Medicare to Pay Independent, Hospital-Owned Practices the Same

Ken Terry

July 11, 2016

The Centers for Medicare & Medicaid Services (CMS) has proposed regulations that would implement "site-neutral" Medicare payments to ambulatory care practices owned by hospitals and give them less of a reason to employ physicians.

Following a law Congress passed in 2015, the CMS would no longer classify certain employed physicians as being part of a hospital outpatient department (HOPD) that can add facility fees to its charges. As a result, the hospital would receive a lower payment for their services than it does now, because the doctors would be paid under the Medicare fee schedule, just like physicians in private practice.

Besides payments for office visits, the site-neutral approach would also affect tests that are often performed in physician offices, such as echocardiograms. Medicare pays far more for these tests when they're done in an HOPD than when they're performed outside of a hospital. The same is true for chemotherapy when it is provided in an HOPD rather than a physician's office.

The proposed regulations, part of the CMS' 2017 Hospital Outpatient Prospective System (OPPS) proposal, provide these three key exceptions:

  • All items and services furnished in a dedicated emergency department.

  • Items and services furnished in a hospital department within 250 yards of a remote location of the hospital.

  • Items and services that were furnished and billed by an off-campus hospital department prior to November 2, 2015.

If any one of a hospital's grandfathered ambulatory care sites has changed its location since November 2, 2015, or does so in the future, it would be subject to the site-neutral payment, the proposed rules say. But the OPPS payment status of an off-campus practice would continue, the CMS proposes, if it changes ownership and the new owner adopts the practice's existing Medicare agreement.

Although the services provided by the affected physicians would be reimbursed under the Medicare fee schedule, they would not be paid under Medicare Part B in 2017. The CMS said it is still exploring "operational changes" that would allow a hospital-owned practice to bill under Medicare Part B.

The site-neutral payment proposal would have substantial effects on both Medicare and healthcare providers. Medicare would save about $500 million per year, according to the CMS actuaries, because it would be paying less for ambulatory care services. At the same time, hospitals would lose the incentive to acquire more practices so that they could benefit financially from the higher ambulatory care payments.

Whether this regulatory change would have an impact on what hospitals pay employed doctors remains to be seen.

Whether this regulatory change would have an impact on what hospitals pay employed doctors remains to be seen. But it's noteworthy that the Medicare Payment Advisory Commission (MedPAC) estimated that hospital revenue would sink by $1.44 billion per year under an earlier version of the site-neutral payment scheme.

The American Hospital Association (AHA) lost no time in expressing its opposition to this proposal. "We are extremely dismayed by the shortsighted policies in today's proposed rule," AHA Executive Vice President Tom Nickels said in a news release. "Taken together, it appears that CMS is aiming to freeze the progress of hospital-based health care in its tracks. We will submit detailed comments to the agency urging them to revise these misguided policies so that hospitals can continue to provide the highest quality health care to their communities."

The core of the AHA's objection is that hospitals must provide round-the-clock patient care and serve as safety-net providers. They thus need the additional income provided by the current OPPS payments, the AHA argues.

Stem the Tide of Consolidation?

The American Medical Association (AMA), in its comment on the CMS proposal, said that the higher payments to hospitals "have promoted consolidation in the healthcare industry.... The CMS proposal could help stem the tide of consolidation by large systems and help small practices maintain their independence."

"Providing similar payments for similar professional services located outside of a hospital campus, regardless of facility ownership, could lead to a more level economic playing field and help preserve independent practice," said AMA President Andrew W. Gurman, MD, in the statement. "The new policy is more equitable for patients, who, CMS notes, often pay more for the same service provided in an off-campus department of a hospital."

The AMA has some facts on its side of the argument. According to MedPAC, the share of E&M doctor visits and diagnostic cardiology procedures performed in HOPDs increased 8% from 2010 to 2011 and 9% from 2011 to 2012. MedPAC attributed some of this increase to the formation of integrated delivery systems and the increasing employment of physicians by hospitals.

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