Federal Appeals Court Favors Site-Neutral Payments

In mid-July of 2020, a federal appeals court ruled in favor of CMS 2019 efforts to implement site-neutral payment cuts to hospitals' off-site outpatient departments.


In July of 2020 the U.S. Court of Appeals for the District of Columbia overturned a district court decision and ruled in favor of the Centers for Medicare and Medicaid Services’ (CMS) 2019 efforts to reduce payments at off-site hospital outpatient departments to the rates Medicare pays to freestanding physician offices for providing the same service, commonly referred to as site-neutral payments.

In its opinion, the court reasoned that the Department of Health and Human Services (HHS) has legal authority to make the cuts under its mandate to control unnecessary increases in the volume of covered outpatient services. Additionally, to illustrate how increased payments lead to increased volume, the court cited 2017 data showing higher payment amounts to hospitals for the same services and MedPAC reports demonstrating that the payment differential has led hospitals to acquire physician practices.

In November of 2019, Business Group on Health sent a letter in support of CMS 2020 efforts to implement site-neutral payments for clinic services. The Business Group also urged CMS to consider in future rulemaking broadening site-neutral payment policies to all clinically appropriate outpatient services.

In a recently released 2021 proposed rule, CMS proposes to achieve further savings, based on site-of-service, by expanding the number of procedures that Medicare would pay for at ambulatory surgical centers, which typically cost less than they do when performed at hospitals. The Business Group is reviewing the proposed rule and is likely to comment.

Employer Impact and What’s Next?

The appellate court ruling could impact private and public payment alignment, provider consolidation and the overall fiscal health of the Medicare program. Many employers are actively engaged with providers in improving health care delivery by ensuring that payment policy and plan design incentives encourage the use of lower-cost sites of care for services where appropriate. Site-neutral payments play an essential role, and alignment between public and private payers sends a strong signal to providers. Additionally, the ruling could discourage hospitals from gaining further market leverage and could lead to divestiture of previously acquired physician practices. Finally, given the projections for Medicare’s insolvency at 2026, without taking into account the impacts of COVID-19, any steps CMS can take now to improve its fiscal status could decrease the likelihood of future payroll tax increases for employers and employees.

The appellate ruling directly impacts 2019 payments to hospitals for covered outpatient services, which is upwards of $380 million. Hospitals could appeal the decision to the U.S. Supreme Court. Hospitals are also suing to block the 2020 proposed rule further implementing site-neutral payments, but given the appellate court’s ruling, it is unlikely they will succeed.

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We provide this material for informational purposes only; it is not a substitute for legal advice.

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