HHS Announces New Site-Neutral Payment Policy – And Is Met With Another Lawsuit

As of January 29, 2019, a total of 38 hospitals have joined a lawsuit against the Department of Health and Human Services (HHS) over the new site-neutral payment policy that went into effect beginning January 1, 2019. The final rule that modified the Outpatient Prospective Payment System (OPPS) will result in a reduction of $380 million in Medicare reimbursements for hospital outpatient clinic visits. Half of the total reduction will apply next year, following a two-year phase-in period.

The American Hospital Association (AHA) and the Association of American Medical Colleges (AAMC) led the December 4, 2018 lawsuit, which has now grown to include 36 other hospitals or associations that are in opposition to the rule. The 2019 OPPS modifications will make payments for clinic visits site-neutral by reducing the payment rate for hospital outpatient clinic visits provided at off-campus provider-based departments (PBDs) by 60%. Previously, Section 603 of the Bipartisan Budget Act of 2015 ensured off-campus PBDs that began operations on or after November 2, 2015 were exempt from site-neutral payments. Now, however, the HHS has fundamentally overwritten Section 603, subjecting the PBDs that were originally protected to the lower OPPS rate.

Rick Pollack, president and CEO of the AHA said in a December press release, “These cuts directly undercut the clear intent of Congress to protect hospital outpatient departments because of the real and crucial differences between them and other sites of care…It is alarming that CMS continues to propose cuts that will harm the teaching hospitals that provide care to the most vulnerable patients, including Medicare beneficiaries.”

The lawsuit, which alleges that HHS Secretary Alex Azar overstepped his authority when issuing the new policy, comes on the heels of a previous lawsuit regarding the changes made to the 340B payment program. The 340B payment program is a federal government program that requires Medicaid-participating pharmaceutical manufacturers to sell outpatient drugs at reduced prices. The program works both to extend scarce federal resources as well as to protect uninsured or low-income patients from the often-high prices of medications, helping to ensure these patients are able to receive care at a price they can afford.

United States District Judge Rudolph Contreras ruled on December 27, 2018 that HHS overstepped their authority when they finalized payment changes to the 340B payment program at the end of 2017, reducing the payment rate to 22.5% less than the average sales price of a drug. This rule would have cut $1.6 billion in payments, something program participants across the nation warned would considerably hurt their bottom lines.

Prior to this cutback in payments, CMS was offering up to 6% more than the average sales price for outpatient drugs. The sudden decrease to 22.5% less than the average sales price would have substantially changed the program. In Judge Contreras’ 36-page opinion, he stated, “While the [HHS Secretary, Alex Azar] is permitted to make ‘adjust[ments]’ to those rates for whatever reasons he deems ‘necessary,’ adjustments are all he can make. He cannot fundamentally rework the statutory scheme.”

The group of hospital associations that filed the 2018 lawsuit, comprised of the AHA, the AAMC, and America’s Essential Hospitals (AEH), issued a joint letter praising Judge Contreras’ ruling, calling the decision “carefully reasoned.” The associations also commended the Court’s ruling for its assistance in allowing hospitals and other health care organizations to continue to “serve their vulnerable patients and communities without being hampered by deep cuts to the [340B] program.”

In the December 27 ruling, Judge Contreras also denied HHS’ request for the ongoing litigation brought forth by the hospital groups to be dismissed.

Both lawsuits help to demonstrate the differences between hospital outpatient medical services and their independent physician office counterparts.

The Health Law Partners will continue to monitor and report any developments.