Hospitals Chafe Under Medicare's New Payment Rule For Off-Campus Clinics


Eric Lewis' plans for expansion have derailed.

As ceo of Olympic Clinic, he oversees efforts to provide choose to roughly 75,000 individuals Clallam County, in the isolated, rural northwestern corner of Washington state.

Last year, Lewis planned to build a primary care clinic in Sequim, a town about 17 miles in the medical center's main campus in Port Angeles.

But those plans were put aside, Lewis said, because of a change in federal reimbursements this year. Medicare has opted to pay for hospitals with outpatient facilities which are “off campus” a lesser rate, equal to what it really pays independent doctors for clinic visits.

Over yesteryear decade, hospitals have been rapidly building outpatient clinics or purchasing existing independent ones. It was a lucrative business strategy because such clinics could charge higher rates, around the premise that they were a part of a medical facility.

With its new policy, Medicare is basically stating that an off-campus office is definitely an off-campus office, regardless of whether it's of a hospital, several doctors or perhaps a solo practitioner.

Making that statement will save Medicare – and perhaps patients – money. The federal insurer bore the brunt of its members' extra charges, but beneficiaries sometimes picked up part of that expense through deductibles and copayments. Patients with commercial insurance often were blindsided by high bills – going to what seemed to be a normal primary care clinic, only to discover these were charged a hospital facility fee, for example.

Health policy experts said the new policy represents an essential step in rationalizing payments. The brand new policy – a part of a method called “site-neutral” payment – has its roots in the Federal government and was area of the Bipartisan Budget Act of 2021.

“You don’t care about where [your treatment is] happening. You care that it’s a safe and inexpensive procedure,” said Gerard Anderson, director of the Johns Hopkins Center for Hospital Finance and Management. “And the facility fee just increases the cost with very little added value.”

The new payment structure may hurt some hospitals financially, he and other experts acknowledged. But making reimbursements more uniform across providers facilitates competition and may lead commercial insurance to follow along with suit – which could mean more savings.

The policy's two-part phase-in cut Medicare payments for clinic visits to outpatient departments by 30% this season, based on the rule finalized in November. By 2021, the speed will be cut another 30%.

The Centers for Medicare & Medicaid Services (CMS) estimates the modification will save the federal government $380 million this year and patients typically $7 when they visit a hospital-owned clinic because their copayments will be lower. Clinic visits would be the most commonly charged service for hospital outpatient care in Medicare.

It could also cut down on consolidation in the market, experts said, by closing the loophole that created incentives for hospitals to buy independent physician practices and charge higher rates for services at taxpayers' expense.

The American Hospital Association filed a case in December alleging that CMS overstepped its authority when setting the new reimbursement schedule. Olympic Clinic is among the named plaintiffs.

The hospital association claims the new rule infringes on a precedent Congress set using the 2021 budget law. That legislation standardized Medicare payments for clinic appointments with physicians' offices and new hospital outpatient facilities, but allowed most hospital-affiliated departments that existed in those days to continue receiving a higher rate, according to a comment letter in the Medicare Payment Advisory Commission. The audience is really a nonpartisan agency that advises Congress.

The differential for site-based payments was designed originally to help hospitals counterbalance the higher costs they incur for maintaining employees and equipment to handle a wide variety of treatments, said Christopher Whaley, an affiliate policy researcher at the research organization Rand Corp.

But that relief became an incentive for hospitals to purchase independent practices, said Dr. Ateev Mehrotra, associate professor of healthcare policy and medicine at Harvard School of medicine. Hospitals could charge higher prices for services performed in newly acquired clinics. Mehrotra said the new CMS rule might be a way to slow down the trend.

“This isn’t likely to fully put the brakes onto it,” he explained, “but it may be one push around the brakes here to kind of push that consolidation down.”

Some experts have urged the federal government to expand the number of services covered by the site-neutral policy, including paying hospitals' on-site clinics a rate equivalent to what independent doctors receive.

Hospitals acknowledged the change implemented by CMS could lead to savings in the healthcare system, however they say it comes at the cost of patient access. In Washington state, Lewis anticipates a loss of $1.Six million for his hospital. The lack of a clinic in Sequim means ailing patients there'll not be able to get care near to their homes, he explained.

“If you’re well-to-do financially, these aren’t big problems,” Lewis added. “But I think the poorest, elderly, sickest of our society pays the cost of this insurance policy.”

Said Melinda Hatton, general counsel for the hospital association: “I believe access trumps a couple extra dollars in copays every single time.”

On another hand, many independent physicians offer the change. Marni Jameson Carey, executive director of the Association of Independent Doctors, echoed the experts' hope the rule will curb consolidation. According to a report by the consulting firm Avalere Health, the amount of hospital-owned physician practices more than doubled, from 35,700 to 80,000, between July 2012 and January 2021. Hospitals own more than 31% of all physician practices, the researchers said.

Jameson Carey said these mergers can also create problems for the local economy. When a nonprofit hospital acquires an independent clinic, it effectively removes a tax-paying business in the area. That is because nonprofit hospitals are exempt from paying certain federal, local and state taxes in exchange for providing community benefits.

“So furthermore they [hospitals] get the facility fee,” Jameson Carey said, but also, “they don’t need to pay taxes.”