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DC District Court Judge Rules Against CMS’s Site-Neutral Policy, Vacates CY 2019 Outpatient Prospective Payment System (OPPS) Final Rule

On September 17, 2019, the US District Court for the District of Columbia ruled in American Hospital Association, et al. v. Alex Azar, II, et al that the Centers for Medicare & Medicaid Services (CMS) exceeded its statutory authority when it cut the Medicare payment rates for hospital services provided in the grandfathered off-campus provider-based department setting.

As a result, the court vacated the applicable portions of the CY 2019 OPPS final rule (Final Rule).

Rule Had Reduced Reimbursement for Certain Off-Campus Departments

Before implementation of the site-neutral policies, services provided at off-campus provider-based departments were generally reimbursed at the same rates as services provided on the main campuses of hospitals, as the off-campus provider-based locations were subject to the same regulatory requirements and cost structures as hospitals. However, services provided at independent physician offices were reimbursed at lower rates than those rendered at off-campus provider-based locations because of the lower cost structures of physician office settings. The Final Rule reduced payments for services provided at off-campus provider-based departments to virtually equal the rates paid to physicians in clinics or non-hospital outpatient sites.

Suit Alleges CMS Exceeded Its Statutory Authority

In the suit filed by the Association of American Medical Colleges, the American Hospital Association, and multiple individual hospitals that were affected by the cut in rates set by the Final Rule, the plaintiffs claimed that CMS’s rate cut methodology exceeded the scope of CMS’s statutory authority. In its ruling,  the Court determined that CMS was not authorized to disregard the statutory process for setting payment rates delineated by the OPPS or to lower the reimbursement for certain services performed by certain providers in the manner it had. Therefore, the Court held that the method developed by CMS to cut costs under the Final Rule was improper and violated its obligations under the applicable governing statutory language.

Court Overturns Rule, But CMS Retains Opportunity to Try Again

Although the Court decided to overturn the site-neutral payment adjustments, the basis for the Court’s determination was that the adjustment method was improper; the Court made no finding that the propriety of a payment reduction based on the beneficiary or hospital costs was improper. Therefore CMS still has the opportunity to reconfigure its approach to achieve site-neutral payment reductions in the future. 

Providers should monitor CMS’s future rulemaking regarding implementation of Medicare site-neutral policies, as CMS has implemented similar policies under the Medicaid program. Congress previously weighed in on the issue of site-neutrality in support of local hospitals, and had introduced bipartisan legislation to completely override site-neutral reimbursement. Members have made it a priority to advance this issue and will likely be keeping an eye on CMS’s response to the Court’s ruling.


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