On July 17, 2020, the D.C. Court of Appeals confirmed that HHS’ proposed site-neutral payment policy can go into effect by overturning a previous D.C. trial court decision holding otherwise. This decision is a significant setback to hospitals operating provider-based hospital departments (PBD), which cover a wide variety of service lines from primary care and specialty-based medicine to outpatient imaging and other diagnostics. Historically, services provided in a PBD setting have received higher reimbursement rates than the same services performed in a physician office setting. The justification for higher reimbursement was based on the additional cost and (at times) higher acuity of services performed in the hospital-based setting. However, beginning in 2014, HHS began to reconsider its historical approach to reimbursement, and in 2015 Congress passed legislation (see Section 603) mandating that PBDs would be paid at physician office rates for all services (i.e., a “site-neutral policy”). This legislation and subsequent HHS rulemaking was challenged in court by the American Hospital Association (AHA) and its constituent members, leading to the present line of cases.
In light of the most recent D.C. circuit decision, providers must now contend with the increased likelihood of a payment-neutral future. Even if the AHA decides to challenge this decision (which we understand is under current deliberation), we believe and have seen that hospitals and their physician practice partners will begin looking for alternative methods to providing cost-effective and fiscally efficient outpatient care. This may include everything from an increased emphasis on community medical clinics and satellite emergency departments to the movement of outpatient imaging and other diagnostic services to outpatient diagnostic centers and similar physician-hospital office-based joint venture projects. We will continue to monitor these trends and keep our readers apprised of significant new developments, both at the federal agency level and in the courtroom.
