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Federal Judge Overturns CMS’s Unlawful Expansion of Site-Neutral Payments

In another recent victory for hospitals, the U.S. District Court for the District of Columbia held that the Centers for Medicare and Medicaid Services (CMS) exceeded its statutory authority when it expanded Congress’ site neutral payment mandate in Section 603 of the Bipartisan Budget Act of 2015 (BBA) to grandfathered sites under the BBA.1 CMS’s CY 2019 Outpatient Prospective Payment System (OPPS) Final Rule slashed reimbursement for “excepted” off-campus provider-based departments by applying the corresponding Physician Fee Schedule rate to Evaluation and Management (E&M) G-code services provided at such locations.2 As a result, CMS essentially equalized the payment rate for E&M services provided at excepted off-campus provider-based departments (PBDs), nonexcepted off-campus PBDs, and physician offices alike, despite a statutory exception for grandfathered sites mandated under the BBA.3 CMS opted to ignore the mandated exception in the BBA in favor of implementing a policy that, in CMS’s view, was intended to curb growth in Medicare spending at excepted sites. Following challenges from numerous hospital organizations, the Court concluded that CMS was not authorized to ignore the statutory process for setting payment rates in the OPPS and simply lower payments for certain services performed by certain providers. Notably, the Court found that CMS’s authority to control expenditures under the Medicare program did not authorize it to unilaterally set outpatient department service-specific rates under the OPPS without regard to their relative position or budget neutrality.4

The Court ultimately vacated the applicable portions of the 2019 OPPS Final Rule but remanded the matter back to CMS to craft the appropriate remedy consistent with the Court’s opinion.5 While the Court recognized the complications associated with an order to vacate, it also noted that CMS did not apply the applicable portions of the Final Rule in a budget neutral manner and that this, among other considerations, should lessen the burden for the Agency on reconsideration.6 Although the implementation of the full E&M cut was staggered over two years, CMS projected an estimated savings of $300 million in 2019 alone.7 The parties submitted a joint status report on October 1, 2019,8 however, the HHS has filed a motion requesting that the Court modify its order to remand the matter without vacatur or, alternatively, stay the portion of its order vacating the Final Rule for 60 days while HHS assesses whether to appeal the Court’s decision.9 Pursuant to the CY 2020 OPPS Proposed Rule, CMS will continue the phasein of the reduction for certain services furnished in excepted off-campus PBDs.10 However, it remains to be seen whether CMS will appeal the Court’s decision and push its CY 2020 proposal forward, or back track from the proposal given the Court’s recent opinion. Polsinelli believes that providers should expect CMS to appeal the Court’s initial ruling due to the potentially widespread implications it could have on HHS’ ability to administratively adjust payment rates for select items and services provided in certain hospital settings. It is also likely that CMS will continue to pursue the payment reduction in the CY 2020 OPPS Final Rule. As Polsinelli’s reimbursement team noted in a previous article, CMS faced a similar roadblock recently when trying to unlawfully discriminate against 340B covered entities.11 Pursuant to the CY 2020 OPPS Proposed Rule, CMS confirmed it will continue the 2018 and 2019 underpayment policy for certain 340B covered entities unless the D.C. Court of Appeals upholds the lower court’s ruling that it is unlawful.12 If history is any lesson, CMS will stay its course and appeal adverse determinations that impact its ability to pay different providers different rates while aggressively pursuing these unlawful payment policies in future rules.

1 Am. Hosp. Assoc. v. Azar, No. 1:18-CV-2841-RMC, 2019 WL 4451998,at *12 (D.D.C. Sept. 17. 2019).

2 83 Fed. Reg. 58818, 58822 (Nov. 21, 2018).

3 42 U.S.C. § 1395l(t)(21)(B)(ii).

4 Am. Hosp. Assoc. v. Azar, No. 1:18-CV-2841-RMC, 2019 WL 4451998, at *11 (D.D.C. Sept. 17. 2019).

5 Id., at *12.

6 Id.

7 Id., at *5.

8 See Joint Status Report, Am. Hosp. Assoc. v. Azar, No. 1: No. 1:18-CV-2841-RMC, No. 1:19-CV-00132-RMC (D.D.C Oct. 1, 2019)

9 See Defendant’s Motion to Modify Order, Am. Hosp. Assoc. v. Azar, No. 1: No. 1:18-CV-2841-RMC, No. 1:19-CV-132-RMC (D.D.C Sept. 23, 2019); see also Defendant’s Reply in Support of Motion to Modify Order, Am. Hosp. Assoc. v. Azar, No. 1: No. 1:18-CV-2841-RMC, (D.D.C. Oct. 7, 2019)

10 84 Fed. Reg. 39398, 39401 (Aug. 9, 2019).

11 Am. Hosp. Assoc. v. Azar, 385 F.Supp.3d 1 (D.D.C. May 6, 2019).

12 84 Fed. Reg. 39398, 39401 (Aug. 9, 2019).

© Polsinelli PC, Polsinelli LLP in CaliforniaNational Law Review, Volume IX, Number 304


About this Author


Colleen Faddick's practice includes advising clients regarding the structure of and relationships among health care providers and entities within the complex federal and state regulatory environment. Colleen focuses on Medicare and Medicaid reimbursement and enrollment issues and appeals, fraud and abuse and self-referral law issues, licensing and certification of health care entities, clinical trial compliance and agreements for sponsors and providers, medical device payment and manufacturer relationships with physicians. Colleen works with hospitals, large physician...

Kyle A. Vasquez, Polsinelli, Compliance Support Lawyer, Health Care Reform Attorney

Kyle Vasquez provides pragmatic legal and compliance support to a wide range of health care clients. He utilizes his background in health law and his prior experience as a health care consultant to develop creative approaches that address the unique challenges that health care providers face. Kyle works collaboratively with health care stakeholders to assist in identifying forward-thinking models that meet their financial and operational needs. Kyle represents a broad set of health care entities including multi-hospital health systems, community hospitals, FQHCs, institutional and retail pharmacies, and physician practices, among others.

William D. Galvin III Polsinelli Associate Kansas City HealthCare

William D. Galvin is dedicated to providing effective, efficient and innovate legal solutions to health care clients. He applies his understanding of health care issues towards representing hospitals, physician groups, and other health care professionals and organizations in a variety of health care matters.

William’s past experience includes working for a large health information technology vendor negotiating contracts with third party suppliers and coordinating with internal stakeholders and the legal and finance departments. While pursuing his Master of Laws (“LL.M.”) William...