Congress Take Step Toward Site-Neutral Medicare Payments in Bipartisan Budget Act of 2015

October 29, 2015

McDermott+Consulting

On October 28, 2015, the U.S. House of Representatives approved legislation that, if enacted, would, among other things, substantially alter how and how much Medicare pays for outpatient services furnished by hospitals. The legislation, known as the Bipartisan Budget Act of 2015, principally reflects and implements a two-year federal budget and debt limit compromise negotiated between President Obama and congressional Republicans that diminishes many of the harshest spending reductions wrought by sequestration, and avoids a potential default on U.S. debt obligations. Nonetheless, the legislation is drawing heightened scrutiny by, and concern within, the health care community— not because of the central purposes of the bill, but rather because of a handful of Medicare and Medicaid related provisions also included in the legislation.

Of perhaps greatest significance to the health care community is a provision (Section 603) that would provide that effective January 1, 2017, Medicare payments for most items and services furnished at an off-campus department of a hospital that was not billing as a hospital service prior to the date of enactment would be made under the applicable non-hospital payment system. This “site neutrality” provision begins to address concerns raised by certain policymakers in recent years that Medicare should not be paying different amounts for the same services based on the location or type of provider, and that hospitals may be improperly incentivized to acquire and label physician practices and ambulatory surgery centers (ASCs) as hospital outpatient departments due to higher rates available for services furnished in hospital outpatient settings.

Site Neutrality Provision

Background
Medicare utilizes several different payment systems to pay for services furnished to beneficiaries on an outpatient basis. Generally speaking, when a Medicare beneficiary receives a physician office service in a physician’s office, Medicare pays for that service pursuant to the Medicare Physician Fee Schedule (MPFS). If that Medicare beneficiary receives the same service in a hospital setting, Medicare also pays a facility fee under the Hospital Outpatient Prospective Payment System (OPPS). When Medicare pays both a professional fee (under the MPFS) and a facility fee (under the OPPS), the total payment is typically higher than if Medicare makes just one payment to the physician under the MPFS. Similarly, if a beneficiary receives a surgical service in an ASC, the Medicare payment is always less than if the beneficiary receives that same service in a hospital setting.

Policymakers and watchdogs, most notably the Medicare Payment Advisory Commission, have expressed concerns for years that these disparities are not justified and incentivize hospitals to acquire physician practices and ASCs to capture the higher payment for furnishing the services in a hospital setting. In recent years, there has been increasing criticism that these incentives have led to widespread vertical integration and increased Medicare expenditures.

New Payment Limits
Under Section 603, effective January 1, 2017, when an item or service is furnished at an off-campus outpatient department of a hospital, unless that location was billing as a department of a hospital prior to the date of enactment, Medicare will pay for that service under either the MPFS or ASC fee schedule, as applicable to the service provided. Notably, this limitation will not apply to off-campus emergency department services (i.e., services coded using HCPCS codes 99281-99285).

Analysis
This limitation begins to address concerns about site-driven payment disparities and the behaviors they motivate, but it is much less onerous than alternative solutions that could have advanced. First, the limitation applies only prospectively. As such, any arrangement billing as a hospital outpatient department service prior to the date of enactment would be exempt from this limitation, and would be able to continue to bill and be paid by Medicare under the OPPS. Nonetheless, hospitals should be prepared for the possibility that the Centers for Medicare and Medicaid Services (CMS), which will be responsible for implementing this provision, may seek to stretch its authority and add further limitations that effectively “freeze” the size and scope of the existing location.

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