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Federal Judge Rules CMS Site-Neutral Hospital Cuts Illegal

September 24, 2019

On September 17, Federal Judge Rosemary Collyer issued a long-awaited ruling on the legality of the reimbursement cuts to off-campus hospital outpatient departments (HOPDs) made in the CMS 2019 outpatient prospective payment system (OPPS) rule. The ruling is a victory for hospitals and health systems who had argued CMS’ cuts went against federal statutes passed by Congress.

In the 2015 Bipartisan Budget Act, Congress reduced payments for new HOPDs to put them in line with non-hospital sites paid under the physician fee schedule. At the same time, Congress grandfathered existing HOPDs at the previous, higher rate. Nevertheless, in the 2019 OPPS rule, CMS cited a statute that allows them to reduce unnecessary utilization of services as giving them authority to reduce payments to off-campus HOPDs for clinic visit services. CMS has called this policy “site-neutral” payments, believing that Medicare should pay the same rate for similar services, regardless of where those services are delivered.

The idea of site-neutral payments fails to take into consideration that hospitals have historically been paid at higher rates in order to offset the higher costs they face for running 24/7 emergency departments, facing a higher regulatory standard and generally treating sicker, more medically-complex patients. WHA cited these facts in its comment letter to CMS last year, and even spearheaded a letter to CMS from members of Wisconsin’s Congressional delegation mentioning these concerns and calling out CMS’ actions as contrary to the clear intent of the law passed by Congress. Unfortunately, CMS went ahead with these cuts in their final rule, at an estimated impact of $440 million in lower payments to about 40 Wisconsin hospitals over a 10-year period.

In response, hospital groups filed a lawsuit challenging that CMS could not use its authority to reduce unnecessary utilization of services in a manner that conflicts with the statute Congress passed directing how payments must be made under the outpatient rule. Judge Collyer agreed in her ruling, writing, “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.” Rather than ordering CMS to refund the payments to providers, Judge Collyer ordered CMS to determine a remedy and for both parties to submit a status update to the court by October 1.

While this is a huge victory for hospitals, there still may be a long legal road ahead if CMS appeals this decision. WHA will continue to keep a close watch on this issue and will provide updates as needed. For questions, contact WHA Director of Federal and State Relations Jon Hoelter.

This story originally appeared in the September 24, 2019 edition of WHA Newsletter