On Sept. 17, 2019, a Washington, D.C. district court judge ruled that the Centers for Medicare & Medicaid Services (CMS) “exceeded its statutory authority when it cut the payment rate for clinic services at off-campus provider based clinics.” The court’s ruling vacates CMS’s controversial payment cut to certain off-campus hospital provider based departments (PBDs), which CMS intends to implement over the next two years and that applies to the most commonly billed outpatient perspective payment system (OPPS) code — procedural terminology code G0463, “hospital outpatient clinic visit” (Code). CMS’s change to the Code’s payment effectively reduced the payment rate for evaluation and management services provided at off-campus PBDs by 60 percent from what would be paid on a hospital’s campus.

CMS’s changes to the Code were intended to save the Medicare program over $700 million in payments made to hospital PBDs annually. However, district court judge Rosemary M. Collyer rejected CMS’s argument that it developed a “method” for controlling unnecessary increases in outpatient department services. Rather, Judge Collyer found that CMS did not implement its controversial payment cut in a budget-neutral manner or follow the OPPS payment adjustment rules. In so ruling, Judge Collyer agreed with the American Hospital Association, the Association of American Medical Colleges and dozens of hospitals who sued the Department of Health and Human Services (HHS) regarding this payment cut.

To assist providers in navigating this recent court case, here are six key legal concepts from the ruling that hospital PBDs will want to know.

1. Non-excepted off-campus PBDs will continue to see a cut in their clinic visit payment rate. As discussed in past McGuireWoods legal alerts (Aug. 14, 2019, Aug. 28, 2018, Dec. 13, 2017, Sept. 1, 2017, Jan. 18, 2017), CMS implemented Section 603 of the Bipartisan Budget Act of 2015 by adopting a “relativity adjuster” policy. Effectively, Congress mandated that, in an effort to foster site-neutrality goals, non-excepted off-campus PBDs would be paid in amounts equivalent to those paid under a payment system other than the OPPS. Accordingly, CMS now pays such non-excepted off-campus PBDs under the physician fee schedule (PFS). However, because the PFS did not have a mechanism for paying hospitals, CMS adopted the OPPS system while paying a reduced amount utilizing a relativity adjuster to achieve mandatory site-neutral rates. CMS thought this would strike “an appropriate balance” in accomplishing site-neutrality goals while paying non-excepted off-campus PBDs for services. Since implementing the relativity adjuster, CMS has reduced the amount paid to approximately 40 percent of the OPPS rate for non-excepted items and services. This ruling does not affect non-excepted off-campus PBDs who will continue to receive 40 percent of the OPPS rate for the Code and all other services.

2. The Code may face further site-neutrality policymaking efforts. For CY 2019, CMS began implementing a two-year phase-in to cut payments for the Code in excepted off-campus PBDs (the policy at issue in the ruling and discussed in a recent McGuireWoods legal alert). CMS believed that this change would save more than $700 million per year by paying excepted off-campus PBDs in a site-neutral manner for visit evaluation services. As we have previously described, other policymakers also desire to foster site-neutrality goals, including the Medicare Payment Advisory Commission, Congress itself and other actors, such that even if the ruling is upheld, the Code may face scrutiny again in the future. CMS indicated the services billed by the Code represented 49 percent of all OPPS claim lines, which could be provided for less, and just as effectively, in a non-hospital setting (i.e., in a physician’s office). Therefore, CMS had concern that paying more to excepted off-campus PBDs encouraged hospitals to shift physician evaluation and management services to patient clinic visits paid through the Code. This mirrors a similar concern that Congress had when enacting the Balanced Budget Act section for non-excepted off-campus PDBs. Given these concerns expressed by various regulatory bodies, it is likely that future proposed cuts to the Code will occur.

3. The court ruled that payment cuts are not “methods” for controlling costs. In proposing cuts to the Code, CMS cited Social Security Act Section 1833(t)(2)(F), which gives the HHS Secretary authority to “develop a method for controlling unnecessary increases in the value of covered outpatient department services” (emphasis added). In making its ruling, Judge Collyer focused heavily on whether changes to the Code were a “method” to control costs or simply a payment cut that violated the statutory scheme. This analysis was critical, particularly since the Code adjustment was the first time this provision of the Social Security Act was utilized. After a review of both parties’ arguments, Judge Collyer ruled that while the “context does not make clear what a ‘method’ is . . . it does make clear what a ‘method’ is not: it is not a price setting tool, and a government’s effort to wield it in such a manner is manifestly inconsistent with the statutory scheme.” Effectively, if Judge Collyer’s opinion is upheld, CMS may consider other methods for controlling costs, but it cannot target specific services for payment cuts directly. This is critical as the OPPS rate process is intended to be budget neutral; if CMS cuts the Code (or any other service code directly), those savings are paid to hospitals by increasing other rates throughout the rest of the OPPS, and CMS’s policy intended to avoid such redistribution.

4. The statutory scheme surrounding the OPPS and the Balanced Budget Act suggested this outcome was a possible ruling. In a Health Care Law Monthly article, we wrote,

“Notwithstanding [Section 1833(t)(2)(F)], it is pertinent to note that Congress explicitly provided for a distinction in site-neutrality payment mandate for non-excepted and excepted PBDs. Accordingly, given the substantial impact that this proposal presents, significant comments against this proposal are expected, and, if finalized, potential litigation.”

This distinction was implicit in the ruling’s result. Judge Collyer discussed, at length, the statutory scheme for OPPS payments and adjustments (required in a budget-neutral manner). The court then distinguished this from the explicit congressional mandate for site-neutral policies for non-excepted off-campus PBDs that expressly carved out excepted off-campus PBDs. Going past this distinction and applying similar payment methodologies to excepted off-campus PBDs was clearly a step too far for the court. On any future appeal, distinguishing between the OPPS statutory scheme and the Balanced Budget Act site-neutral scheme for certain PBDs will continue to challenge CMS’s policy with respect to the Code.

5. Potential remedies. While the district court agreed with the plaintiffs challenging CMS’s policy, Judge Collyer refused, at this time, to require CMS to issue payments utilizing the full OPPS rate to excepted PBDs for the Code. Such a refusal may not last long. On Oct. 1, 2019, the parties will submit a joint status report on whether additional briefings are necessary to determine an appropriate remedy. The ruling reasoned that administrative law traditionally requires the case to be remanded to a federal agency for further action consistent with the correct legal standards. At the same time, Judge Collyer noted that budget-neutral principles would not have an impact throughout the OPPS since the Code’s cuts were not reapportioned to other payments. That said, excepted PBDs still currently receive lower reimbursement rate for the Code, and there is not a plan for them to be made whole for reduced past payments.

6. Upcoming CY 2020 final rule for OPPS payments. In addition to this joint status report, as discussed in our Aug. 14, 2019 alert, CMS recently proposed to finalize the two-year phase-in with respect to payment cuts for the Code in its CY 2020 proposed rule. CMS may utilize the final rule to ask for additional comments and craft an appropriate payment policy for the Code. Potentially, industry stakeholders may have used the proposed rule’s comment period to propose ways for CMS to address the Code and its past payments before any final rule officially provides the same opportunity.