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Federal Court Rules for HHS’ Site-Neutral Payment Policy

August 5, 2020

By: Wolfe Pincavage Team

The U.S. Court of Appeals for the District of Columbia reversed a lower court’s decision in American Hospital Association et al. v. Azar, ruling that the U.S. Department of Health and Human Services (“HHS”) has the authority to implement site-neutral payments. This decision directly impacts the hospital industry as it allows the federal government to pay the same Medicare reimbursement rate to off-site hospital-affiliated clinics and physicians rendering services in their offices for similar services.

The American Hospital Association, Association of American Medical Colleges, and several hospital systems (collectively the “hospitals”) led a lawsuit against the 2019 Hospital Outpatient Prospective Payment System rule (“OPPS rule”) implementing a site-neutral payment policy. The hospitals argued that HHS’ site-neutral payment cuts violated the federal statute governing the OPPS rule because the payments were not budget neutral as required by the Bipartisan Budget Act of 2015. Additionally, the hospitals argued that HHS’ decision to reduce payments to all off-campus hospital clinics goes against the Bipartisan Budget Act of 2015, since the act gave HHS the power to cut payments to clinics created after the law went into effect. However, this did not apply to pre-existing clinics

The district court agreed with the hospitals; however, the appellate court overturned the lower court’s ruling.

The appellate court found that budget neutrality was not required, and HHS had authority to implement the policy because the federal law governing its OPPS rule allows HHS some latitude on changing its payment formula. In turn, this federal law gives HHS the power to control unnecessary increases in the volume of covered outpatient services. Thus, the appeals court held that HHS’ decision to cut payments was permissible.

The court’s recent ruling has potential financial implications for health systems. Overall, hospital revenue will decrease due to the reduction in the payment rate for certain OPPS services provided in off-site hospital-affiliated clinics. These negative implications have emerged at a time where many health systems are already facing financial downturn due to the ongoing COVID-19 pandemic.