D.C. Circuit Reversal Upholds CMS’ Site-Neutrality Cuts for Off-Campus Provider-Based Departments

August 5, 2020

The U.S. Court of Appeals for the D.C. Circuit recently reversed a district court ruling and upheld the Centers for Medicare & Medicaid Services site-neutrality payment cuts for off-campus outpatient hospital clinic visits. The circuit court held that CMS’ controversial payment cut to certain off-campus hospital provider-based departments (PBDs) was within CMS’ statutory authority. With this ruling, CMS’ payment cut to the most commonly billed outpatient perspective payment system (OPPS) code — procedural terminology code G0463, “hospital outpatient clinic visit” (the code) — will continue, effectively reducing the payment rate for evaluation and management services provided at off-campus PBDs by 60 percent from what would be paid for the code if rendered on a hospital’s campus.

CMS’ reimbursement cuts to the code have evolved over the past several years, with the driving factor being CMS’ intent to save the Medicare program over $700 million in payments made to hospital PBDs annually. In proposing and implementing the cut, CMS cited its authority under Social Security Act (SSA) Section 1833(t)(2)(F), which provides the Department of Health and Human Services (HHS) secretary with the authority to “develop a method for controlling unnecessary increases in the value of covered outpatient department services” (emphasis added). In issuing its July 17, 2020 ruling, the circuit court, relying on Chevron deference (a permissive standard that tells a court to accept “reasonable” interpretations of law), agreed with CMS’ interpretation of the SSA, ruling it was reasonable, and that CMS was permitted to implement a service-specific, nonbudget-neutral reimbursement cut under the circumstances at hand.

The circuit court’s opinion in American Hospital Association, et al. v. Azar reverses the U.S. District Court for the District of Columbia’s 2019 opinion discussed in a Sept. 30, 2019, McGuireWoods legal alert, in which the district court found that CMS exceeded its authority when it did not implement this payment cut for the code in a budget-neutral manner or follow the OPPS payment adjustment rules. In that opinion, and unlike the D.C. Circuit’s recent ruling, the district court rejected CMS’ argument that it developed a “method” for controlling unnecessary increases in outpatient department services under the meaning of Section 1833(t)(2)(F). The now reversed opinion found that while “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.”

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

1. CMS’ site-neutrality policy for clinic visits will continue. As discussed in prior McGuireWoods legal alerts published on Aug. 28, 2018 and Aug. 14, 2019, over a two-year period, CMS effectively reduced payments for the code by a total of 60 percent less than payments for the code furnished in an on-campus location. CMS reasoned that the reductions were necessary because it was “not prudent for the Medicare program to pay more for these services in one setting than another.” At the time, CMS believed the code, which represented 49 percent of all claim lines (or 30 percent of total payments) that were separately payable or conditionally packaged services furnished by non-excepted PBDs, could be provided for less in a nonhospital setting. Accordingly, CMS proposed, and thereafter finalized, its “relativity adjuster” from the physician fee schedule (PFS) to the code in excepted PBDs to all off-campus locations. Effectively, implementation of this relativity adjuster policy reduced payments by 30 percent of the applicable OPPS on-campus rate each year or 60 percent in total to off-campus hospital locations.

The relativity adjuster policy was implemented over calendar years 2019 and 2020 in a nonbudget neutral manner to reduce overall payments to hospitals. This led to numerous comments against the proposal and triggered multiple lawsuits addressed in the recent D.C. Circuit opinion. In addition to challenging CMS for exceeding its statutory authority in proposing the relativity adjuster policy, critics also claimed CMS ignored the congressional intent behind Section 603 of the Bipartisan Budget Act of 2015 (Section 603), which cut new off-campus PBDs’ payment rates while grandfathering existing PBDs (known as excepted PBDs) into receiving the full OPPS rate. The D.C. Circuit opinion addressed this argument finding that “[n]othing in the text of [S]ection 603 indicates that preexisting off-campus PBDs are forever exempt from adjustments to their reimbursement.” Notably, even after this recent opinion, excepted PBDs will continue to receive full OPPS payment for all other services provided off-campus — only the code is subject to this site-neutrality policy at such locations.

As such, CMS can continue to apply its site-neutrality reduction, notwithstanding the grandfathering of certain PBDs that occurred under the Bipartisan Budget Act, reducing payments for the code by approximately $700 million annually.

2. Non-excepted off-campus PBDs will continue to see a cut in their clinic visit payment rate as well as all other outpatient codes. As discussed in past McGuireWoods legal alerts (Aug. 14, 2019, Health Care Law Monthly Nov. 2018, Aug. 28, 2018, Dec. 13, 2017, Sept. 1, 2017, Jan. 18, 2017), CMS implemented Section 603 by adopting the relativity adjuster policy discussed above. Effectively, Congress mandated that, in an effort to foster site-neutrality goals, non-excepted off-campus PBDs (namely those opened after enactment of the law) 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 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 circuit court ruling does not affect non-excepted off-campus PBDs that will continue to receive 40 percent of the OPPS rate for the code and all other services, but, for grandfathered off-campus PBDs, they similarly receive this 40 percent of the OPPS rates as reimbursement for providing the services under the code.

3. The D.C. Circuit opinion may encourage further site-neutrality policymaking efforts. As previously described, other policymakers also desire to foster site-neutrality goals, including the Medicare Payment Advisory Commission and Congress, such that other outpatient PBD services may similarly face scrutiny by CMS similar to the code. CMS indicated that it focused on the services billed by the code because they represented 49 percent of all OPPS claim lines, which could be provided for less (and just as effectively) in a nonhospital setting, such as a physician’s office. The D.C. Circuit opinion noted that this focus also stemmed from the increase in outpatient hospital spending for such services from 2011 to 2016 compared to similar services that could be provided in physician offices (43.8 percent to 0.4 percent). Therefore, CMS had concerns 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 Section 603 for non-excepted off-campus PBDs, and may lead to similar review by CMS under Section 1833(t)(2)(F) of other outpatient services that can be provided in a physician office for less cost. CMS deemed such authority critical as it allows the agency to target specific services for payment cuts directly, without utilizing its normal mechanisms that would be budget neutral and merely redistribute cuts from the increased volume back to hospitals under other payment rates.

4. CMS’ authority under Section 1833(t)(2)(F) may have limits. On the other hand, in utilizing Section 1833(t)(2)(F), the D.C. Circuit did not give CMS a “blank check” in developing methods for controlling outpatient volume increases. The D.C. Circuit opinion noted that CMS’ rule with respect to the code implemented in a nonbudget-neutral manner was reasonable “to eliminate a volume-growth incentive created … by a differential in its own payment rates.” The court cautioned, however, that “[i]t may be another thing for [CMS] to reduce payment for services under (2)(F) merely because doing so would decrease volume that HHS decides is ‘unnecessary.’” While the court did not expressly answer this question, the language serves as caution that CMS cannot replace the congressional approach for different Medicare payment systems by arguing it was implementing a method to control unnecessary increases in outpatient services. Depending on CMS’ future use of Section 1833(t)(2)(F), further judicial interpretation may be necessary at the D.C. Circuit to determine if the use is an appropriate method.

5. Challengers to CMS’ policy already are seeking a rehearing. Within a week of the opinion, the American Hospital Association and the Association of American Medical Colleges announced they would seek a rehearing and push to reverse the D.C. Circuit’s ruling. Such a rehearing allows a petitioner to request the court to consider a point of law or fact that the court overlooked or misapprehended. Petitioners could also seek a rehearing en banc (so the entire D.C. Circuit hears the case) or file a petition for writ of certiorari before the U.S. Supreme Court. As such, in a case where the challengers won at the district court-level, further twists are possible before CMS and HHS can ensure this site-neutrality policy is secure.

6. CMS expands other site-neutrality policies. On Aug. 4, 2020, CMS released its proposed rule with regard to the OPPS and PFS for calendar year 2021. While CMS noted the litigation and case discussed in this legal alert, CMS did not make any additional changes with respect to such site-neutral payments for the code in off-campus PBDs or the relativity adjuster for other services in non-excepted off-campus PBDs. Instead, CMS proposed other policies that could further site-neutral goals in other ways. These proposed policies include phasing out the inpatient-only procedure list over three years, allowing hospitals to shift more appropriate procedures to the lower-cost outpatient setting beginning with musculoskeletal-related services. CMS also proposed allowing surgery centers to provide 11 additional procedures as well as two alternatives for consideration of more procedures to shift in future years. McGuireWoods will monitor these site-neutrality proposals and the impact on the provider community in the years to come.

The bottom line. The July 17 D.C. Circuit ruling that upholds CMS’ recent changes and revisions to off-campus PBD billing allows lower site-neutral payments in the hospital PBD setting to continue. This ruling will maintain over $700 million in annual cuts to hospital payments in a nonbudget-neutral manner (i.e., such amounts are lost to hospital payments) and will likely encourage policymakers to look for other “methods” to cut costs to achieve site-neutrality, all such proposals McGuireWoods will continue to monitor and provide updates on.

For more information regarding the ruling or CMS’ past efforts on PBD billing, including excepted and non-excepted PBDs, please consult one of the authors.