Site-Neutral Payment! What To Do Now?

On Nov. 2, President Obama signed the Bipartisan Budget Act of 2015 (H.R. 1314).  One of the more significant provisions, aside from the suspension of the national debt ceiling and aversion of a government shutdown, is the matter of site-neutral payments, the antithesis of the site-of-service differential. This legislation is not completely unexpected, as MedPAC has recommended for quite some time that payment differentials should be eliminated. 

Site-neutral payments are looked upon with concern by hospital leaders, because it will represent a big shift in the way hospitals are paid for outpatient services in off-campus departments. The new law will pay from either the Medicare Physician Fee Schedule or the Ambulatory Surgery Center Payment System effective January 1, 2017 for most items or services furnished in an off-campus hospital department that was not billing for those items or services as a hospital prior to November 2, 2015. Off-campus hospital departments billing as such prior to November 2 are grandfathered in and will continue to be paid under the Outpatient Prospective Payment System (OPPS). Moreover, items or services furnished on the campus of the hospital are not affected by this change; emergency department services are likewise unaffected, as are satellite facilities and provider-based facilities such as rural health clinics.

This change will undoubtedly neutralize one of the longstanding benefits hospitals have recognized in acquiring physician practices and ambulatory surgery centers—the financial benefit associated with the OPPS reimbursement. It is also possible that facilities designated as eligible for discounts under the 340B drug discount program may no longer be eligible under the new rules.

All is not lost, however, as there are some strategies that hospitals can begin to employ. As noted, the limitation only applies to off-campus items and services, so the 250-yard definition of “campus” will likely be a significant part of hospital acquisition strategy. Rural health clinics will also be given special consideration in hospital strategy. Hospitals that participate in shared savings arrangements or Medicare Advantage plans can reap some benefits from reduced costs by doing more in ambulatory care settings. While these savings may not fully account for the loss of site-of-service differential on provider-based services, it can be of some benefit.

Another strategy is to downsize by returning some hospital-based clinics and ancillary services to group practices. Eliminating duplicative equipment and services can lower costs as well. An additional benefit of this change is to better align costs in transformative physician compensation models that shift from WRVU production to quality-based compensation. Yet another benefit is the improvement in patient satisfaction with the elimination of the second billing and registration process associated with the provider-based facility, returning the patient to the single physician practice provider and minimizing confusion.

In valuing physician practices and ambulatory surgery centers, it has never been appropriate to consider the means by which the hospital purchaser is reimbursed (i.e., OPPS). Thus, the analysis of the income stream for valuation purposes is not significantly different after H.R. 1314 in a physician-owned practice or ASC sale to a hospital. This isn’t to say that the analysis of the discount rate doesn’t change, considering the implications of this legislation. In time, the public and private markets may also reflect changes in values for these entities as demand is impacted.

With these changes in play, hospitals and physicians should remain focused on long-term strategies, including the goals of better health for populations, better experience of care, and reducing costs of care. Achieving both parties’ goals may include vertical integration through acquisition within the boundaries of the new law while accepting the reimbursement changes, taking advantage of new opportunities afforded by the new value-based transformation, or both.

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