Bipartisan Budget Act Limiting Provider-Based Status with Site-Neutral Payment Reform

On November 2, 2015, the President signed into law the Bipartisan Budget Act of 2015 (the Act). The Act includes several health care provisions affecting various interests, including a provision that would exclude hospital off-campus outpatient departments from reimbursement under Medicare’s more favorable outpatient prospective payment system (OPPS). The Act will be effective January 1, 2017 (the Effective Date) and apply to any off-campus site that was not already billing under OPPS as of November 2, 2015 (the Date of Enactment). Currently, Medicare reimburses hospitals qualifying for provider-based status at a higher rate than free-standing sites. The new law will have a negative impact on payments to hospitals and will likely affect the trend of hospital acquisitions of physician practices.

Section 603 of the Act significantly modified the so-called "provider-based" reimbursement rules for hospital services provided "off campus" by eliminating the "35-mile rule." The "35-mile" rule had permitted hospitals to claim provider-based status for any off-campus department or outpatient services that it wholly owns within a 35-mile radius of the hospital’s main campus. After January 1, 2017, new off-campus outpatient departments will have to bill either under the Medicare Physician Fee Schedule or ambulatory surgical center (ASC) schedule; essentially in the same manner that independent physician practices and free-standing ASCs currently bill.

News of the legislation surprised many hospital providers, particularly since it had only been approved by Congress a few days earlier on October 28th. While the speed of the enactment may have come as a surprise, the new provision makes good the government’s desire to establish site-neutral payments for services, regardless of whether they are provided in a hospital or physician practice setting. Critics of the Act assert that the effective result, that is site-neutral payments, does not take into account the difference in overhead and other costs associated with services rendered in a hospital outpatient setting as compared to independent-practice settings, which the old rule was intended to provide additional compensation to cover. The American Hospital Association pointed out that minorities and low-income patients comprise the populations most likely to need the very outpatient departments whose payments are being cut.

The Act grandfathers any off-campus outpatient departments that bill OPPS before the enactment date, i.e., November 2, 2015. Also, the Act does not apply to off-campus emergency department services.