CMS reevaluating hospital outpatient pay rate cut exemptions

CMS is reevaluating hospitals’ applications for exceptions from reimbursement cuts to their off-campus outpatient facilities following pushback from the industry.

In January, CMS rejected more than 60% of the mid-build exceptions, which is designed to preserve higher payments if hospitals document that their off-campus outpatient departments were under construction when the Bipartisan Budget Act passed in 2015.

Without the exception, reimbursement rates drop to 40% of the full outpatient prospective payments system rate. Hospitals would also be liable for overpayments issued starting Jan. 1, 2018, if they billed via OPPS.

Providers that were denied are no longer required to report or return overpayments, CMS said earlier this month. They must submit additional documentation that supports their cases by Oct. 10.

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“It’s an important result for those hospitals that thought the denials were unjustified. Hospitals have been lobbying very hard since January for some kind of relief. CMS hired a new auditing firm to basically start over,” said Christopher Kenny, a partner at King & Spalding. CMS denied many applications because the construction agreements were with landlords, not construction companies, he said. “It seems the agency will take a broader view of what might be a permissible contract that could conceivably qualify in an agreement for actual construction.”

Hospitals are petitioning for grandfathered outpatient departments amid a legal battle over site-neutral payment policy, in which they seek to equalize payments for evaluation and management services whether they are delivered at hospital-owned outpatient departments or independent physician clinics.

A panel of appellate judges ruled last year that HHS’ site-neutral payment policy for 2019 could go forward, overturning a lower court decision. The Supreme Court upheld site-neutral pay cuts in June. Hospitals have also sued to stop similar site-neutral payment policies from going forward under the 2020 hospital OPPS regulation.

CMS estimates it was paying $75 to $85 per service in hospital outpatient settings than at physicians’ offices, even the physical locations and patient acuities were the same. Patients footed about 20% of the cost.

Hospitals have argued that they need higher reimbursement rates via facility fees to offset the relatively higher costs of more rigorous survey requirements, more stringent health and safety rules, staffing costs and other factors. The higher payments made under the OPPS create financial incentives for providers to convert physicians’ offices into hospital outpatient departments. CMS said.

Policymakers increasingly recognize that the payment disparity is unjustified, Paul Ginsburg, director of the USC-Brookings Schaeffer Initiative for Health Policy, wrote in an email.

“This grandfathering provision exempting off-campus facilities built prior to the 2015 legislation has already served its purpose of providing a transition to the site neutral policy and should now be ended, but that is something that the Congress will have to do,” Ginsburg wrote.

CMS is expected to increase the number of off-campus provider-based departments that would be eligible for higher reimbursement as requirements relax, which would increase Medicare spending, said Tim Epple, managing director at Avalere Health.

“This is an immediate and near-term positive for hospitals with existing or in-progress off-campus provider-based departments, though in the long term should have somewhat limited impact in of hospital expansion and [hospital outpatient department] strategy,” Epple wrote in an email.

The initial denials likely will be overturned, said John Jacob, a partner at Akin Gump

“Hospitals were facing the untenable position of returning millions of dollars in purported Medicare overpayments that they truly believed were proper payments for the outpatient care provided to their patients,” Jacob wrote in an email.

The accounting firm Myers and Stauffer will be taking over auditing duties from Cahaba Management and Consulting. Myers and Stauffer is expected to have a looser interpretation of what constitutes a broader construction contract.

Although CMS instructed providers not to resend files they previously submitted, hospitals should still review their original documentation, said Regan Tankersley, an attorney at Hall Render.

“If providers identify possible errors or inconsistencies in the audit process from the original denial, I think submitting information to correct those potential errors is a good idea even if that means including previously submitted documentation,” Tankersley wrote in an email.