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Predicting the When and Where for Site-Neutral Payment

Sg2 is a forward-thinking company and has had great success forecasting how health care will evolve and change. However, there are 2 areas where our members seek guidance that have proven difficult to predict: 1) whether reimbursement for specific procedures will be increased or decreased (and by how much); and 2) when site-neutral payment will take effect. Although we don’t have a Magic 8 Ball to see the future, we do closely track policy changes and trends in reimbursement, with a focus on how they will impact providers and care delivery. Only CMS can put a date stamp on exactly when site-neutral payment will be approved. However, there has already been movement in this direction for some services, leading us to believe it will ultimately be adopted. We advise you to start preparing for it now.

Payment Rates Vary Dramatically Today
Currently, public and private payers have a variety of methodologies to set payment rates. The location where the services are delivered, the costs of operating in that setting, and the different patient populations the settings serve are all factors that determine the rate, such that the same service provided in a variety of clinical settings may sometimes be paid at dramatically different rates. For example, according to the Medicare Payment Advisory Commission (MedPAC), Medicare may pay nearly 80% more to hospital outpatient departments (HOPDs) than ambulatory surgery centers (ASCs) for the same procedure.

Site-neutral payment is a topic that is discussed every year by the Medicare Evidence Development & Coverage Advisory Committee (MEDCAC). They repeatedly note the significant cost savings of adopting site-neutral payment (estimated at $1.44 billion per year in 2015), but CMS has yet to accept their recommendation and move to this approach. This is primarily due to the lobbying efforts of hospital executives and groups representing hospital interests such as the American Hospital Association (AHA) that point to the need for higher reimbursement in the hospital setting. They cite studies that show hospital outpatient departments treat sicker and poorer patients in need of more extensive care, requiring more resources than patients treated at physician offices.

Current Trends Suggest Site-Neutral Payment Will Be Adopted
Although when to expect a shift to site-neutral payment is difficult to predict, given pricing pressures and current efforts by payers to steer patients to lower-cost sites of care, we believe site-neutral payment, in some form, will ultimately be adopted by CMS and private payers. There are a number of factors in support of this, but a few key reasons are below.

  • MedPAC has recommended site-neutral payment for select services performed at inpatient rehab (IR) and skilled nursing facilities (SNFs). Its argument that care can be delivered safely and effectively in the lower-cost site (ie, SNFs) is valid and includes some amount of agreement by the AHA. Given this support, we would expect this to be the first area to shift to site-neutral payment.
  • In what is likely an effort to better understand the distribution of services among different types of hospital-owned facilities, CMS changed the place of service (POS) codes, replacing the single “outpatient hospital location” code with 2 new codes: 1) outpatient services furnished in on-campus, remote or satellite locations of a hospital; and 2) outpatient services furnished in an off-campus hospital provider–based outpatient setting.
  • Private payers have already begun the shift.
    • Highmark, the largest health insurer in Pennsylvania, announced that as of April 2014 it will stop reimbursing health systems at higher hospital outpatient rates for cancer treatment performed in physician offices. Highmark expects that this change will reduce the amount it pays in claims by $200 million per year.
    • Blue Cross Blue Shield of Massachusetts has initiated a program to reimburse gastroenterologists an additional $300 for colonoscopy if they perform the procedure in an ASC as opposed to a HOPD.
  • Finally, in his 2016 budget, President Barack Obama called for site-neutral payment reform and a shift to lower-cost settings for procedures like colonoscopies, cardiac imaging and cancer care.

Price Differentials and Price Transparency Build a Climate for Reform
The significant cost differential between sites, along with current efforts by payers to steer patients to lower-cost sites, is evidence that the shift to site-neutral payment is looming. Infusion services (cancer and noncancer) are one area where there is a substantial differential between hospital and office-based reimbursement. Reimbursement in hospital outpatient facilities can be as much as double the payment for the same infusion performed in a physician office. Similarly, a colonoscopy that costs ~$650 in a physician office may be reimbursed at close to twice that rate—or over $1,300—when performed in a hospital outpatient facility.

The site where services are being provided is also driving the need for reform. Between 2010 and 2012 there was almost a 10% increase in diagnostic cardiology procedures performed in hospital outpatient departments vs office clinics.

Finally, illustrating the role that price sensitivity and cost transparency play, the lower cost for diagnostic imaging services in the office/freestanding setting has already pushed large volumes of imaging services out of the hospital without impacting quality…not to mention the improvement in access and patient experience these settings often offer. We believe payers will continually work to find lower-cost sites of care for more and more services.

Prepare for Site-Neutral Payment’s Effect on Your Market
Each market will move volumes to the lowest-cost site of care at a different pace based on the trajectory each payer has taken toward value-based payment and as more and more organizations explore population health initiatives. Price sensitivity by patients and providers will force health systems to adjust their pricing to remain competitive and to maintain volumes. This places a greater financial burden on the remaining health system’s services (primarily hospital-based), which will eventually require a reduction in administrative overhead. To adapt, health systems need to consider reevaluating their overhead allocation so that they can operate ambulatory services such as physicians’ offices, freestanding imaging centers, and ASCs at lower cost structures. Below are a few strategies to prepare for lower hospital-based payment.

  • Anticipate that lower reimbursement removes the incentive to provide hospital-based services and may cause providers to shift services back to physician clinics.
  • Reevaluate equipment, labor and service needs in the hospital setting. Consider options for repurposing newly available hospital outpatient space.
  • Explore contracting strategies that reward care delivery in lower-cost settings, such as the Medicare Shared Savings Program or Medicare Advantage.
  • Develop a comprehensive ambulatory strategy that incorporates value-based payment initiatives that reward quality.
  • Consider new physician compensation methods that shift away from the relative value unit (RVU) model and reward achievement of goals related to quality, efficiency and coordination.
  • Capitalize on the potential for improvement in patient experience that stems from interacting with a physician practice rather than a hospital outpatient facility.

So although we at Sg2 cannot predict when exactly the move to site-neutral payment will occur, we believe it will happen. Health care organizations that self-disrupt and begin preparing for lower hospital-based payment now will be positioned for success.

Sg2 Associate Vice Presidents Jay Prsytowsky, MD, MBA, and Mark Larson contributed to this post.

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As of February 11, 2016, Vizient, Inc. has completed its purchase of MedAssets Sg2 and spend and clinical resource management segments from Pamplona Capital Management, LLC. MedAssets revenue cycle business will continue to operate as a wholly-owned subsidiary of Pamplona Capital Management LLP.

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