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Hospitals back in court to challenge site-neutral Medicare payments

Hospital groups are once again challenging site-neutral Medicare payments from the Centers for Medicare and Medicaid Services in federal court.

The lawsuit, filed Jan. 13 in the U.S. District Court for the District of Columbia by the American Hospital Association, Association of American Medical Colleges and three hospitals, claims that CMS does not have the authority to make nearly $800 million in Medicare payment cuts for off-campus hospital provider-based departments.

The payment cut is the second phase of a plan to lower Medicare payments for certain outpatient services that began in 2019, but the first year's cut was vacated by a federal judge in September 2019.

CMS finalized the 2020 payment change in November 2019 and it took effect Jan. 1, 2020.

Under the finalized payment change, CMS will pay for physician visits at hospitals and certain outpatient centers at the same rate. Physician visits are the most common type of service billed under the outpatient prospective payment system and are typically more expensive when done at hospitals, according to the agency.

The change will save Medicare about $800 million in the calendar year 2020, according to CMS.

Site-neutral payments reimburse for the same service regardless of where it was provided. The payment style has been embraced by CMS recently and is meant to cut unnecessary costs for services that may be more expensive at one facility type versus another.

However, the lawsuit claims that if the cuts are upheld, hospitals will "face the prospect of serious payment reductions for affected services, and may have to make difficult decisions about whether to reduce services in response to the lowered payment rate."

The lawsuit also claims that CMS does not have the authority to make the change because it is not budget neutral.

Plaintiffs also argued that Congress established two groups of off-campus provider-based departments, and they are required to be paid under different payment systems and at different rates; however, the final rule would pay all facilities under the same system and at the same rate.

A CMS spokesperson said in an emailed statement that the agency would not comment on ongoing litigation.

Judge Rosemary Collyer for the U.S. District Court for the District of Columbia ruled in September 2019 that CMS did not have the authority to implement a similar payment cut.

CMS moved forward with the 2020 policy anyway, saying in the finalized rule, "We respectfully disagree with the district court and continue to believe [U.S. Department of Health and Human Services Secretary Alex Azar] has the authority to address unnecessary increases in the volume of outpatient services."

The agency filed a notice of appeal to Collyer's decision Dec. 12, 2019, according to the Jan. 13 lawsuit. CMS said in December 2019 that it would repay providers for the estimated $380 million saved from the 2019 rate cut.

A lawsuit led by the American Hospital Association first challenged the 2020 payment rate in 2019, but Collyer wrote in December 2019 that no ruling could be made until the 2020 payment rate took effect. While Collyer did not rule on the legality of the 2020 payment cut, the judge wrote that "CMS clearly disregarded the substance of the Court's decision in AHA I when it relied on the same ultra vires reasoning to justify its 2020 reimbursement rates."