Plan to Cut Hospital Pay Won't Work as Intended: Attorney

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By Michael D. Williamson

July 12 — A proposal to reduce Medicare's payments to hospital outpatient departments will increase costs for other payers, an attorney told Bloomberg BNA July 12.

A group representing community oncology practices, however, applauded the move. Site-neutral payments are needed so that services and procedures rendered at hospital outpatient departments don't cost more than identical treatments performed in doctor-owned practices, Debra Patt, a physician and the medical director for the US Oncology Network, said July 12.

Section 603 of the Bipartisan Budget Act of 2015 required the site-neutral payment policy. Under that policy, certain items and services provided by hospital off-campus outpatient departments would no longer be paid under the hospital outpatient prospective payment system beginning in 2017.

The statute attempts to equalize Medicare payment rates for hospital outpatient departments and hospital-owned physician offices and was meant to address the practice of hospitals acquiring physician offices and then billing patients under the outpatient prospective payment system, which has higher reimbursement rates than the Medicare physician fee schedule. The reimbursement changes would only apply to hospital-owned physician practices acquired or opened since the date the law was signed—Nov. 2, 2015—that are located farther than 250 yards from a hospital's main campus.

The Centers for Medicare & Medicaid Services outlined the site-neutral payment plan its calendar 2017 hospital outpatient prospective payment system proposed rule (RIN:0938-AS82), which is scheduled for publication in the July 14 Federal Register (130 HCDR, 7/7/16). Comments (CMS-1656-P) are due Sept. 6

Cost Shifts?

Implementing site-neutral payments, as proposed, would freeze hospital outpatient departments in time, Lawrence Vernaglia, a Boston-based attorney with Foley & Lardner LLP, told Bloomberg BNA.

That's because the proposed rule makes it too difficult for hospital outpatient departments to add services in response to marketplace changes, said Vernaglia, who represents hospitals, health systems and academic medical centers.

Congress probably didn't intend for this, Vernaglia said. The CMS took an overly inflexible view of the statute, because the proposal states grandfathered facilities need to remain exactly in the condition they were before the law was signed, he told Bloomberg BNA.

In the final rule, the CMS should loosen its interpretation of the statute to allow hospital-owned outpatient facilities to add services or modify their structure, Vernaglia said.

Vernaglia also noted that ultimately, the site-neutral proposal puts hospitals in a bad position. Moreover, it won't actually lower the costs associated with running a hospital outpatient department, he said. Instead, hospitals would simply shift costs to others payers, such as commercial payers or individuals, because outpatient departments are more costly to run than physician group practices, he said.

Also, if hospitals can't persuade other payers to absorb higher costs, they may decide to close some off-campus outpatient departments or transfer them to a main hospital campus site, Vernaglia said. Both options, he noted, would inconvenience Medicare beneficiaries.

Doctor's Take

Taking a different stance, Patt said site-neutral payments are needed to counter consolidation in the health-care marketplace. Hospitals buying community oncology practices have increased costs to Medicare, she said.

For example, the portion of chemotherapy infusions being performed in generally more expensive hospital outpatient settings increased by at least 30 percent from 2004 to 2014 with a corresponding reduction in the generally less expensive physician office settings, Patt said, citing a 2014 report from the Community Oncology Alliance.

If the CMS doesn't proceed with the site-neutral policies it proposed, there would be further consolidation within the provider marketplace and Medicare's costs would continue to increase, she said.

Ultimately, the site-neutral payments are needed to ensure Medicare's integrity, she said.

In addition to being the medical director of the US Oncology Network, Patt is also the vice president of Texas Oncology, a provider group.

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

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

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