OVERVIEW. Coming on the heels of yesterday’s announcement that CMS would proceed with a dramatic cut in reimbursement for outpatient drugs is the decision to reduce payments to certain hospital outpatients departments. The cuts were not as bad as initially proposed but the message is clear: CMS intends to implement both the letter and spirit of the site neutral payment law.
Payments to new (as of Nov 2, 2015 with some grandfathered provisions) hospital outpatient departments will be paid at 40 percent of the physicians’ fee schedule in CY 2018, a reduction of 10 percent from CY 2017.
NEW PAYMENT SYSTEM. Site neutral Medicare payments was a preoccupation of Rep. Paul Ryan before he became Speaker Paul Ryan. Rep. Ryan was successful in adding to a “must pass bill” a provision that required CMS to reimburse newly acquired or constructed hospital outpatient departments at either the Ambulatory Surgery Center or the Physicians Fee Schedule rate, both of which are lower than HOPD reimbursement.
CMS determined in rulemaking that the PFS would be the basis for reimbursement for these new HOPDs. To equalize the payment systems – Hospitals bill using the Outpatient Prospective Payment System not the PFS – CMS created the “PFS Relativity Adjuster.” The PFS Relativity Adjuster is applied to the OPPS rate to arrive at the new site neutral reimbursement.
CY 2018 PAYMENT RATES. Effective Jan. 1, 2017, CMS established the PFS Relativity Adjuster at 50 percent of the OPPS. In July, when the proposed CY 2018 Physicians Fee Schedule rule was released, CMS proposed to reduce the adjuster amount to 25 percent. In today’s rule, CMS is finalizing a PFS Relativity Adjustment of 40 percent.
CMS provided some relief from what was initially proposed in large part due to data constraints. Investors should not take too much comfort in the decision, however. CMS issued the following warning:
We continue to believe the amendments made to the statute by section 603 of the Bipartisan Budget Act of 2015 intended to eliminate the Medicare payment incentive for hospitals to purchase physician offices, convert them to off-campus PBDs, and bill under the OPPS for items and services they furnish there. Therefore, we continue to believe the payment policy under this provision should ultimately equalize payment rates between nonexcepted offcampus PBDs and physician offices to the greatest extent possible, while allowing nonexcepted off-campus PBDs to bill in a straight-forward way for services they furnish.
Translation: We are not done yet.
The combined effect of this change and yesterday’s 340B drug payment policy change are significantly reduced incentives to grow through acquisition of physicians’ practices or ambulatory surgery centers.
The change also has implications for THC which acquired USPI. USPI facilities, as of the effective date of the change in law, were part owned by Welsh Carson and thus not eligible to be classified as HOPDs. While THC says they never planned to convert USPI facilities to HOPDs (and we are skeptical that is truly the case), the change in law and the subsequent implementation of site neutral payments certainly makes the acquisition less attractive in retrospect.
Call with questions.
Emily Evans
Managing Director
Health Policy
@HedgeyeEEvans
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