Appeals Court Holds CMS Has Authority to Implement Rule That Lowered Medicare Payments to Off-Campus Clinics

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The U.S. Court of Appeals for the District of Columbia ruled that the Centers for Medicare & Medicaid Services (CMS) acted within its statutory authority in implementing its site-neutral payment policy, which reduced payment rates for evaluation and management services at off-campus, hospital-based clinics. The decision was issued on July 17, 2020, in American Hospital Association, et al. v. Azar, D.C. Cir., No. 19-5352.

In an effort to curtail what it views as unnecessary increases in the volume of covered outpatient services at off-campus hospital-based clinics, CMS finalized its “site neutral” rule in November 2018. The site neutral policy reduced payment rates so services provided at off-campus, hospital-based clinics are reimbursed at the same rate as when provided in a physician’s office. CMS estimated that the rule would reduce Medicare’s expenditures by approximately $610 million in 2019 alone.

The American Hospital Association, the Association of American Medical Colleges and approximately 40 hospital systems brought these consolidated actions, claiming that CMS’s rate reduction for off-campus, hospital-based clinics falls outside of the agency’s statutory authority. As discussed in a previous client alert, the district court agreed and vacated the regulation implementing the rate reduction. Shortly after, CMS announced it would reprocess claims paid at the reduced rate under the site neutral policy and filed an appeal.

The appeals court concluded that the regulation rests on a reasonable interpretation of CMS’s statutory authority to adopt “method[s] for controlling unnecessary increases in the volume of covered [outpatient] services.” 42 U.S.C. § 1395l(t)(2)(F). Because the challenged rate cut is a method that falls under paragraph (2)(F), the appeals court found that judicial review of the regulation is precluded by the statute. The judges ruled that “a service-specific, non-budget-neutral rate reduction falls comfortably within the plain text of” the Outpatient Prospective Payment System (OPPS) and reducing the reimbursement rate for a particular OPPS service “readily qualifies, in common parlance, as a ‘method for controlling unnecessary increases in the volume’ of that service.”

While the decision is a win for CMS, hospitals are disappointed and have implored Congress to step in and pass legislation to outlaw the cuts.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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