Hospitals and the Bipartisan Budget Act of 2015

On November 2, 2015, President Obama signed the Bipartisan Budget Act of 2015.  The new law lifted the debt limit and prevented a government shutdown. It also made several important changes to Medicare and the Patient Protection and Affordable Care Act. Of particular importance is Section 603, which excludes certain hospital outpatient department services from the facility fee under the Hospital Outpatient Prospective Payment System. With specified exceptions, services are excluded from this system if they are furnished by a provider’s off-campus outpatient department. This provision is an effort to end payment differences based on the site of service and was inserted at the request of the Administration.

The Bipartisan Budget Act of 2015 was the result of negotiations involving the White House and Congressional leaders, both Republicans and Democrats. Section 603 codifies the Centers for Medicare and Medicaid Services (CMS) definition of a provider based off-campus hospital outpatient department as a location that is not on a hospital campus and is located more than 250 yards from the main campus. The change is effective on the date of enactment (November 2, 2015). It will be applicable to payments for non-emergency items and services provided after January 1, 2017.

A new off-campus outpatient department that had not billed Medicare prior to enactment would not be eligible for CMS Outpatient Prospective Payment System payments. Instead, the facility would be eligible for reimbursements from either the Medicare Physician Fee Schedule or the Ambulatory Surgical Center prospective payment system. The provision also places limits on administrative and judicial review with regard to items and services, determination as to whether an outpatient department meets terms outlined in the law, and any information the Secretary requires hospitals to report.

The Congressional Budget Office (CBO) estimated Section 603 would reduce Medicare spending by $9.3 billion over ten years. Note that CBO only provided a budget table without any narrative as to its budget scoring reasoning.

Medicare has different payment systems to pay for services provided on an outpatient basis.  Medicare pays for physician services provided in a physician’s office under the Medicare Physician Fee Schedule. If that same service is provided in a hospital setting, Medicare also pays a facility fee under the Hospital Outpatient Prospective Payment System. When Medicare pays a PFS professional fee and an OPPS facility fee, the total payment is typically higher than if the service was provided and billed under the PFS only.

Before enactment of the ACA, hospitals began to purchase physician practices and were able to bill for both the professional fee and the facility setting. The ACA seems to have accelerated that process.  Hospitals have been able to receive the higher Medicare payment by providing care in hospital outpatient department instead of a physician’s office.  This has not gone unnoticed at the federal government level.

MedPAC’s Report to Congress: Medicare and the Health Care Delivery System, recommended that Congress enact legislation to “reduce payment rates for evaluation and management office visits provided in hospital outpatient departments so that total payment rates for these visits are the same whether the service is provided in an outpatient department or a physician office.” MedPAC recommended phasing in the policy change over a three year period.

Subsequent MedPAC reports to Congress in June 2013, March 2014, and March 2015 included the same proposal. The March 2015 report noted Medicare fee-for-service Part B services increased by 3.8 percent from 2012 to 2013. Over the last seven years, there was a 33 percent cumulative increase.  MedPAC stated about one-third of the outpatient volume growth in 2013 was the result of a 10 percent increase in the number of evaluation and management visits billed as outpatient services.

Concerned about the cost to taxpayers and beneficiaries, who are responsible for a 25 percent cost-sharing requirement for Part B services, MedPAC recommended the change and has indicated that Medicare should base payments to provide high quality care in the most efficient setting.

President Obama’s Fiscal Year 2016 CMS budget submission to Congress included a proposal to equalize site-of-service payment between hospital outpatient department and physicians’ offices. The proposal called for a four year phase-in period. The projected savings were estimated to be $29.5 billion over 10 years.

The language in Section 603 is very clear with regard to newly acquired off-campus hospital facilities.  However, it is silent on future relocation of existing off-campus hospital facilities. Without clarifying legislation, an interpretation of this matter will be at the discretion of CMS.

The AHA is advocating for an amendment to exempt hospitals that choose to relocate off-campus facilities from the restrictions in the new law. Potential legislative vehicles include the continuing resolution that will fund Federal Government operations for the balance of the fiscal year, Medicare extenders and tax extenders legislation. All three items could be bundled together in a final legislative vehicle in December. It remains to be seen whether advocates can convince Congress to include the amendment and whether CBO scores it as adding to the deficit.

Given that the administration requested the language in Section 603 and the President’s previous budget proposals, it seems likely a site-neutral proposal covering all off-campus hospital outpatient facilities will be proposed in the FY 2017 budget submission to Congress in February 2016.

The other concern should be CMS, as it has the discretion to interpret off-campus facility relocation. Therefore, hospitals need to develop and implement an advocacy approach before CMS issues its proposed rules for ambulatory and outpatient payment prospective payment systems. CMS typically proposes these rules in early July each year.

Julius W. Hobson, Jr. is Senior Policy Advisor at Polsinelli P.C. and Adjunct Professor of Political Management, Graduate School of Political Management, George Washington University, where he teaches courses on Lobbying, Electoral and Legislative Processes, and Legislative Writing and Research.

Morning Consult