WMBA 6602 Week 4 Site-Neutral Payment Trace Example

From Section 603 to the Remittance: Tracing Site-Neutral Payment for Off-Campus Hospital Outpatient Departments Into a Two-Hospital System's Revenue, Clinic by Clinic

Student Name

Walden University

WMBA 6602: Contemporary Topics in the U.S. Healthcare Delivery System

Instructor Name

Month Day, Year

From Section 603 to the Remittance: Tracing Site-Neutral Payment for Off-Campus Hospital Outpatient Departments Into a Two-Hospital System's Revenue, Clinic by Clinic

The Policy and Why It Matters Here

For decades Medicare paid a hospital-owned clinic more than an independent office for an identical outpatient visit, because the hospital department received a facility payment on top of the physician's professional fee. Hospitals that bought physician practices and converted them into hospital outpatient departments could therefore bill Medicare more for the same visits, a pattern research on hospital-physician integration has linked to higher spending (Post et al., 2018). Site-neutral payment is the policy response: pay similar amounts for similar services regardless of the setting. This paper traces one version of it from the statute to the remittance at Laurel Valley Health, the fictional east Tennessee system with a regional and a community hospital that this course follows.

Step 1: The Statute

The 2015 budget law (Pub. L. No. 114-74), in its Section 603, changed Medicare payment for off-campus provider-based departments, hospital outpatient locations away from the main campus. Departments that began billing Medicare after November 2, 2015 were no longer to be paid under the hospital outpatient prospective payment system for most services. Departments already billing before that date were exempted, or "excepted," and dedicated emergency departments were excluded from the change.

Why the Exceptions Mattered

The exceptions in the statute decided which hospitals felt the change first. Departments already billing before the November 2015 cutoff kept outpatient rates for most services, so systems that had bought practices early were protected, while those that expanded later were not. A narrow addition for departments already under construction followed in the 21st Century Cures Act of 2016. The rules also tied excepted status to a department's location, so relocating an excepted department could cost it that status unless the move met narrow conditions. For Laurel Valley, these details turned a national payment policy into a question about which of its buildings were billing on which date.

@before ## What the Trace Teaches

What Laurel Valley Should Check Each Quarter

The trace suggests three routine checks. First, the revenue cycle team should audit a sample of claims from each off-campus department for the correct PO or PN modifier, since an error in either direction creates repayment risk or lost revenue. Second, finance should track Medicare clinic visit volume and facility payments by department, so that rate changes in each year's outpatient rule are reflected in the budget. Third, any plan to move or expand an off-campus department should go to compliance before signing a lease, because a move can change the department's status and its payment.

Step 2: The Regulation

The statute left the replacement payment to the Centers for Medicare & Medicaid Services, which chose to pay non-excepted departments under the physician fee schedule at a reduced fraction of the outpatient rate, set at 40 percent from 2018 onward. A later rule extended the same treatment to clinic visits at excepted departments, phased in over 2019 and 2020, and a federal appeals court upheld the agency's authority to do so (American Hospital Association v. Azar, 2020). After these steps, a routine clinic visit at almost any off-campus department brings Medicare's facility payment down to about 40 percent of the former outpatient rate.

Step 3: The Claim

The rules reach a hospital's revenue through two letters on each claim line. Excepted off-campus departments add the modifier PO to their claims; non-excepted departments add PN. The Medicare administrative contractor reads the modifier and applies the corresponding payment rate. A department's status, registration and the accuracy of its modifiers therefore determine its payment, and a coding error can either overstate revenue, inviting recoupment, or understate it.

Step 4: The Remittance at Laurel Valley

Laurel Valley has two off-campus departments affected by the policy.

Table 1

Site-Neutral Effects at Two Off-Campus Departments

Payment amounts are illustrative round figures for a composite system; the actual rate varies by year and service.

For the older center, the clinic visit change reduced Medicare facility payments by roughly $75 per visit, about $1.65 million a year. Other services there, such as imaging and procedures, are still paid at outpatient rates because the center is excepted, so the department's total Medicare revenue fell by less than the clinic visit loss alone. For the newer center, the policy shaped the business case from the start: Laurel Valley opened it knowing most services would be paid at the reduced rate, and it is staffed and priced as a lower-cost site.

Step 5: The Effects Beyond Medicare

The trace does not stop at Medicare. Some commercial insurers and state policymakers have pressed for site-neutral payment in their own contracts and laws, citing the same logic. If the commercial insurer that covers about a quarter of Laurel Valley's patients adopted a similar policy for clinic visits, the effect could be larger than Medicare's, because commercial facility fees are higher. Managers should therefore treat the Medicare rule as the leading edge of a broader shift, not a one-time adjustment.

What the Trace Teaches

Three lessons follow. First, the route from statute to revenue runs through regulatory choices; the law said the old payment would stop, but the size of the cut was set later by rule. Second, the decisive operational detail is a claim modifier, which makes coding and registration of each location part of revenue management. Third, the policy changes strategy as well as revenue. Laurel Valley's next acquisition of a physician practice will be evaluated without the facility fee premium that once made such acquisitions attractive, and Post et al. (2018) suggest that integration driven mainly by that premium was a source of higher spending without clear gains in quality.

References

American Hospital Association v. Azar, 964 F.3d 1230 (2020).

Bipartisan Budget Act of 2015, Pub. L. No. 114-74, 129 Stat. 584 (2015).

Post, B., Buchmueller, T., & Ryan, A. M. (2018). Vertical integration of hospitals and physicians: Economic theory and empirical evidence on spending and quality. Medical Care Research and Review, 75(4), 399-433. https://doi.org/10.1177/1077558717727834