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Congress Revisits Hospital Outpatient Department Payment Rates

06/02/16

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Shoshana Krilow, Vice President, Public Policy and Government Relations

Late last year, Congress unexpectedly passed a law that significantly reduced payment rates for off-campus hospital outpatient departments (HOPDs) that were not billing Medicare by the date of enactment, Nov. 2, 2015. The provision – Section 603 of the Bipartisan Budget Act – applied to HOPDs based more than 250 yards from the main hospital campus and lowered reimbursement rates to that of a physician’s office or ambulatory surgery center.

This law, which was not only unexpected, was also precedent-setting as it represents the first time Congress enacted a so-called “site neutral payment policy,” meant to equalize payments between HOPDs and other outpatient settings, an often-recommended policy of the Medicare Payment Advisory Commission (MedPAC) and others as a way to rein in health care spending. 

Because there was little to no debate on this policy, and it was passed without stakeholder engagement or vetting, Congress has come to discover that this payment change is negatively affecting constituent hospitals all over the country.

One unintended consequence is that a significant number of HOPDs were either currently under construction, under contract or being relocated (seismic compliance for example), and would be subject to this lower reimbursement level. It became clear to many members of Congress that this new law wasn’t fair for facilities that had planned, budgeted and began construction of a provider-based HOPD expecting Medicare outpatient prospective payment system (OPPS) rates. The unintended consequences needed to be addressed and finding a fix for that “under construction” issue was a priority for hospitals and advocates in Washington.

That brings us to mid-May 2016 and newly introduced legislation to make those necessary changes.

On May 18, leaders from the House Ways and Means Health Subcommittee introduced H.R. 5273, the Helping Hospitals Improve Patient Care Act. The bipartisan legislation would make some of those changes, as well as some other policy improvements sought by hospitals.

It would provide some relief for mid-build facilities that had a binding contract with an outside party in place before Nov. 2, 2015 to complete construction of such a department and to attest that it meets the requirements of an HOPD by Dec. 31, 2016 or 60 days after enactment, whichever is later. Facilities meeting these requirements would be eligible for HOPD payment rates beginning Jan. 1, 2018. 

H.R. 5273 would also allow hospitals that voluntarily attested that they met the requirements of a provider-based HOPD before Dec. 2, 2015 to be reimbursed under the OPPS in Fiscal Year 2017. While the fix isn’t perfect, it is a meaningful change for many impacted providers.

Equally important for so many hospitals was the addition of a provision that would require the Centers for Medicare & Medicaid Services (CMS) to consider the socio-economic status of patients being served in calculating the penalties under the hospital readmissions reduction program. Under that program, hospitals that have a higher than expected rate of readmissions on selected conditions face up to a 3 percent cut in their Medicare reimbursement.

Hospitals have always been supportive of ongoing quality improvement efforts aiming to prevent readmissions and deliver the highest quality of care. While supporting that overarching goal, the metrics and methodologies used have proven to be problematic.

According to a growing body of research, hospitals that serve a larger population of patients with lower socio-economic status were far more likely to face penalties due to higher levels of readmissions. The reasons for those unexpected readmissions vary, but the linkage to readmissions unrelated to the hospital’s care is clear. Including this provision in H.R. 5273 is a big win for hospitals.

In looking at the legislation, we are hopeful that Congress will act. The House Ways and Means Committee quickly gave approval to the bill on May 24, but the path ahead is not completely clear.

Some things to consider:

Given the abbreviated election year legislative calendar, time is rapidly running out for Congress to act on the fix. Once the House and Senate recess for the presidential nominating conventions in July, there is very little time left to move the legislation forward.

Congress will be out during August and October for recess and are expected to spend much of September figuring out how to fund the government. The best opportunity to act is before July or possibly during the brief post-election lame duck session. Additionally, although the legislation has had significant support in the House thus far, the Senate has shown no real interest in taking up similar legislation.

One other element that is overlooked in some of the discussions around H.R. 5237 is the underlying desire from many in Congress to pursue a greater degree of site neutrality in Medicare payments. Part of this legislation takes a small step in that direction by requiring CMS to study and identify certain conditions and codes that could translate to either a hospital outpatient setting or the less-costly physician office or ambulatory surgery center payment rate.

Why should hospitals be paid more for delivering the same service that can be delivered in a physician’s office? The argument against it sounds logical, but the reality is much more complex.

Hospitals must operate under significantly greater regulatory requirements. That happens on both the federal and state level. More importantly, hospitals serve everyone who presents at their doors and deliver services that physician offices are not willing or capable of delivering. In addition, care delivered in hospital settings often has greater quality, care coordination and alignment of services for the patient. As a result, any added costs for Medicare are a reflection of those mission-driven components of hospital care.

That all said, site-neutral payments are an area that Congress, the administration and other entities like the U.S. Government Accountability Office and MedPAC have identified as needing reform. Providing for a study to further examine the issue is likely inevitable.

Vizient supports this legislation, and will be working toward passage as it moves through the legislative process. We are still a long way from the finish line, and frankly, getting it done during 2016 is unlikely. The bottom line is this is a bill that is important for many hospitals across the country and certainly merits the support of our organization.

About the author. As vice president of Public Policy and Government Relations, Krilow leads the Vizient team responsible for monitoring federal legislative and regulatory developments of importance to Vizient and its members. She has worked as a strategic advisor to health sector clients with a particular concentration on Medicare, the pharmaceutical and insurance industries, and the Affordable Care Act. Krilow also brings deep legislative expertise having spent several years on Capitol Hill, where she worked as a health policy advisor for Representative Marion Berry (D-Ark.) and Senator Joseph Lieberman (I-Conn.).

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