Wednesday, October 28, 2015

Sudden Change Can Happen: Legislation on Medicare's Outpatient Location Payments

Often change at Medicare - whether within the agency or from the Hill - appears to come very slowly.  This week was an example of an unexpectedly sudden change.   According to Bloomberg (here),  new budget balancing legislation will call a halt to hospital system acquisitions of physician practices which are then reclassified as hospital outpatient clinics.

The basic issue has been known for a number of years, discussed in newspapers, trade journals, and in CMS rulemaking and MedPAC publications.   For example, from February 6, 2015 in the New York Times:  "When Hospitals Buy Doctors' Offices, Patient Fees Soar."  (Clear; here.)

 I'll use round numbers for illustration only.  Dr. Smith has an office practice on Oak Street.  Medicare pays him $100 for a 30 minute office visit.  If he sees patients on Tuesday at St Mary's Hospital, Medicare only pays him $60 for the visit - his professional cost, he doesn't have to pay for rent, nursing staff, or other administration.  But Medicare pays St. Mary's Hospital $90 for providing those things - a facility fee supporting a physician's office visit.  So far so good.   What riles people is that if St. Mary's actually BUYS Dr. Smith's practice on Oak Street, it might be reclassified as a St. Mary's Hospital Outpatient Clinic.  Now, for each office visit in the same office at Oak Street (with the same philodendron and the same magazines), Medicare now pays Dr. Smith $60 and St. Mary's $90, totalling $150 per visit.

CMS has danced around this topic for at least a couple years in rulemaking, suggesting, for example, that such non campus clinics of a hospital be billed with special modifiers or processed through different cost systems.   According to Politico Pro, the new legislation does this with a "whack."

At Politico Pro (here), Erin Mershon, writes:

Under the provision, which helps fund part of the two-year budget deal, Medicare will pay lower lower rates to any new outpatient clinics acquired or established by a hospital. Existing hospital-owned outpatient departments, whether they are former physician offices or separate clinics, would be exempt from the new payment scheme. 
The provision aims to address a longstanding discrepancy that pays hospitals more than physicians for care provided in outpatient settings. MedPAC and others have criticized hospitals for taking advantage of the discrepancy in Medicare reimbursement, which they say has incentivized hospitals to gobble up independent physician practices.

I haven't absorbed the legislative text (here for the whole PDF, here for the relevant subsection), but it would be interesting to see how the plethora of Medicare outpatient rules are applied - for example, recent bundling rules for all clinical chemistry tests tied to a hospital clinic visit.  It looks at a glance like the acquired distant office practice will simply bill under office payment rules.  The legislation contains references to existing definitions of outpatient facilities (here).  There are rather complicated historical definitions of campuses, remote locations, and satellite facilities.

The main lesson for policy watchers is that this change arose abruptly as a done deal after several years of concern (assuming it passes a House vote on October 28).  As Hemingway wrote in The Sun Also Rises, one goes bankrupt very slowly; then suddenly.   Similarly, this policy change percolated very slow for years, then matured suddenly.