Policymakers look to curb facility fees in outpatient setting
Should Medicare pay more for the same service delivered in an outpatient facility when it’s owned by a hospital? That’s the key question behind the push for site-neutral payments, a policy change that federal and state policymakers are considering.
What are site-neutral payments?
Medicare pays a higher rate for services that are delivered in hospital outpatient departments (HOPDs) than services delivered at physicians’ offices or ambulatory surgical centers. That’s because HOPDs are currently treated as part of the hospital and can use Medicare’s Outpatient Prospective Payment System (OPPS) for reimbursement rather than Medicare’s Physician Fee Schedule, which physician offices use. This allows HOPDs to add “facility fees” on top of their physician fees, even when the HOPD is not on the hospital campus.
The disparity in payment rates means that Medicare overpays HOPDs for the same services that could be delivered easily and safely in doctors’ offices. For example, in 2019 Medicare paid HOPDs $701 for nerve block injections compared to $256 at doctors’ offices, according to the Medicare Payment Advisory Commission (MedPAC).
Over the past few years, facility fees have become a big issue, in part driven by newsworthy cases of bizarre facility fees such as a $350 facility fee for a video visit. In one case, a patient discovered that her rheumatologist’s office had been reclassified as a “hospital-based setting,” tacking on a $1,262 facility fee to her $30 steroid injection.
Why are hospitals paid more for the same services? Medicare OPPS payments are higher to account for the costs hospitals incur to keep their ER open 24/7 and to deliver certain services that are too risky or complex for doctors’ offices, like some joint replacements. But under the current rules, these higher rate are applied for all services delivered in HOPDs (not just emergency or complex services).
The impact of payment differences
The ability for hospitals to add facility fees for outpatient visits has contributed to some dramatic shifts in care delivery and cost. More outpatient care is being delivered in HOPDs than in previous years. For example, in 2021, more than 50% of chemotherapy services Medicare paid for was in HOPDs, compared to 35% ten years ago.
In part because of this trend, Medicare costs for outpatient care are growing. The cost of outpatient care made up 48% of Medicare spending in 2021, more than hospital inpatient care or prescription drugs. Not only do Medicare overpayments increase healthcare spending as a whole, they add to the burden on Medicare beneficiaries, who have to pay 20% of the cost of care for outpatient services.
And the higher payments for HOPDs gives hospitals another incentive to acquire physician practices, which has been a growing trend. In 2020, about 40 percent of physicians were employed by a hospital or worked at a practice with at least some hospital ownership, compared to 29% in 2012.
What actions are being taken?
Site-neutral payments have been on the radar for many years, and HHS has already implemented some policies to address the issue. Since 2017, newly-created off-campus HOPDs have been reimbursed at the same rate as other outpatient departments for non-emergency services. And in 2019, a new CMS rule extended site-neutral payments for office visits in all off-campus hospital departments. However, the impact of these policies has been minimal, because HOPDs that existed before 2015 are exempt, and only one third of HOPD office visits take place in off-campus hospital departments, according to MedPAC. Clearly, there is room to do more.
There are proposals on both the federal and state levels to reduce facility fees for outpatient care. In Massachusetts, Maine, Texas, Colorado, and Connecticut, legislators have proposed bills to prohibit healthcare providers from charging facility fees in outpatient facilities not on a hospital campus or ER. Washington, Oregon, and Ohio have already passed laws prohibiting facility fees on telehealth services. Other states have considered legislation to increase transparency around facility fees with policies such as mandatory disclosures of facility fees prior to delivering care.
On the federal level, lawmakers showed support for site-neutral payments at a House Energy and Commerce Committee hearing and momentum is building. So far there has been one bill reintroduced in the House that would give the HHS Secretary authority to promote site-neutral payments and remove the exception for off-campus hospital outpatient departments (including emergency departments).
There are also three draft bills currently under discussion. One would direct the HHS Secretary to align payment rates for certain services that are appropriate to deliver in any outpatient setting. This bill largely follows MedPAC guidance to align payment rates with the setting in which those services are usually provided– ie. for services like office visits that are usually done in a doctor’s office, the payment for any office visit (no matter where it is delivered) will be the Physician Fee Schedule rate. For services that are usually delivered in HOPDs (that are more complex), payment rates will stay the same.
Another draft bill would update the 2015 law to remove exceptions for pre-existing HOPDs, and another would promote site-neutral payments specifically for drugs administered in the outpatient setting.
Winners and losers
Who stands to gain and lose the most from site-neutral payments? Taxpayers and Medicare beneficiaries would be the biggest winners. MedPAC estimates that site-neutral payments would have saved Medicare $6.6 billion and Medicare beneficiaries would have paid $1.7 billion less out of pocket in 2019. Other insurers, if they follow in Medicare’s footsteps, would also save billions in facility fee payments they make to HOPDs. Independent physician practices might also benefit, as they will be on a more even playing field financially with HOPDs.
Of course, hospitals have a lot to lose. The billions in Medicare savings from site-neutral payments would come pretty much directly out of their bottom line. While many large hospitals have a sufficient financial buffer to withstand a decrease in revenue, site-neutral payments could have an outsized impact on hospitals that are already on thin ice financially.
According to MedPAC’s estimates, smaller hospitals, rural hospitals, and government-run hospitals will see a greater drop in Medicare revenue compared to hospitals overall. That’s concerning, as small rural hospitals and public hospitals generally have lower margins than other hospitals. These hospitals may be the sole provider in their communities or care for a disproportionate share of publicly-insured or uninsured patients.
However, there are ways to combat this problem, to ensure that access to outpatient care does not decline for those who need it most. One method is through “stop-loss provisions,” which would cap Medicare revenue declines at a certain rate for safety net hospitals. Another would be directing some of the savings from site-neutral payments back into safety net hospitals.
“If you wanted to do site-neutral [payment] and then funnel some of that money back to those facilities through some other mechanism that doesn’t incentivize consolidation, I think that would be fine,” said former CMS official Sean Cavanaugh, at a recent House hearing on the topic.
Hospitals provide many services that doctor’s office cannot, including vital emergency care. But for the services that could be done in doctors’ offices just as safely, it’s common sense to pay HOPDs at the same rate. The savings to Medicare and reduced out-of-pocket costs for beneficiaries will be be significant. And if we can use those savings to support safety net hospitals, even better.