Reverse Migration of Outpatient Services to the Hospital Campus (An Update)

Many medical services are provided both in hospital and community settings, such as physician offices and freestanding imaging or ambulatory surgical centers (ASCs). Services commonly provided in both settings include laboratory tests, physical therapy, outpatient surgery, routine and advanced imaging, physician visits, and noninvasive and invasive procedures, such as endoscopy or cardiac catheterization. When the Centers for Medicare & Medicaid Services (CMS) originally developed the hospital outpatient department (HOPD) designation to establish a higher reimbursement rate for hospital-based outpatient services, hospitals started purchasing physician practices, freestanding imaging centers, and ambulatory surgery centers and rebranding them as hospital outpatient departments to collect the higher Medicare payments. Now CMS is considering site-neutral payments which may result in another 180 degree shift from an on-campus to an off-campus location.

The Centers for Medicare & Medicaid Services (CMS) originally developed the hospital outpatient department (HOPD) designation to establish a higher reimbursement rate for hospital-based outpatient services. Hospitals justified the higher payments by citing higher overhead costs related to treating people with chronic or complex conditions, standby capacity for emergencies, and additional regulatory requirements, such as the obligation to screen and stabilize all patients with a medical emergency regardless of their ability to pay — that do not apply to physicians’ offices. In 2003, Medicare paid ASCs 83% of the amount paid to HOPDs for performing the same services. By 2015, ASCs were paid 55% of the amount paid to HOPDs. For example, Medicare pays hospitals $1,670 for performing an outpatient cataract surgery while paying ASCs only $964 for the same surgery. Industry experts complained that this payment model results in hospitals purchasing physician practices, freestanding imaging centers, and ASCs and rebranding them as hospital outpatient departments to collect the higher Medicare payments.

BACKGROUND

Over the past several years, the healthcare industry has experienced somewhat of a reverse migration with the increasing acquisition by hospitals of private physician practices, independent diagnostic centers, and ASCs, and their conversion to HOPDs. The goal is to optimize reimbursement for hospitals and lessen the risk for physician owners, and ideally, improve coordination of patient care. This shift also aligned with the goals of the Affordable Care Act, since physicians and hospitals working together in accountable care organizations (ACOs) can provide better coordinated care than the traditional fee-for-service and solo practice models. Between 2001 and 2011, the number of physicians and dentists employed by hospitals across the United States grew by more than 40 percent. Over one-third of physician practices in 2012 were either partially or wholly owned by health systems. In a more recent survey, 53% of physicians described themselves as a hospital medical group. At the same time, physicians who remain independent are organizing into larger, more efficient group practices to gain bargaining power, economies of scale, access to capital, enhanced practice market value, and legal safeguards.

CMS UPDATE

The Medicare Payment Advisory Commission has recommended reducing HOPD payments to equal those paid to physician offices — referred to as a site-neutral payment system.  In August, CMS issued a proposed rule that would expand Medicare’s use of site-neutral payments. The goal is to ensure hospitals and physicians receive identical payments for the same procedures regardless of the setting in which the procedure is performed.

FACILITY IMPACT

CMS previously specified that a HOPD must be within 250 yards of the main hospital buildings to be considered “on-campus.” If the facility was within 35 miles of the main hospital campus, a hospital can apply for an “off-campus” designation although this is more difficult to justify. The move to site-neutral payments could lead to yet another 180 degree migration with reduced services in HOPDs and could cause some HOPDs to close. In nearly half of all teaching hospitals, more than 50 percent of Medicare visits take place in HOPDs.

This illustrates how Medicare and Medicaid reimbursement drives decisions by healthcare providers regarding where to locate ambulatory services. Unfortunately, regulations and reimbursement can change at any time while buildings are permanent. This makes it imperative to construct flexible, adaptable facilities or to lease space for services where reimbursement fluctuates.

This article is an update of a previous post.