Site-Neutral Payments: Doctors Yes, Hospitals No

In 2013, Medicare learned through a Congressional report prepared by the Medicare Payment Advisory Commission (MedPAC) that it was paying substantially more for certain medical procedures in an outpatient setting than the program paid for procedures performed in a physician’s office. An outpatient setting is defined as being a medical facility that is more than 250 yards away from the hospital or hospital campus.

For example, the 2013 study revealed that a Level 2 echocardiogram cost 141% more in an outpatient center than the same procedure cost in a physician’s office.

Congress to CMS: Be Site-Neutral

Ordered by Congress to address this imbalance through site-neutral payments, The Centers for Medicare & Medicaid Services (CMS, an agency within the Department of Health and Human Services that administers Medicare) has proposed a rule to take effect January 1, 2017 – and retroactive to November 2, 2015 – to reimburse for procedures performed at such outpatient centers only under the Physician Fee Schedule. (The CY2017 Physican Fee Schedule is currently in its open comment period.)

This means that the doctors and medical staff who perform the procedure will be compensated – and at an enhanced rate, according to the proposed rule change. However, hospitals who may be associated with the facilities will not be reimbursed at all.

Rule Change = Dramatic Shift

Such a rule change represents a dramatic shift in incentives for owning and operating outpatient centers away from hospitals and to physicians. It also incentivizes hospitals to bring medical procedures and patient care back into the hospital – where costs for care are higher.

While the proposed approach of paying for care provided at outpatient centers only under the physician fee schedule will likely be reversed at least in part, the direction CMS is heading is clear. In the future, it will be less lucrative for hospitals to build, own, and manage outpatient centers and more lucrative for physicians to do so. Overall, this will drive more patients away from hospitals.

Certainly CMS’ proposed approach to achieve a site-neutral payments policy is unfortunate news for hospitals and especially so for those who have made substantial investment in quality outpatient centers and off-campus medical facilities. However, so many of the recent changes in healthcare is taking money out of doctor’s pockets, it’s a surprise, and almost refreshing, to see a rule change seeking overall cost reductions that may potentially put money back in.