Hospitals Sue CMS Over Payment Policy

The American Hospital Association (AHA), the American Association of Medical Colleges (AAMC) and some individual hospitals sued to block the department of Health and Human Services from implementing the so-called “site neutrality” rule which the Centers for Medicare and Medicaid Services (CMS) has finalized for 2019 (“CMS Finalizes Outpatient ‘Site Neutrality’ Rules,” Orthopedics This Week, November 14, 2018).

The rule reduces payments to off-campus hospital outpatient provider-based departments (PBDs) to basically the same rates paid by CMS to physicians at non-hospital outpatient sites under the Physician Fee Schedule (PFS).

The American Academy of Orthopaedic Surgeons (AAOS) has praised the site-neutrality rule, which is due to go into effect on January 1.

The plaintiffs, whose collective oxen would be gored to the tune of $380 million in 2019 and $760 million in 2020, argue that CMS acted contrary to federal law in the rule.

The money taken from hospitals would not go straight to the pockets of non-hospital facilities; it’s money the federal government would save. However, it could reverse a trend of recent years in which hospitals have gobbled up independent practices by removing a powerful financial incentive, e.g., that an outpatient facility currently receives higher reimbursements if it’s owned by a hospital.

The plaintiffs argue in their lawsuit that CMS isn’t allowed to save money that way:

“Specifically, Congress mandated: ‘the adjustments for a year may not cause the estimated amount of expenditures under this part for the year to increase or decrease from the estimated amount of expenditures under this part that would have been made if the adjustments had not been made.’  42 U.S.C. § 1395l(t)(9)(A)…. Any adjustments under subsection (t)(9)(A) must be budget neutral, and CMS may not reduce Medicare Part B spending by selectively slashing the payment rates for specific types of services.”

The hospital plaintiffs argue that off-campus PBDs have higher costs than physician offices. Also, “paying off-campus PBDs at the lower rates paid to physicians would upset the reasonable expectations of hospitals that acquired or built off-campus PBDs with the understanding that they would be paid under the OPPS.”

Plaintiffs seek preliminary and permanent injunctions against the rule. The case, American Hospital Association et al v. Alex Azar II, Case 1:18-cv-02841, was filed in the U.S. District Court for the District of Columbia on December 4.  The 22-page complainti is online.