In a decision that promises to level the playing field between hospitals and physician offices when it comes to Medicare reimbursements, a federal appeals court ruled the U.S. Department of Health and Human Services (HHS) has the authority to implement a Trump administration rule providing for site-neutral payments.
Crafted to address the Medicare reimbursement disparity between hospital-affiliated remote practices not located on hospital grounds, and independent physician practices, the HHS annual payment rule requires clinics to undergo a cut in their payments over the next two years to bring them into parity with reimbursements to physician offices. Currently, clinics are paid more than physician offices for providing the same Medicare services.
The July 17 ruling by the U.S. District Court of Appeals for the District of Columbia reverses a lower-court decision stating HHS lacked the authority to mandate site-neutral payments.
Hospitals Lose Argument
The American Hospital Association (AHA) bitterly opposes site-neutral Medicare payments and spearheaded the lawsuit against the HHS rule. AHA argued the site-neutral payment cuts violated the federal statute governing the annual payment rule. The appeals court dismissed this claim, noting federal law gives HHS latitude in changing the payment formula. In addition, the government has the authority to control unnecessary increases in the volume of outpatient services, the court found.
AHA also argued HHS’s change was not budget-neutral, a requirement under federal law. The court agreed with the Trump administration’s view that overall reimbursement for such payments would remain the same and the volume would simply shift toward physician offices.
The court also rejected AHA’s argument that HHS’s decision to reduce payments to off-campus clinics violates the Bipartisan Budget Act of 2015. That statute gave HHS the power to cut payments to clinics created after the law went into effect but not to preexisting clinics. The court, however, determined the rule does not violate the intent of Congress because the cuts in payments reflect a shift in volume at remote hospital practices since enactment of the Bipartisan Budget Act.
Closing ‘a Loophole’
The site-neutrality issue arises from the fact health care does not function as a true market, says Devon Herrick, a health economist and policy advisor to The Heartland Institute, which co-publishes Health Care News.
“In competitive markets, prices can vary from one store to the next for a variety of reasons,” said Herrick. “These include competition and convenience. However, it makes little sense for taxpayers to pay more for physician visits just because a hospital has purchased physician practices. This is a loophole to raise reimbursements, not competition.”
Bonner R. Cohen, Ph.D., (bcohen@nationalcenter.org) is a senior fellow at the National Center for Public Policy Research.
