Relief from Reduced Payments to Grandfathered Off-Campus Provider-Based Departments

On September 17, 2019, on a motion for summary judgement, the United States District Court for the District of Columbia vacated the portions of CMS’s November 21, 2018 Final Rule (the “Final Rule”) that had, since January 1, 2019, reduced the payment rate for hospital clinic visits provided at grandfathered off-campus provider-based departments to equal the payment rate for similar services provided in the physician office setting, and the Court remanded the matter to CMS for further proceedings.


When CMS proposed this payment reduction, it stated that it believed that the higher payments made under OPPS were incentivizing providers to provide care in the hospital outpatient setting, rather than in the physician office setting, noting that “[w]e have heard that many off-campus departments converted from physicians’ offices to hospital outpatient departments, without a change in either the physical location or a change in the acuity of the patients seen.” 83 Fed. Reg. 37,046, 37,142 (July 31, 2018) (the “Proposed Rule”). According to CMS, “the payment rate was approximately $75 to $85 more for the same service when furnished in the hospital outpatient setting instead of the physician office setting, 20 percent of which was the responsibility of the beneficiary.” Id. Noting that the most frequently billed service using the modifier for grandfathered off-campus provider-based departments was HCPCS code GO463 (hospital outpatient clinic visit for assessment and management of a patient), CMS determined that many of these hospital clinic visits were financially unnecessary because the same service could have been provided in a lower cost setting. Accordingly, CMS proposed to apply the Physician Fee Schedule rate for E&M services to hospital clinic visits provided in grandfathered off-campus provider-based departments, thereby equalizing the payment rate in grandfathered off-campus provider-based departments, non-grandfathered off-campus provider-based departments, and physician offices. Despite receiving over 3000 comments to the Proposed Rule, including many comments that CMS lacked statutory authority to implement the proposed payment reduction, CMS finalized its payment reduction proposal in the Final Rule.

District Court Decision

Hospitals and related trade groups, including the American Hospital Association, appealed certain determinations made by CMS on claims for payment for hospital clinic visits provided at grandfathered off-campus provider-based departments. Plaintiffs argued that the portion of the Final Rule that reduced payment for HCPCS code G0463 in this setting is contrary to both the Medicare statutory scheme and the policy decision reached by Congress under Section 603 of the Bipartisan Budget Act of 2015 because it involves a selective cut to Medicare funding that targets specific services and providers. The plaintiffs argued that if CMS wants to reduce payment rates for a specific service provided in an outpatient provider-based department, it must change the relative payment weights and adjustments through the annual review process in a budget neutral matter. Alternatively, the plaintiffs argued that if CMS wants to reduce Medicare costs by targeting what it considers unnecessary increases in the volume of services, it must develop a method to do so that will be applied across the board by adjusting the conversion factor. The Court agreed with plaintiffs, stating that “the service-specific unilateral price setting by CMS is not a ‘method’ within the meaning of the statute” and therefore is “impermissible and violates its obligations under the statute.” See

Subsequent Motions

On September 23rd, the government filed a Motion to Modify the Court’s order granting summary judgment for the plaintiffs, requesting that that the Court remand the case without vacatur, or stay the portion of the Order vacating the Final Rule for 60 days to allow time for the defendant to consider an appeal, noting that an immediate vacatur would result in “no payment rule in effect and no methodology by which Defendant could make payments for affected outpatient hospital claims.” Plaintiffs responded in their September 30, 2019, Opposition to Defendant’s Motion to Modify the Order arguing that no new rule is required. Plaintiffs stated that the removal of the rate reduction that had been imposed by the Final Rule would result in the default, published rate for hospital clinic visits at grandfathered off-campus provider-based departments, as Congress intended.

Stay tuned to see what happens next and how hospitals will be compensated for underpayments for hospital clinic visits since January 1, 2019.