Site-Neutral Payments Are Less Than Meets the Eye, Experts Say

Ken Terry

December 06, 2018

The new "site-neutral payment" policy of the Centers for Medicare & Medicaid Services (CMS) will hurt hospitals less than they claim and help independent physician practices less than they hope, according to some health policy experts — despite strong feelings on both sides toward the policy.

Nevertheless, these observers view this reform as a reasonable way for CMS to save money and encourage greater competition in healthcare.

The new CMS policy, recently finalized as part of the Medicare Hospital Outpatient Prospective Payment System and Ambulatory Surgical Center Payment System changes for 2019, requires Medicare to pay the same amount for outpatient services, regardless of whether they're provided in off-campus, hospital-owned clinics or in independent medical offices. Up to now, CMS has paid off-campus "outpatient departments" of hospitals substantially more than independent practices if the hospital clinics are excepted under a provision of the Bipartisan Budget Act of 2015.

The current payment for an office visit in an excepted hospital-affiliated clinic, known as a provider-based department (PBD), is $116, including a "facility fee" for what is ostensibly an extension of the hospital. Under the new CMS rule, Medicare in 2019 will pay $81 for that visit to an employed physician in a PBD. The copay for Medicare beneficiaries visiting a PDB will also drop, from $23 to $16.

Private-practice physicians won't see any extra income as a result of the site-neutral policy. They will continue to be paid on the Medicare fee schedule. But in the view of some medical associations that support site-neutral payments, it will help level the playing field between private practices and hospital-owned groups and make independent practices more competitive.

Michael Munger, MD, president of the American Academy of Family Physicians, last summer told Medscape Medical News that CMS's proposed site-neutral payments "will have a positive impact for solo and small group practices who are facing consolidation pressures."

The higher payments to PBDs for the same services provided in private practices, he said, have encouraged the growth of vertical integration, which "has caused many community clinics to close their doors."

The site-neutral payment policy "will help small practices survive in the sense that hospitals won't be as eager to recruit those physicians," said Paul Ginsburg, PhD, Leonard D. Schaeffer chair in health policy studies at the Brookings Institution and professor of health policy and director of public policy at the Schaeffer Center for Health Policy and Economics at the University of Southern California.

But it won't guarantee long-term survival for these practices, which are under many other pressures, he told Medscape Medical News.

Jonathan Weiner, PhD, professor of health policy and management at Johns Hopkins University Bloomberg School of Public Health, agreed that hospitals will have less incentive to purchase practices or recruit physicians from private groups as a result of the payment change. However, he told Medscape Medical News, "The trend toward integration of providers is now and forevermore."

Hospitals' ability to profit from the extra payments to provider-based departments, Weiner added, had already been trimmed by the Bipartisan Budget Act of 2015, which instituted site-neutral payments for services provided by doctors in new outpatient departments created after November 1, 2015. But Ginsburg noted that this provision of the budget act hasn't had much effect because, in many cases, newly recruited physicians were just added to the PBDs that had been grandfathered in.

Hospitals Going to Court

Hospitals are up in arms over the new site-neutral payment regulation. As soon as the rule was released, the American Hospital Association (AHA) and the Association of American Medical Colleges (AAMC) announced they planned to file suit against CMS to overturn the new policy. They followed through: The lawsuit by the two associations and three hospitals was filed on Tuesday, according to Politico.

In a statement, AHA Executive Vice President Tom Nickels alluded to the grandfathering clause in the 2015 budget law, which protected existing provider-based departments. In 2019, he said, clinic visits in all PBDs will be paid 70% of the hospital outpatient department rate, and in 2020 and beyond, 40% of that rate. He predicted that the cuts will hurt patients in rural and vulnerable communities because of the impact on hospitals in those areas.

While conceding that some inner-city facilities might suffer, Weiner thinks the hospitals are protesting too much. Some large academic medical centers may lose up to $20 million a year, but that's a small percentage of their revenues, he noted. And on a national level, CMS expects to save only $380 million in 2019 by expanding site-neutral payments.

That's a small fraction of the $6 billion that will be added to the Medicare budget for hospital outpatient departments next year, he pointed out.

Ginsburg doesn't feel sorry for hospitals, either. Regarding their argument against the cuts, he said, "It's like saying, 'We're overpaying you. But if we stop overpaying you, we're going to hurt you.' " Moreover, he said, "Site-different payments are an impediment to competition. Anything that fosters greater hospital employment is a negative toward competition."

Weiner doesn't disagree, but he doubts that CMS's site-neutral payment policy will significantly increase competition in healthcare — something that US Department of Health & Human Services Secretary Alex Azar recently said the government favors.

"I don't view this as a huge win for the procompetitive agenda," Weiner said. "It will have a fairly small impact. But it seems like a reasonable thing to do."

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