Overview.While the long-anticipated CY 2019 Medicare Hospital Outpatient and Ambulatory Surgery Center payment updates did not include removing total and partial hip replacement from the Medicare Inpatient Only List or adding Total Knee Replacement to the Ambulatory Surgery Center Covered Procedure List, it did not disappoint in its radicalism. CMS proposed sweeping reductions to hospital outpatient payments while at the same time encouraging migration of procedures from hospitals to Ambulatory Surgery Centers through a multiyear reimbursement increase. In so doing, CMS has hailed an end to payment policies that support and even encourage health system consolidation. As we noted in our recent call on SGRY, the policy tailwinds won’t be sufficient to overcome the many challenges the company faces. |
Although last year, CMS signaled an interest in moving total and partial hip replacement off the Medicare Inpatient Only list and permitting total knee replacements to be performed in Ambulatory Surgery Centers, it declined to do so in the year’s OPPS/ASC payment update. Apparently, there are still considerable problems reconciling Medicare’s two midnight policy for inpatient status with performing TKA on an outpatient basis, the moratorium on RAC reviews notwithstanding.
Concerns about operationalizing outpatient TKA did not, however, stop CMS from issuing payment rules with significant consequences for health systems, Hospital Outpatient Departments and Ambulatory Surgery Centers.
The policy message is clear, Medicare payment policy is decidedly biased toward lower cost care settings when clinically appropriate.
For hospital outpatient departments the major changes are:
- Clinic visits to ALL hospital outpatient departments – not just new ones subject to the c. 2015 site neutral payment policy that went into effect in 2017 – will be paid 40 percent of the outpatient department rate. Clinic visits are one of the most frequently billed hospital outpatient services in Medicare. Under the proposal, a clinic visit will be reimbursed at $46 versus $116 under OPPS. There were 10.7 million claims for clinic visits in 2017.
- For HOPDs, not subject to the c. 2015 site neutral payment policy and that choose to expand their services to include procedures in new clinical families not previously performed, will be paid 40 percent of the OPPS rate.
- 340B reimbursement at HOPDs subject to the site neutral payment policies will be ASP less 22.5 percent.
- Data collection of items and services delivered through freestanding emergency rooms will now be required
These site neutral policies are designed to level the reimbursement playing field between HOPDs and physician offices and prevent evasive tactics like expanding services in grandfathered HOPDs to avoid the new lower reimbursement. The payment rules also limit a hospital’s ability to avoid new 340B reimbursement changes. The new reporting requirements for services delivered at freestanding emergency rooms suggests the end may be nigh for that hospital system revenue stream.
Not only is this rule bad news for HOPD reimbursement, when combined with last year’s changes to 340B drug payment policy, it eliminates two major reasons for hospitals to acquire physician practices. That result is most certainly by design. The Trump administration has repeatedly expressed its opposition the health care system consolidation.
As bad as the rule is for HOPDs, quite the opposite is true for ASCs. The major provisions are:
- Effective for 2019 through 2023, ASCs annual Medicare payment increase will be linked to the Inpatient Prospective Payment System market basket instead of CPI-U. The effect of this change is a 70 basis point increase in Medicare reimbursement for CY 2019.
- Effective in 2019, CMS will add certain cardiac procedures to the ASC Covered Procedures List. These include the always margin enhancing cardiac catherization of the heart. The ASC Covered Procedure Lists DOES NOT include associated interventions like angioplasty and stents.
The increase in reimbursement to match that of hospitals – something long sought by the ASC industry – was accompanied by some very telling commentary:
“We are concerned about the potential unintended consequences of using CPI-U to update payments for ASCs, such as consolidation of ASCs or fewer physician-owned ASCs, which may contribute to higher prices, stagnation in number of ASC facilities and number of multispecialty ASC facilities and payments being misaligned with the cost of treatment for complex patients.”
In short, CMS has recognized, for the first time that we know of that the CPI-U linked reimbursement for ASCs has limited procedure migration from HOPDs and that approach is no longer acceptable.
"The administration recognizes the value that ASCs may bring to the Medicare Program that results in the delivery of efficient, high quality care to beneficiaries at a lower cost. The administration is promoting greater transparency across all of Medicare's payment systems. Both beneficiaries and the Medicare Program benefit from reduced expenditure when a beneficiary's clinical needs allow for a procedure to be performed in a lower cost setting, such as ASCs relative to hospital outpatient departments."
This new policy is not without some trepidation. CMS, likely in response to a few poor spine surgery outcomes documented by Kaiser Health News and USA Today, is reviewing 38 procedures added to ASC Covered Procedure List in 2015, 2016 and 2017.
Despite the strong policy direction, it will not be sufficient to overcome the significant challenges faced by SGRY in the near term such as weak payer mix, geographical locations and a challenged balance sheet. Replay of our short thesis on SGRY is available here. For THC, however, the policy tailwinds should reward their outpatient strategy in acquiring USPI.
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Emily Evans
Managing Director
Health Policy
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Thomas Tobin
Managing Director
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