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Medicare Plan on Hospital Outpatient Pay Draws Mixed Reviews

By Kerry Young, CQ Roll Call

July 11, 2016 -- Trade associations offered mixed reviews of Medicare's plans to carry out a congressional mandate to curb higher payments to hospitals for services that doctors in private practice have provided more cheaply.

The American Hospital Association chided the Centers for Medicare and Medicaid Services (CMS) for what it termed "short-sighted policies" in a draft 2017 payment rule for outpatient care. In the rule, CMS will carry out the orders included in last year's budget deal (PL 114-74) to reduce the number of cases in which Medicare pays more for services because doctors are affiliated with hospitals. This discrepancy has led hospitals to purchase doctors' offices, driving up costs for Medicare and for the senior citizens and people with disabilities enrolled in the program. 

CMS said the planned leveling of payments would reduce hospital outpatient department reimbursement by $500 million next year. Payments to doctors made under the separate physician fee schedule may rise by $170 million in 2017, resulting in a net savings of $330 million, CMS said.

The American Medical Association (AMA) welcomed the proposed reimbursement changes, saying they "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," said Andrew W. Gurman, president of AMA, said in a July 7 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."

A group representing doctors in private cancer practices also supported the draft Medicare payment plan. "We applaud CMS for supporting the policies passed by the Congress, which intend to advance payment parity across sites of service to reduce costs for patients, the Medicare program, and taxpayers," said Dr. Debra Patt, medical director for the US Oncology Network in a July 8 statement.

Medicare spent an extra $1.3 billion in 2014 because reimbursement is higher for evaluation and management services when billed through hospital outpatient departments, the Medicare Payment Advisory Commission said in a June report. In addition, people enrolled in Medicare spent $325 million more on these services due to the higher rates charged for services provided in outpatient departments.

Hospitals would be able under the proposal to continue billing for services offered at off-campus departments that were operating as of Nov. 2, 2015, when the budget deal took effect, CMS said. Other exceptions include outpatient departments standing within 250 yards of a remote location of the hospital. The House in June passed by voice vote a bill (HR 5273) that would allow hospitals to use the outpatient codes for off-campus sites for which they had substantial construction plans at the time the budget deal was enacted. 

CMS proposed requiring that these outpatient departments remain where they were as of November 2015 to continue to get these payments. Otherwise, hospitals could move their grandfathered off-campus operations to larger offices and buy more physician practices, thus boosting their outpatient payments against the wishes of Congress, CMS said. The agency is seeking comments on whether exceptions should be allowed, noting that natural disasters may force relocation of the off-campus departments.

"We recognize that there may be circumstances beyond the hospital's control," CMS said in the draft rule.

Tom Nickels, executive vice president for government relations and public policy for the hospital association, objected to the proposal.

"CMS's refusal to continue current reimbursement to hospitals that need to relocate or rebuild their outpatient facilities in order to provide needed updates and ensure patient access is unreasonable and troubling," Nickels said in a July 6 statement. "Taken together, it appears that CMS is aiming to freeze the progress of hospital-based health care in its tracks."

CMS will accept comments on the rule through Sept. 6.

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