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Medicare Sparks Site-Neutral Payment Showdown

Analysis  |  By  
   February 18, 2016

There is likely no clear winner in the fight between hospital and physician groups who are weighing in on Medicare's new site-neutral payment policy that goes into effect next year.

Hospitals with newly acquired and almost-built physician practices located off of the main campus are hoping a congressional committee will put the brakes on payment cuts that are slated to take effect in January 2017.


Wanda Filer, MD, FAAFP

But physician groups are fighting equally hard to get the cuts expanded.

At issue is the site-neutral payment policy that was part of last year's budget agreement. A tiny section that was tacked on to the budget during negotiations makes big changes to how some hospital outpatient departments are paid.

It primarily affects off-campus physician practices that hospitals bought or built after November 2, 2015. Instead of a higher reimbursement rate because of being associated with a hospital, those practices are slated to receive the same payment as physicians who are in stand-alone offices.

There are a few caveats. The cuts do not apply to physician practices that are located on a hospital's campus, emergency departments, critical access hospitals, rural health clinics, federally qualified health clinics, and other outpatient departments.

The House energy and commerce committee is weighing the impact of the payment cuts, accepting public comment through Friday.

Physicians vs. Hospitals
Physician groups, such as the American Academy of Family Physicians and the American College of Physicians support the payment cuts because it levels the playing field for physicians and patients.

"It's not a good stewardship of federal dollars to pay more for the exact same services," says Wanda Filer, MD, FAAFP, president of the American Academy of Family Physicians.

In a Feb. 11 letter to House energy and commerce committee members, the AAFP noted that physicians should get reimbursed for patient care no matter the site of service.

"There is an element of fairness in this whole process," Filer says. "I've worked in both scenarios (independent and hospital-owned) and services are frequently the same."

But there are significant differences beyond a new hospital sign on the door, says Lawrence Vernaglia, partner and chair of the health care industry team at Foley & Lardner. Physician offices that are either built from the ground up or acquired by a hospital have to meet a number of regulations before they can qualify as an off-campus HOPD. The narrative that nothing changes but the name is "not true" Vernaglia says.

"All regulations need to be met," Vernaglia says. "We have provider-based rules for nursing, infection control, dietary counseling. HOPDs can provide a hospital-level of care."

That level of care is what the American Hospital Association also points to as an example of the difference between HOPDs and stand-alone physician offices. The AHA sent its own letter to the committee as well as put its members on high alert to send feedback about the site-neutral payment impact.

"Hospitals are different," says Erik Rasmussen, AHA's vice president of legislative affairs. "We are open 24-hours a day and provide all the services people come to a hospital for. If you pay hospitals physician office rates, you are going to get physician office-level service."

Off-campus HOPDs can do some things that standalone physician offices can't, such as provide outpatient psychiatric services that are beyond the scope of incorporating behavioral health into primary care practices. The AHA also says that higher reimbursement rates collected at off-campus HOPDs offsets the cost of caring for sicker and poorer patients.


Erik Rasmussen

Filer says there may be some differences between the site locations, but hospitals remain at an advantage because of their deep pockets.

"Family physicians get paid for taking care of people for little or no pay, too," Filer says. "The difference is we don't raise money from donors and we don't have charitable foundations."

Congressional Intervention
It's unclear which way the house committee is leaning on the issue. The AAFP is calling for the site neutrality payments to be expanded. As of now, the payment cuts only affect off-campus HOPD sites that were acquired after Nov. 2, 2015. AAFP calls that a loophole and wants the date expanded. It's also promoting site neutrality for all facilities.

That idea has broad support from decision makers who see site neutrality as a way to reduce health care costs. But stripping out the facility fee an off-campus HOPD can charge for the same service at another doctor's office down the road isn't a cost-savings, says Vernaglia.

"This is a cost-shifting exercise," he says. "A hospital's overhead is still a hospital's overhead, and hospitals will have to make up the cost somewhere else… patients and payers."

The issue also has hospital CEOs in a bind. Plans that were drawn up, ground that's been broken for new builds, and people who've been hired are all in a holding pattern. "More than a few projects are on hold," Vernaglia says.

But physicians are in a bind, too. They are hearing complaints from patients and they are struggling to give them an explanation, according to Filer.

"Some members sold their practices and patients come in and say things to them," she says. "They give the same service, but now the cost to the patient is higher."

Jacqueline Fellows is a contributing writer at HealthLeaders Media.

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