How Will Site-Neutral Payment for HOPDs Affect Your System of CARE?

Starting January 1, 2017, some hospital-owned physician offices will receive the same reimbursement from CMS as independent physician offices.

Last month, more light was shed on the implementation of site-neutral payment put into motion by last year’s Bipartisan Budget Act of 2015. As part of Medicare’s annual proposed update to outpatient facility payment systems, CMS is moving forward with equalizing some payments across off-campus hospital outpatient departments (HOPDs) operating under “provider-based status.”

Seems fair enough, right? Well, this change represents the first major shift toward site-neutral payment for Medicare and will shake up the financial picture for hospitals looking to acquire physician practices or build outpatient facilities. Not surprisingly, many hospitals and their representatives are less than thrilled with this legislation, citing that the cost to deliver care is higher due to overhead costs and therefore HOPDs should be reimbursed at higher rates. On the other hand, the argument for site-neutral payment is that higher payments were perversely incentivizing care delivery in high-cost settings.

Site-Neutral Payment Will Have an Unequal Impact, Reduce Patients’ Copays
CMS will save money by doing this—it anticipates a net savings of $330M in 2017. Initially, this will have a disproportionate impact among health systems and service lines as these savings are coming from a substantial cut in payment for a limited number of facilities—off-campus HOPDs acquired or developed after November 1, 2015. In the short-term, health systems that were aggressive early in the HOPD gold rush of recent years will be less affected by this change. Among service lines, procedures that can be conducted off-site without close hospital-level support will be most affected. For your cardiovascular service line, you may need to reevaluate your plans to move your vascular procedures off-site; but this will not affect procedures that are predominantly performed in a hospital-based HOPD. Overall, site-neutral payment will add further pressure for health systems and service lines struggling to find short-term fixes to their shrinking margins.

On the other hand, this change will financially benefit Medicare beneficiaries. It is often lost in the site-neutral payment discourse that Medicare beneficiaries are on the hook for 20% copays. Imagine Gayle, a 75-year-old woman being treated for breast cancer. She has been going to her medical oncologist for office visits and infusion therapy. Recently, the physician practice has been acquired by an area health system and the facility classified as a HOPD. Without any change in treatment, physician, or even treatment location, Gayle is now on the hook for much higher copays with the addition of the facility fee. But the only noticeable change to Gayle is the sign on the building. Going forward, site-neutral payments will prevent these surprise hikes in Medicare beneficiaries’ out-of-pocket costs.

Reimbursement Today Can Differ Greatly by Facility Type
In today’s reimbursement scheme, physicians at independent physician offices receive higher reimbursement rates than physicians at hospital-owned physician offices. This may seem counterintuitive, but the difference arises because independent physician offices do not receive an additional facility payment. This difference between nonfacility and facility rates is intended to reimburse indirect costs. Meanwhile, the HOPD receives facility payments under the Outpatient Prospective Payment System. The combined physician payment and facility fee for the HOPD can be much larger than the total payment for independent physician offices.

Many Will Be Exempt From Site-Neutral Payment
Site-neutral payment will have a big impact for hospital providers and Medicare beneficiaries in the future. However, this is still the “diet” version of site-neutral payment. There are plenty of exemptions—as detailed below—only a handful of facilities in the ambulatory space will be impacted by this legislation.

Other facility payments will continue, eg, ASCs will continue to receive ASC facility payments.

  • All on-campus HOPDs are exempt. Facilities located within 250 yards of either the main hospital campus or remote locations with inpatient facilities will continue to receive facility payments.
  • Existing HOPDs are “grandfathered.” HOPDs in operation and billing prior to November 2, 2015, will continue to receive facility payments.
  • All dedicated hospital-owned emergency departments are exempt, including off-campus (freestanding) emergency departments.
  • Site-neutral payment does not change HOPD’s scope of services, and affected HOPDs will maintain their provider-based status. In other words, your HOPD’s partial hospitalization programs for intensive outpatient psychiatric day treatments will continue to be reimbursed. However, CMS has also clarified that this means that a HOPD will not automatically receive ASC facility payments.

“Grandfathered” Status May Be Revoked
CMS is determined to close loopholes around grandfathered status. Consider the following limitations:

  • Cannot change facility address. Relocation or change of address after November 1, 2015, for off-campus HOPDs will revoke their “grandfathered” status and they will be subject to site-neutral payment. Be careful of expansion, as addition of other units in a multi-unit building may result in an address change.
  • Change in ownership may revoke “grandfathered” status. Change in ownership after November 1, 2015, for off-campus HOPDs will revoke their “grandfathered” status, unless the hospital’s ownership in its entirety also changes in the same manner.
  • New services may not receive facility payment. This applies to new services that are not part of a “clinical family of services” billed at the HOPD prior to November 2, 2015. For example, if you flip a primary care physician office into an infusion center, don’t expect to continue to receive the higher facility payments.

Rethink Your Strategy for Hospital-Owned Outpatient Facilities
For health system leaders, site-neutral payment throws a big wrench into strategic planning for addressing gaps in their System of CARE. Specifically, strategic planners will need to rethink physician practice acquisitions. Decisions to acquire will be based more on showing long-term ROI, growing downstream referrals, and increasing integration across their Systems of CARE; and much less on short-term margins.

Despite this shift in strategic perspective, we do not expect hospitals to stop acquiring outpatient facilities and practices. The continuing transition to a value-based environment and increased complexity under MACRA for independent providers will continue to drive integration across the System of CARE. The need to compete locally, scale regionally and demonstrate strong clinical performance will depend on growing market share and maintaining strong physician alignment via either practice acquisition, co-ventures or clinical integration.

Details Are Not Set in Stone—Stay Tuned for More Information This Fall!
These are proposed regulations for the first year of implementation. The initial feedback from hospitals indicates that CMS will receive comments for a less rigid implementation of site-neutral payment. In particular, there is a strong push by hospitals with HOPDs that were mid-build at the time of the passage of the legislation. There will also be growing pains. For 2017, CMS has indicated that affected HOPDs may need to negotiate with their physicians to receive the facility’s share of payment. Stay tuned for additional insights from Sg2 when CMS finalizes the details this fall.

MACRA = Medicare Access & CHIP Reauthorization Act of 2015; ROI = return on investment.
Sources: CMS. Hospital Outpatient Prospective Payment—Proposed Rule and Proposed CY2017 Payment Rates July 6, 2016; CMS. Physician Fee Schedule Look-Up Tool. Accessed July 11, 2016; CMS. Hospital Outpatient Prospective Payment- Final Rule and Final CY2016 Payment Rates. November 13, 2015; US House of Representatives. Bipartisan Budget Act of 2015: Section-by-Section Summary. October 2015; Nickels T. Statement on Proposed CY 2017 OPPS Rule. American Hospital Association. July 6, 2016; Dickson V. CMS angers hospitals with plans for site-neutral rates in outpatient payment rule. Modern Healthcare. July 6, 2016; Sg2 Analysis, 2016.

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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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