Health Law Daily Order vacating portions of outpatient prospective payment system reimbursement rates upheld
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Tuesday, October 22, 2019

Order vacating portions of outpatient prospective payment system reimbursement rates upheld

By Rebecca Mayo, J.D.

A court refused to modify its order vacating the evaluation and management rate reduction for off-campus provider-based departments.

The evaluation and management (E&M) rate reduction, was developed separate from the underlying Outpatient Prospective Payment System (OPPS) reimbursement rates. The court found that the E&M rate reduction was not so intertwined with the underlying OPPS payment rates that it could not be severed. Therefore, vacatur of the applicable portions of the final rule and remand to CMS for proceedings consistent with the court’s decision was the appropriate remedy (American Hospital Association v. Azar, October 21, 2019, Collyer, R.).

Payment rate. After determining that in many cases, E&M of patient services provided by off-campus provider-based departments could be provided in a lower cost setting, CMS implemented a new proposed payment method for OPPS. A new final rule was issued that reduced reimbursement rates under the OPPS to off-campus provider-based departments for certain outpatient department services (OPD) services. The American Hospital Association challenged the rule and a court held that the addition of a non-budget-neutral rate reduction for (E&M) services at such facilities, separate from the normal OPPS reimbursement schedule, conflicted with the overall statute. The court vacated the relevant portions of the final rule and remanded the matter back to the agency (see Hospitals win, lowering off-campus payment rate exceeded CMS’ authority, Sept. 18, 2019). CMS asked the court to modify its order and to instead remand the matter to the agency to develop a remedy without vacatur.

Vacatur. A court may remand an unlawful rule without vacatur depending on the seriousness of the rule’s deficiencies and the extent of doubt whether the agency chose correctly, and the disruptive consequences of an interim change that may itself be changed. Doubt whether the agency chose correctly may arise where the decision was potentially lawful but insufficiently explained. However, the court found that CMS put forth an impermissible interpretation of the statutory scheme and no new data or reasoning on remand can save that interpretation.

CMS argued that with the rule being vacated, there is no extant methodology under which CMS may pay off-campus provider-based departments for the services that the challenged portion of the rule addressed and no way for providers to calculate appropriate co-payments. CMS further argued that the rate reduction for E&M services could not be severed from the rest of the rate because it accounted for its projected cost savings when developing the underlying OPPS.

However, the court noted that CMS "developed the underlying OPPS reimbursement rates and then tacked the E&M rate reduction on at the end." Therefore, if the rate reduction for E&M services at off-campus provider-based department was vacated, those payments would be reverted to the general rule. The underlying OPPS reimbursement rates were not expressly conditioned on rate reduction for E&M services and the remaining rule does not lose meaning without the severed portion. The reduced rate for E&M services was not in any way intertwined with CMS’s obligation to review and set the underlying OPPS reimbursement rates and operated entirely independent of the underlying rates. Further, in the proposed rule the rate reduction would have been implemented in a different time frame and would have saved CMS $600 million rather than the $300 million projected for the final rule. The court found that it telling that CMS did not adjust the underlying OPPS reimbursement rates to make up for the shortfall.

The case is No. 12-2841 (RMC).

Attorneys: Catherine Emily Stetson (Hogan Lovells US LLP) for American Hospital Association, Association of American Medical Colleges and Mercy Health Muskegon. Joel L. McElvain (King & Spalding LLP) for University of Kansas Hospital Authority, Columbus Regional Healthcare System, Fayette Community Hospital, Inc. d/b/a Piedmont Fayette Hospital, Inc. and East Baton Rouge Medical Center, LLC d/b/a Ochner Medical Center - Baton Rouge. Bradley P. Humphreys, U.S. Department of Justice, for Alex M. Azar, II.

Companies: American Hospital Association; Association of American Medical Colleges; Mercy Health Muskegon; University of Kansas Hospital Authority; Columbus Regional Healthcare System; Fayette Community Hospital, Inc. d/b/a Piedmont Fayette Hospital, Inc.; East Baton Rouge Medical Center, LLC d/b/a Ochner Medical Center - Baton Rouge

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