New CMS Rules Could Make it Harder for Practices to Sell

May 31, 2016

CMS has altered rules around payments to hospital based outpatient departments (HOPDs), which could have an effect on a practice's value to hospitals.

CMS reimbursement rules, along with the moratorium on physician-owned hospitals, has driven the growth in procedures performed outside the hospital setting, such as ambulatory surgery centers (ASC's).  According to the Agency for Healthcare Research and Quality, for example, in 1980, only 16 percent of surgical procedures were performed outside of a hospital.  In 2007, this number had grown to 57.7 percent. This circumstance was unquestionably financially devastating to hospitals and in order to assist hospitals, CMS developed reimbursement rules which pay more to hospital based outpatient departments (HOPDs).

Thus, even though non-HOPD procedures are typically more economical, rates from CMS and private payer reimbursements often reflect the opposite. If a hospital campus-based, or free-standing facility can qualify as a "provider-based" hospital outpatient department (HOPD) - or if a physician sells his qualifying practice to a hospital -  then Medicare and many private payers reimburse the same services at a higher rate than similar services performed in ASCs (sometimes nearly double).  The rationale lies in the need to recompense for the additional expenses hospitals must incur to meet state and federal operational regulations.  

The CMS "Requirements for a determination that a facility or an organization has provider-based status" are found here, and may be summarized as follows:

• CMS has specific location requirements for outpatient center. The facility, if located on the main hospital's campus, must be within 250 yards of the main provider's main buildings. The free-standing entity needs to be located within a 35-mile radius of the main provider.

• The hospital must take over ownership of the facility. There can be no continued physician ownership of the entity (unless physicians already own the hospital.)   

• The provider-based entity must be held out to the public as an affiliate of the hospital.

• The finances and accounting for the ASC must be fully integrated into the hospital's accounting system.   

Because historically payments to HOPDs could be nearly double that of non-provider based ASC's, some reform were inevitable.   On Nov. 2, 2015, President Obama signed the Bipartisan Budget Act of 2015 (BBA) into law, which recognized critics who said these extra payments were unsustainable.  Beginning Jan. 1, 2017, most services furnished at newly created or acquired non-provider based HOPDs will be reimbursed under the Medicare Physician Fee Schedule (MPFS) or Ambulatory Surgical Center Fee Schedule (ASCFS), both of which are not as lucrative as the current Hospital Outpatient Prospective Payment System (OPPS) under which most HOPD services are currently reimbursed.  While the new Act reduces the payments to future HOPDs that do not qualify as on-campus or provider based entities, it grandfathers in existing HOPDs.  This has encouraged hospitals to buy-up physician practices at a blinding pace.

However, the Act also eliminates a lucrative method of obtaining higher payments for most outpatient services delivered in the HOPD setting, potentially decreasing a practice's value to hospitals seeking to acquire the practice.

As always, if you are considering selling your practice to a hospital, or have questions about HOPDs, it is always best to consult an experienced health lawyer in your state.