Doctors and Hospitals Face Cuts in the Proposed Budget Deal

This blog was originally posted on 10/29/15 and was updated on 10/30/15.

Last evening, the Senate passed a two-year $80 billion budget deal, which the House passed earlier this week. Final passage of the bill is expected later today. The plan would extend Medicare payment reductions, continue sequester spending cuts and limit future payment rates for hospitals that set up or buy off-campus facilities. It would also raise the federal borrowing limit and prevent a looming spike in premiums for about 30% of Medicare Part B beneficiaries.

Of particular concerns for hospitals and other providers, Section 603 of the bill would codify the Centers for Medicare & Medicaid Services (CMS) definition of provider-based (PBD) off-campus hospital outpatient departments (HOPDs) as those locations that are not on the main campus of a hospital and are located more 250 yards from the main campus.

While we are in “wait and see” mode, those with existing PBD HOPDs celebrated a small victory with the proposed section 603 in that it would allow them to be grandfathered in under the existing reimbursement model. MEDPAC’s recommendations released earlier this year recommended not grandfathering in existing PBD HOPDs.

Conversely, the proposed regulation does not seem to provide much relief to hospitals that began work on off-campus locations (particularly surgery locations), in some cases two to three years ago, and will not receive HOPD rates after 12/31/16. The costs for those projects have already been incurred and now the reimbursement for those facilities will be slashed with no real warning that it was imminent. One negative outcome of this law could be the expansion of the government business of picking winners and losers through the grandfathering clause which protects payments for existing facilities while slashing expectations overnight for identical facilities being planned or under construction.

Requirements for new off-campus HOPD locations to enter into new provider agreements are concerning particularly for hospitals and leave the industry with many unanswered questions related to the following:

• Will the Medicare hospital conditions of participation apply to these locations?
• If outpatient surgical locations are required to enter into new provider agreements, will it be the provider agreement that is typically signed by ambulatory surgery centers (ASCs)? If so, does that mean the ASC conditions for coverage apply to the location, as well?
• If the outpatient location is treated as a physician clinic, what CMS coverage rules will apply to that location?
• If new provider agreements are required, will hospitals end up with multiple provider numbers?
• If new provider numbers are issued for the outpatient locations, will CMS allow larger healthcare companies to have the reimbursement payments that are paid to those new numbers deposited in a central bank account? Currently, CMS will allow this approach with amounts that are paid to Medicare Part A numbers but refuses to take that same approach with Medicare Part B numbers.
• How will the Medicare successor liability provisions apply to these new provider agreements?
• How will the effective date be determined for these new locations? For example, if an outpatient surgery department is treated as a new ASC, the location typically has to pass a CMS/accreditation survey before it can participate in Medicare. Would that apply here?
• Does Congress agree with CMS’s position that the 250-foot requirement for on-campus status is measured from the front door of the facility?

If (and when) enacted, section 603 would impact hospitals' physician-alignment strategies, and the budget deal would reduce incentives for hospitals to buy physician practices and other ancillary service lines, which many hospitals and health systems have done to expand networks and meet the Affordable Care Act's push for coordinated care.

Comments on section 603 from various industry associations were mixed. The Federation of American Hospitals’ spokesman said the change in payment method to HOPDs is reasonable, thinking the current payment method was flawed and being exploited. The American Hospital Association, meanwhile, said the propsed cut in funding to HOPDs is an untested idea which "may endanger patient access to care, especially among patients who are sicker, the poor, minorities and seniors who often receive care in hospital outpatient departments. Moreover, rural communities will be most adversely impacted, as hospitals will no longer be able to help physicians in these communities continue to provide access to their patients."

President Barack Obama’s stated, “Evidence suggests that in recent years, billing of many ambulatory services has been shifting from physicians’ offices to the usually higher paid hospital outpatient department setting, increasing Medicare spending and beneficiary cost-sharing.”

The deal is broadly expected to pass in its current form, and the effort over the next week and through the end of the year will be focused on educating members with a goal of a congressional push to restore fairness to this area of the highly competitive healthcare industry. It will be important for lawmakers in the U.S. House and Senate to hear directly from industry-related constituents as the new law is implemented at the agency level, and the role of CMS will be crucial in making sure this is implemented properly and clearly.