Another Reason Hospitals Hate Medicare’s Site-Neutral Payment Plans

The CMS’ plan to eliminate Medicare payments for new off-campus outpatient departments has kicked up fierce opposition from hospitals. As the comment period comes to a close, hospitals argue it threatens not just lost revenue but also substantial and unavoidable legal risks.

The rule, proposed in July, would eliminate Medicare payments to hospitals for most services provided at off-campus departments that came into operation after Nov. 2, 2015. Instead, the payments would flow to physicians starting on Jan. 1, 2017, making it difficult for health systems to recoup capital or operational costs for the facilities, even though they are responsible for continuing to equip and maintain the off-campus offices.

While hospitals have complained loudly about the lost funds, attorneys say they could face an even bigger problem: running afoul of the Stark law and anti-kickback statute or losing out on drug discounts depending on how they structure their physician agreements.

“We think compliance is literally impossible come Jan. 1,” said Andrew Ruskin, a partner in the law firm Morgan Lewis & Bockius.

The proposed rule creates a complex web of liability concerns based on how a hospital is or isn’t reimbursed for running the off-site departments.

Congress called for the policy change in the Bipartisan Budget Act of 2015 based on recommendations from the Medicare Payment Advisory Commission. MedPAC noted the government was paying significantly more for the same procedures at hospital-owned ambulatory centers. The difference appeared to be a factor in the flurry of health systems buying physician practices.

A hospital has to be the owner and operator in order for a facility to remain eligible for Medicare’s 340B drug pricing program.

But under the Stark law, hospitals cannot provide physicians with office space, equipment or other services for less than fair market value without violating the statute’s referral and billing prohibitions and running the risk of a whistle-blower lawsuit.

Many hospitals rely on community physicians to run their off-campus hospital outpatient departments and don’t have existing agreements with those clinicians to charge for the operational costs. Entering into those deals with physicians would create a compensation arrangement under federal law that could also be problematic. Plus, it would be nearly impossible to negotiate such arrangements before the rule goes into effect.

“CMS should have recognized that before they even recognized the rule, Ruskin said. “They made a total gaffe here.”

Regardless of the underlying cost saving principles behind the payment policy change, lawyers say, the agency made it impossible to comply with the restrictions without risking untold penalties and legal expenses.

“This is really a cost saving measure,” said Sheree Kanner, a partner at Hogan Lovells, who conducted a legal analysis of the proposed rule on AHA’s behalf last month. “CMS has taken what we would consider to be a very narrow reading of the whole site-neutral provision. By taking this approach to paying in 2017, it’s placed a lot of risk at the feet of hospitals.”

According to a December 2015 report from the Congressional Budget Office, changing this outpatient payment policy will save Medicare $9.3 billion over 10 years. But the AHA says hospitals already have negative margins on Medicare patients and this change will make the situation worse. The site-neutral payments alone will cut Medicare outpatient payments by 2.7%, or $1.44 billion per year. And more cuts may follow, the association warned, noting that MedPAC has also recommended slashing evaluation and management (E/M) payments, which could drop hospital outpatient departments’ Medicare payments by $2.3 billion per year, or 5.5%.

That doesn’t include the compliance costs hospitals and their outpatient departments would face because of the legal liabilities associated with unintentional Stark and kickback violations.

Even if the CMS declines to investigate potential kickback allegations stemming from the site-neutral payment policy, whistle-blowers could sue hospitals recoup millions of dollars due to the strict liability standards of the laws. In a whistle-blower lawsuit, a hospital could receive penalties of between $11,000 and $22,000 for each claim submitted that violates the statutes, plus triple damages.

Congress in recent months has held hearings to address problems with the anti-kickback laws, and a congressional white paper in June even said the Stark law had created “a minefield for the healthcare industry.”

Lawmakers are considering expanding the law’s exceptions and waivers or even repealing parts or all of the statute, but it still remains to be seen when or if those efforts will come to fruition.

Although the CMS requested comments on fraud and abuse concerns regarding the site-neutral payment policy–it’s still unclear if the agency will, or can, postpone the policy in light of congressional mandate.

The CMS said that it is taking all stakeholder feedback into consideration before issuing its final rule. That’s expected to come in early November, giving hospitals just two months to come up with new, complex agreements with clinicians.

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