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Judge Grants Hospitals Victory in Site-Neutral Payments Dispute

Analysis  |  By Steven Porter  
   September 18, 2019

A federal judge vacated the CMS policy, saying the agency overstepped its legal authority in making the payment cut to off-campus provider-based departments.

A site-neutral payment policy touted by the Trump administration as among its healthcare policy successes was vacated Tuesday by a federal judge.

The policy had reduced reimbursement rates for clinic visits at hospital-owned outpatient provider departments by 40%, to match the rates paid for clinic visits in physician offices—so the ruling hands a big win to hospitals that had worried the policy might spoil their investments in outpatient facilities.

"This ruling is a positive step towards understanding that providing services to patients as a hospital department is not synonymous with physician clinic services," said Monica Hon, vice president and director of client solutions at the healthcare consulting firm Advis. "Hospital outpatient services are operating under the main hospital's policies, quality standards and regulatory requirements. This level of quality and efficient care should be recognized in the reimbursement."

The Centers for Medicare & Medicaid Services exceeded its authority when it finalized the policy last year, over hospitals' objections, as part of the Outpatient Prospective Payment System (OPPS) final rule for 2019, U.S. District Judge Rosemary M. Collyer wrote in her opinion.

Although CMS believes it is overpaying for care provided in hospital-owned facilities that could instead be provided more cost-effectively in a doctor's office—and that may, in fact, be the case—the agency cannot ignore the law's clear process for setting OPPS rates, Collyer wrote.

The agency argued that its non-budget-neutral approach was authorized by a provision of the law that lets CMS propose a "method" for controlling unnecessary volume increases.

While the law doesn't define "method," it does make clear that a "method" isn't a price-setting tool, Collyer wrote, "and the government's effort to wield it in such a manner is manifestly inconsistent with the statutory scheme."

Collyer granted summary judgment to the hospitals and vacated the relevant portions of the OPPS final rule.  

In a joint statement, the American Hospital Association and Association of American Medical Colleges said they are pleased with the decision.

"The ruling, which will allow hospitals to maintain access to important services for patients and communities, affirmed that the cuts directly undercut the clear intent of Congress to protect hospital outpatient departments because of the many real and crucial differences between them and other sites of care," they said. "Now that the court has ruled, it is up to the agency to put forth remedies for impacted hospitals and the patients they serve."

America's Essential Hospitals President and CEO Bruce Siegel, MD, MPH, called the ruling "a victory for vulnerable patients and an important step toward protecting access to care in underserved communities." The vacated policy had exacerbated gaps in care, he said, by erecting financial barriers to establishing clinic networks.

A spokesperson for CMS said the agency is aware of Collyer's decision and determining what steps to take next.

Editor's note: This story was updated Wednesday afternoon with additional information.

Steven Porter is an associate content manager and Strategy editor for HealthLeaders, a Simplify Compliance brand.


The final rule was 'manifestly inconsistent with the statutory scheme,' the judge wrote.

Hospitals praised the ruling as a recognition that they provide a higher level of care than what patients receive in a typical physician's office.

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