Doctors and Hospitals Face Cuts in Budget Deal signed into law on Monday

Michael Staley

                                                                   Brandon Schirg

By:  Brandon Schirg, Michael Staley

This blog was originally posted at Waller Healthcare Blog on 10/29/15 and modified on 11/3/15 for this publication.


On Monday, President Obama signed a two-year, $80 billion budget deal that raises the national debt limit as needed through March 2017 and pushes off the possibility of a government shutdown until after a new Congress and President have been elected.

Of particular concern to hospitals and other providers, the legislation will impact Medicare payments to hospitals by codifying the Centers for Medicare & Medicaid Services (CMS) definition of provider-based (PBD) off-campus hospital outpatient departments (HOPDs) as those locations that are not on the main campus of a hospital and are located more 250 yards from the main campus and limiting reimbursement to new off-campus HOPDs in the future.

The big winners seem to be hospitals with existing PBD HOPDs since they will be grandfathered in under the higher existing reimbursement model. They have the government to thank for giving them what many will call an unfair competitive advantage and the government to thank for new uncertainties surrounding their future growth and expansion. MEDPAC’s recommendations released earlier this year recommended not grandfathering in existing PBD HOPDs.

The biggest losers may be hospitals with PBD HOPDs currently incomplete that were under development or construction at the time the law was signed. The loosely worded law could ultimately be interpreted by CMS to eliminate their eligibility to receive reimbursements at the HOPD rate starting in 2017. The costs for those projects have already been incurred and communities and patients (especially in rural areas) will likely soon be asking lawmakers to help them prevent the government from picking winners and losers through an arbitrary deadline by striking the grandfathering clause.

Requirements for new off-campus HOPD locations to enter into new provider agreements leave the industry with many unanswered questions related to the following:

• Will the Medicare hospital conditions of participation apply to these locations?

• If outpatient surgical locations are required to enter into new provider agreements, will it be the provider agreement that is typically signed by ambulatory surgery centers (ASCs)? If so, does that mean the ASC conditions for coverage apply to the location, as well?

• If the outpatient location is treated as a physician clinic, what CMS coverage rules will apply to that location?

• If new provider agreements are required, will hospitals end up with multiple provider numbers?

• If new provider numbers are issued for the outpatient locations, will CMS allow larger healthcare companies to have the reimbursement payments that are paid to those new numbers deposited in a central bank account? Currently, CMS will allow this approach with amounts that are paid to Medicare Part A numbers but refuses to take that same approach with Medicare Part B numbers.

• How will the Medicare successor liability provisions apply to these new provider agreements?

• How will the effective date be determined for these new locations? For example, if an outpatient surgery department is treated as a new ASC, the location typically has to pass a CMS/accreditation survey before it can participate in Medicare. Would that apply here?

• Does Congress agree with CMS’s position that the 250-foot requirement for on-campus status is measured from the front door of the facility?


The legislation is likely to impact hospitals' physician-alignment strategies and reduce incentives for hospitals to buy physician practices and other ancillary service lines which many hospitals and health systems have done to expand networks and meet the Affordable Care Act's push for coordinated care.

The Federation of American Hospitals’ spokesman said the change in payment method to HOPDs is reasonable, thinking the current payment method was flawed and being exploited.

The American Hospital Association, meanwhile, said the proposed cut in funding to HOPDs is an untested idea which "may endanger patient access to care, especially among patients who are sicker, the poor, minorities and seniors who often receive care in hospital outpatient departments. Moreover, rural communities will be most adversely impacted, as hospitals will no longer be able to help physicians in these communities continue to provide access to their patients."

President Barack Obama stated, “Evidence suggests that in recent years, billing of many ambulatory services has been shifting from physicians’ offices to the usually higher paid hospital outpatient department setting, increasing Medicare spending and beneficiary cost-sharing.”

It is important for lawmakers in the U.S. House and Senate to hear directly from industry-related constituents as the new law is implemented at the agency level.



Staley is senior policy adviser at Waller (wallerlaw.com). He served as chief of staff for former Rep. Spencer Bachus (R-Ala.) from 2007 to 2014 and now works as a federal and state contract lobbyist, splitting time between Alabama and Washington, D.C.