN:0938-AS82), Chip Kahn, president and chief executive officer of the Federation of American Hospitals (FAH), told Bloomberg BNA.

Site-neutral payments are set to take effect Jan. 1, 2017, and they mean certain items and services provided by off-campus outpatient departments will no longer be paid under the hospital outpatient prospective payment system, which has higher reimbursement rates than the Medicare physician fee schedule. Hospitals have long been encouraged by the outpatient payment system’s higher rates to acquire physician offices in order to receive the higher rate.

The reimbursement changes will only apply to hospital-owned physician practices acquired or opened since Nov. 2, 2015, and that are located farther than 250 yards from a hospital’s main campus.

Outpatient departments that don’t meet those requirements are exempted from site-neutral payments. However, hospital outpatient departments not subject to site-neutral payments may need to move in the future and, at that point, they would lose their outpatient billing system privileges, Katrina A. Pagonis, a health-care attorney for Hooper, Lundy & Bookman PC in San Francisco, said Nov. 8.

Hospitals that need to move their grandfathered outpatient departments may request an exception to keep those billing privileges. Kahn told Bloomberg BNA that from his discussions with the CMS, he isn’t confident the exception process would allow many hospitals to move their grandfathered outpatient departments and keep their current billing status.

Risks in Leases

Hospitals routinely rent facilities for their off-campus outpatient departments, Pagonis told Bloomberg BNA. Some of the leases hospitals sign for those spaces contain clauses that allow the landlord to unilaterally move an off-campus outpatient department to another location, she said.

For example, a landlord could decide to move an off-campus outpatient department in suite 101 of a building to suite 202 in the same building to make room for another tenant, Pagonis said. Hospitals have lease terms that generally span between five and 30 years, Pagonis said.

Roughly one-third of the leases for off-campus space contain unilateral relocation clauses, Pagonis said, attributing that figure to a colleague who handles real estate issues for hospitals. Pagonis added she hasn’t negotiated leases for hospitals.

It’s not known if the CMS would grant an exception for hospitals required to make such moves. The Medicare agency said in the final rule it will issue guidance on the exception process, Pagonis said.

Payment Changes

The FAH’s Kahn said the site-neutral provisions in the final rule are a welcome change from the proposed version of the rule.

Pagonis noted that under the proposed rule, doctors providing services at new, off-campus hospital outpatient departments would have billed Medicare for both their professional fee and the hospital’s facility fee. Hospitals would then have needed to negotiate with doctors to be reimbursed for the hospital’s services. Such hospital-physician arrangements would have raised concerns under Medicare fraud and abuse statutes, including the physician self-referral law (Stark law) and the federal anti-kickback statute, Pagonis told Bloomberg BNA.

The proposal’s site-neutral provisions were “misguided” because they would have essentially prevented off-campus hospital outpatient departments from receiving timely payment, Joanna Hiatt Kim with the American Hospital Association told Bloomberg BNA Nov. 7. Kim is vice president for payment policy in the AHA’s Washington office.

Hospitals subject to site-neutral payments will get 50 percent of the Medicare payments paid to grandfathered off-campus outpatient departments, Kim said.

CMS Taking Comments

Considering everything, Kahn said, the CMS is moving in the right direction on site-neutral payments.

The site-neutral provisions are scheduled to go into effect as an interim final rule, Kahn told Bloomberg BNA. He said the CMS asked for comments on the site-neutral payment policies.

Comments are due Dec. 31.

The CMS released the rule Nov. 1. It is scheduled for publication Nov. 14 in the Federal Register.

To contact the reporter on this story: Michael D. Williamson in Washington at

To contact the editor responsible for this story: Brian Broderick at

For More Information

The final rule is at

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