September 2018
Spotlight: Push Toward Site-Neutral Payments Continues
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CMS’ actions come amidst a broader push against hospital prices. Last year, for example, Anthem Blue Cross Blue Shield announced that it would no longer pay for ambulatory MRIs and CTs performed within hospitals without preauthorization of medical necessity. More may be yet to come from CMS. In the proposed rule, CMS requests comments for the question: “For what reasons might it ever be appropriate to a pay a higher OPPS rate for services that can be performed in lower cost settings?”
The proposed change in payments for clinic visits only intensifies the need for new strategies that hospitals and health systems have already been facing. These include:
Get cost structure under control. The higher payments received for services provided at HOPDs have provided a welcome cushion for many hospitals and health systems, but that cushion is getting thinner. Decreasing payment rates are a reality. Hospitals must adjust their revenue expectations and cost structures accordingly.
The proposed changes to payments for clinic visits, in particular, suggest that hospitals and health systems take a hard look at care delivery models. How, for example, might non-physician clinicians be better utilized to save physician time for higher-acuity patients and reduce a clinic visit’s average cost?
Stay focused on the outpatient and ambulatory space. As competition for outpatient and ambulatory services intensifies, hospitals and health systems cannot afford to cede any ground. New market entrants, including insurance companies and private equity firms, show increasing interest in the ASC sector and could pull business away from hospitals and health systems by providing greater access and convenience at a lower cost.
Focus on the Outpatient and Ambulatory space
Figure 3: OPPS Proposal Risk by Provider Type
Source: Kaufman, Hall & Associates, LLC
Note that the proposed rule does not change the equation for acquisition or establishment of new ASCs. Under the 2015 Bipartisan Budget Act, services provided at new facilities are already paid a lower amount than grandfathered HOPDs. It does support a strategy that focuses on joint ventures with independent physicians, especially in markets with a significant number of independent physician groups. Hospital-owned facilities are most at risk of site-neutral payment adjustments, and ASC joint ventures remain one of the most significant physician alignment structures available to hospitals and health systems (see Figure 3).
Keep control of the “first mile.” Although payments for clinic visits will be reduced under the proposed rule, lower-intensity clinic visits represent the “first mile” in engaging consumers with a health system. Maintaining or increasing access to clinic visits in more convenient outpatient settings remain critical elements in a strategy focused on growing market share and the consumer base. The move to minimize payment differentials and migrate care to lower-cost settings will continue. Hospitals and health systems must focus their strategies on adapting to this reality.
Hospital prices are again in the spotlight as the Centers for Medicare & Medicaid Services (CMS) moves to eliminate the payment differential between clinic visits at hospital-owned outpatient facilities and independent facilities.
In its Outpatient Prospective Payment System (OPPS) proposed rule for 2019, released on July 25, 2018, CMS proposes that payment for clinic visits at off-campus hospital outpatient departments (HOPDs) be paid at the same rate as a clinic visit in an independent physician office setting. This follows an earlier step toward site neutrality taken with the Bipartisan Budget Act of 2015. Under that act, an ambulatory surgery center (ASC) acquired or established by a hospital after November 2, 2015, cannot bill for services at the higher HOPD rate. Instead, it must bill at the same rate as a freestanding ASC. ASCs acquired or established before the November 2015 cutoff are “grandfathered,” and can continue to bill at the higher HOPD rate. The new proposed rule for clinic visits, however, applies to grandfathered and non-grandfathered facilities alike.
Push Toward Site-Neutral Payments Continues
Impact of Proposed Average Rates
Outpatient and Ambulatory space
Site-Neutral Payments
Impact of Proposed Average Rates for an HOPD Clinic Visit
In making the proposed change to clinic visit payments, CMS notes that over the decade ending in 2015, the volume of outpatient services per Medicare beneficiary grew by 47 percent. One-third of the volume growth from 2014 to 2015 was due to an increase in the number of clinic visits billed as outpatient services. CMS attributes this growth, in part, to hospitals acquiring freestanding physician practices and converting billing for the acquired practices to higher-paying HOPD visits. It views this growth as “unnecessary because it appears to have been incentivized by the difference in payment for each setting rather than patient acuity.”

In dollar terms, the average payment for a clinic visit at an HOPD would drop 60 percent, from approximately $116 to $46 (see Figure 1). Estimated savings for 2019 are $760 million, with $610 million accruing to Medicare and $150 million to beneficiaries, who will have lower copayments at the lower rate.
To further promote site neutrality, CMS also proposes to change payment updates to freestanding ASCs from the current system, based on the percentage price increase in the Consumer Price Index for all urban consumers (CPI-U), to a proposed system based on the hospital market basket update. CMS hopes this will stabilize payment differentials between ASC and HOPD settings, and encourage the migration of care to lower-cost ASC settings, as clinically appropriate. As a result, ASCs would receive a 2 percent update for 2019, while HOPDs would receive a 1.25 percent update (see Figure 2). Most of the 1.25 percent HOPD update would be offset by the proposed reduction in clinic visit payments, which is projected to reduce OPPS payments by 1.2 percent.
Figure 1: Difference Between Current and Proposed Average Rates for an HOPD Clinic Visit
Source: Kaufman, Hall & Associates, LLC
Figure 2: Comparison of 2019 ASC and HOPD payment update Proposals
Sources: Ambulatory Surgery Center Association, CMS
Impact of Proposed Average Rates
Outpatient and Ambulatory space
Site-Neutral Payments
©2018 Kaufman, Hall & Associates, LLC
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