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Judge Reverses CMS Effort to Expand Site Neutrality Rules


CMS made an “error of law” when it tried to expand a site-neutral payment system, a federal judge ruled.

Last year, CMS announced that it would expand its site-neutral payment policy between what Medicare pays at independent physicians’ offices and at off-campus hospital clinics, where rates are higher.

This week, a federal district court judge ruled that although “CMS may be correct” in believing that millions of taxpayer dollars were paying for more expensive services in hospital outpatient departments, it overstepped its authority and ignored the statutory process set by Congress to alter rates in the Outpatient Prospective Payment System (OPPS) and to lower payments only for certain services performed by certain providers.

The American Hospital Association (AHA), the Association of American Medical Colleges (AAMC), and America’s Essential Hospitals cheered the decision by US District Judge Rosemary M. Collyer. CMS Administrator Seema Verma had said that Medicare changes are needed to ensure the sustainability of Medicare.

In its review of the case, the court said that any changes to payment classifications must be budget neutral; in addition, changes must affect total spending and not specific services. It also said that the OPPS limits the amount Medicare will pay for each service, but “does not limit the volume or mix of services provided to a patient.” In addition, Congress had said the HHS secretary must create a “method” to determine how to adjust the OPPS, if necessary.

Although it was urged by the Medicare Payment Advisory Commission to equalize payment rates under the OPPS and the Physician Fee Schedule for certain services (after noting that hospitals were buying independent practices and converting them to “off-campus” facilities, and then charging higher rates), in 2015, Congress grandfathered existing off-campus providers but said new ones would have to be paid under a different system.

However, with OPPS spending continuing to rise—CMS had estimated that, without intervention, expenditures this year would rise 8.1% to $75 billion, with the volume and intensity increasing by 5.3%—CMS said it would adopt an approach that was not budget neutral.

The are ways to reduce OPPS payments for evaluation and management services, the ruling said, but the way that CMS tried it is not one of them. “CMS cannot shoehorn a ‘method’ into the multi-faceted congressional payment scheme when Congress’s clear directions lack any such reference,” the judge wrote.

Bruce Siegel, MD, MPH, president and chief executive officer of America’s Essential Hospitals, called the ruling “a victory for vulnerable patients and an important step toward protecting access to care in underserved communities.”

“Millions of people in the United States still lack adequate access to care because they live in communities with too few health care practitioners,” he said. “These health care deserts persist in both rural and urban areas across the country.” CMS’ actions “widened these gaps in care by creating financial barriers to operating networks of clinics on which vulnerable people rely.”

In a joint statement, AHA and AAMC agreed. “The ruling, which will allow hospitals to maintain access to important services for patients and communities, affirmed that the cuts directly undercut the clear intent of Congress to protect hospital outpatient departments because of the many real and crucial differences between them and other sites of care.”

But the Community Oncology Alliance, which represents community oncologists and was in favor of the change, said it will be patients who will feel the effects.

“Given how the hospitals vigorously fought this, and given that the government lost the first time around on the 340B cut, it’s kind of not surprising that the ruling would come out this way,” said Ted Okon, COA’s executive director, in an interview with The American Journal of Managed Care®. “It’s so wrong, in so many respects, that a patient goes into the hospital and has to pay significantly more than if they’re in a physician’s office. It’s just wrong under so many respects.”

The lawsuit had asked for CMS to refund any payments it withheld this year. The judge denied that request, saying that the court’s inquiry was complete since CMS made “an error of law.” But Collyer did order a joint status report by October 1, 2019, “to determine if additional briefing on remedies is required.”

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