Federal Judge Orders CMS to End Site-Neutral Reimbursement Policy

Published December 13, 2019

In implementing the policy, CMS withheld $380 million of excess payments. Collyer ruled the agency did not have the authority to withhold money Congress appropriated. Collyer ordered CMS to pay hospitals all the money it withheld in the eight and a half months during which the rule was in effect.

The site-neutral pay policy was designed to have Medicare pay the same rate to clinics operated by hospitals but located remotely as it does to clinics with no hospital affiliation. On September 17, Collyer ruled the Trump administration exceeded its authority but didn’t order reimbursement of the withheld funds, sending it back to CMS to rectify. 

‘Not a Price-Setting Tool’

The CMS argument “does not make it clear what a ‘method’ is, but it does make it clear what a method is not: it is not a price-setting tool, and the government’s effort to wield it in such a manner is manifestly inconsistent with the statutory scheme,” Collyer wrote in September.

Collyer, who was appointed to the United States District Court for the District of Columbia by President George W. Bush, stated the government may not “shoehorn a ‘method’ into a multi-faceted congressional payment scheme when Congress’ clear directions lack any such reference.”

The CMS rule went into effect on January 1 and was immediately challenged in court by a coalition led by the American Hospital Association (AHA). Among other things, the plaintiffs claimed the rule would result in cuts to Medicare of $380 million this year and $760 million in 2020.

The court ruled if the government wants to change the way Medicare pays for office visits, it must be done in a way that doesn’t increase or decrease Medicare spending, modernhealthcare.com reported on September 17.

“Nothing in the adjustment or payment scheme permits service-specific, non-budget neutral cuts,” Collyer wrote in her ruling.

Congress Controls Purse Strings

Collyer rejected the government’s argument the site-neutral regulation followed the intent of the law because Congress did not explicitly require CMS to keep its adjustments of these Medicare payments budget-neutral.

“Given how pervasively the statute requires budget neutrality in the Outpatient Perspective Payment System (OPPS), Congress clearly considered effects on total expenditures critical to that system,” Collyer wrote.

Collyer acknowledged CMS might be correct in arguing it could save millions of dollars by having services conducted more cheaply in clinics that don’t require hospital site fees, but the judge said the agency “was not authorized to ignore the statutory process for setting payment rates.”

Hospitals Applaud

The AHA and the Association of American Medical Colleges welcomed Collyer’s September decision.

“The ruling, which will allow hospitals to maintain access to important services to patients and communities, affirmed that the cuts directly undercut the clear intent of Congress to protect hospital outpatient departments because of the many real and crucial differences between them and other sites of care,” the associations said in a joint statement.

The AHA called for quick action by CMS.

“Now that Judge Collyer has ruled against the government’s motion to reconsider her opinion and for a stay, the AHA expects CMS to comply with today’s order and promptly repay the impacted hospitals for the work they do for the patients they serve,” AHA General Counsel Melinda Hatton said in a statement.

Setback for Taxpayers

Unless CMS chooses to appeal Collyer’s decision, it will have no choice but to repay the hospitals the money it has withheld.

Devon Herrick, a health care economist and policy advisor to The Heartland Institute, which publishes Health Care News, says Collyer’s decision is a setback for taxpayers.

“The recent ruling on site-neutral payments is an example of bureaucracy preventing CMS from making logical changes to the Medicare program,” said Herrick. “Site-neutral payments should not even require debate, yet it was struck down by a judge because it saved taxpayers money.

“It is also doubtful that Congress will rein in wasteful spending,” said Herrick. “Paying hospitals no more for office-based physicians employed by the hospital than independent physicians who practice next door should not require an act of Congress.”

CMS Undeterred

CMS appears determined to move forward on eliminating payment differences between certain outpatient sites of service.

On November 1,  CMS issued a final rule, with a comment period, the agency says builds “on existing efforts to increase patient choice by making payment available for more services in different sites of services and adopting policy changes under OOPS and Ambulatory Surgical Center (ASC) Payment System.”

This reaffirmation of CMS’ commitment to widening Medicare patient choice is a positive step, says Marilyn M. Singleton, M.D., J.D., president of the Association of American Physicians and Surgeons.

“CMS recognizes that private practice offices are penalized for not selling out to a hospital system,” said Singleton. “Patients are saddled with higher co-pays for receiving care at a hospital-owned practice. Lowering hospital reimbursements to the level of physicians’ fees would be a step in the right direction for a more competitive market for services.”

The site-neutrality issue sheds light on a broader problem, says Singleton.

“In an ideal, free medical-care market, the government would not set prices at all,” said Singleton.” “Forcing all entities to manage costs and perform services at reasonable, competitive prices would ensure that government regulations would not favor the entity with the most financial and political influence.”


Bonner R. Cohen, Ph.D., ([email protected]) is a senior fellow at the National Center for Public Policy Research and a senior policy analyst with the Committee for a Constructive Tomorrow (CFACT).