In September 2019, U.S. District Judge Rosemary Collyer overturned a Centers for Medicare and Medicaid Services (CMS) rule, implemented by the Trump administration, which reduced the reimbursements for off-site hospital visits. This rule was adopted as part of the calendar year 2019 final rule, which took effect on January 1, 2019, and adopted a two year phase-in of the reductions. Prior to this rule taking effect, CMS generally paid more money for clinic appointments in the off-site outpatient setting as opposed to those conducted in the physician office setting. The rule contained several policy updates that were intended to address the payment differences between these sites. In addressing the price differences, the rule altered payments for services provided at off-campus outpatient departments to match those for clinical visits that were paid under Medicare’s Physician Fee Schedule. CMS estimated this rule would save Medicare roughly $1 billion over the next two years.
With the passage of this rule came many critics, most of which were hospitals and hospital associations. The Association of American Medical Colleges, the American Hospital Association, and roughly forty other hospitals brought suit to challenge this rule. They argued that the Medicare Act did not allow CMS to cut rates, and that Congress had already decided that off-site departments should be paid higher amounts than physician offices for similar services. CMS responded by arguing that the rate for off-site clinic services was too high and that the government implemented the rule to prevent hospitals from building off-site facilities in order to obtain higher reimbursements.
The legal issue that Judge Collyer addressed was whether CMS exceeded its legal authority under Section 603 of the Bipartisan Budget Act of 2015 by extending the so-called site-neutral policy to services provided at off-site clinics. Under Section 1395l(t)(2)(F), the Secretary of Health and Human Services is ordered to “develop a method for controlling unnecessary increases in the volume of covered [outpatient department] services.” Judge Collyer held that CMS’ rule did not meet the definition of “method” under the relevant law. According to Judge Collyer, the law “does not make clear what a ‘method’ is, but it does make clear what a ‘method’ is not: it is not a price-setting tool, and the government’s effort to wield it in such a manner is manifestly inconsistent with the statutory scheme.” Judge Collyer continued, stating that “CMS was not authorized to ignore the statutory process for setting payment rates in the Outpatient Prospective Payment System and to lower payments only for certain services performed by certain providers.”
This decision is a major victory for hospitals, who were expecting reimbursement rates to decrease by a total of $380 million in 2019 and $760 million in 2020. In applauding Judge Collyer, the American Hospital Association and Association of American Medical Colleges stated, “[t]he ruling, which will allow hospitals to maintain access to important services for patients and communities, affirmed that the cuts directly undercut the clear intent of Congress to protect hospital outpatient departments because of the many real and crucial differences between them and other sites of care.”
CMS is still optimistic going forward due to the fact that the court’s ruling did not definitively prohibit all reductions in payments. Instead, the court only stated that this method was not sufficient under the relevant statutory language. Thus, it is unlikely that this is the last we will see on the issue of site-neutral payments. It is probable that CMS is currently formulating another plan to appropriately implement these payment reductions in the near future.
Belmont Law student Jacob Freeland contributed to this report.