United States: D.C. District Court Vacates CMS Final Rule, Finds That CMS' Lesser Reimbursement Of Services Provided At Grandfathered Off-Campus Provider-Based Departments Was Improper

On September 17, 2019, the U.S. District Court for the District of Columbia ruled against the Centers for Medicare and Medicaid Services ("CMS"), vacating CMS' 2018 Final OPPS Rule, which cut Medicare reimbursement rates for certain outpatient hospital services provided at certain off-campus provider-based departments ("PBDs").

Until 2015, all off-campus provider-based departments were reimbursed under the Outpatient Prospective Payment System ("OPPS"). However, in response to a perceived trend of hospitals acquiring physician practices that traditionally had billed under the less lucrative Physician Fee Schedule ("PFS") and converting such practice sites to off-campus PBDs (which are reimbursed at higher rates under the OPPS), Congress passed the Bipartisan Budget Act of 2015. Under that law, off-campus PBDs are paid at the lower PFS rate, rather than the higher rate under the OPPS. However, Congress included a provision excepting off-campus PBDs that were already billing under the OPPS as of November 2, 2015 ("grandfathered PBDs").

Despite this statutory exception, CMS promulgated a Final OPPS Rule in 2018 that took aim at grandfathered PBDs. The 2018 Final OPPS Rule changed reimbursement for certain hospital outpatient services, specifically clinic visits identified by HCPCS code G0463, provided at grandfathered off-campus PBDs. Specifically, CMS lowered the reimbursement rate for those services to the "site-specific PFS rate for the clinic visit service" – a 60% reduction from the OPPS reimbursement rate for the same service. 83 Fed. Reg. 58818, 58822 (Nov. 21, 2018). CMS planned to phase in application of this payment reduction over two years and projected that the policy would result in approximately $300 million in savings to Medicare in 2019, with Medicare beneficiaries saving approximately $80 million in the form of reduced copayments. Id. at 59014.

The Association of American Medical Colleges, the American Hospital Association, and nearly 40 hospitals challenged the 2018 Final OPPS Rule, arguing that CMS did not have the authority to reduce reimbursement rates in this manner. The plaintiffs contended that adjustments have to "be budget neutral, and CMS may not reduce Medicare Part B spending by selectively slashing the payment rates for specific types of services." The plaintiffs also argued that Congress' exception for grandfathered PBDs in the Bipartisan Budget Act of 2015 reflected a determination that these PBDs should be reimbursed at a higher rate for all of the services they provide, asserting that "Congress's choice to grandfather some off-campus PBDs to permit them to continue billing under the OPPS, and thus be subject to different payment rates from other off-campus PBDs, cannot have been anything but deliberate."

CMS argued that clinic visits identified by HCPCS code G0463 could be obtained at other provider sites, such as physicians' offices, at lower a cost to Medicare, and the level of reimbursement for those services when provided at grandfathered PBDs was unnecessarily and disproportionally high – stating that while the services were not deemed "medically unnecessary," they were "financially unnecessary." CMS argued further that it could develop a method to "set payment rates for a particular service which is causing an 'unnecessary' increase in cost (and volume) without regard to budget neutrality, because there is no logical reason Congress would want CMS to penalize all outpatient departments—by reducing rates for all [outpatient department] services—for the spike in volume (as measured by total expenditures) if only one such service caused the spike."

In its opinion, the Court accepted the possibility that CMS might be overpaying for services, but rejected CMS' argument that CMS had the authority to cut reimbursement rates in the manner it had, in view of the statutory scheme enacted by Congress. In particular, the Court stated:

CMS believes it is paying millions of taxpayer dollars for patient services in hospital outpatient departments that could be provided at less expense in physician offices. CMS may be correct. But CMS was not authorized to ignore the statutory process for setting payment rates in the Outpatient Prospective Payment System and to lower payments only for certain services performed by certain providers.

CMS argued that it has the authority to develop a method for controlling unnecessary volume increases, but the Court held that the particular method adopted – slashing reimbursement rates for a particular service provided by a particular category of provider otherwise entitled to a higher reimbursement rate – "is not a price-setting tool, and the government's efforts to wield it in such a manner is manifestly inconsistent with the statutory scheme."

Because the opinion vacates the 2018 Final OPPS Rule, its full implications, particularly for grandfathered PBDs that already furnished, billed, and have been paid for services identified by HCPCS code G0463, are not entirely clear. The Court, while recognizing the potential for complications in vacating one part of the rule, noted that the "Final Rule is less than one year old and did not apply budget neutrality principles," which should lessen the burden on CMS in reconsidering it. While promulgating an appropriate revised rule might not be overly demanding, CMS may face greater challenges in addressing damages incurred during the year that the Final Rule was in effect. As indicated in a joint statement by the American Hospital Association and the American Academy of Medical Colleges, "Now that the court has ruled, it is up to the agency to put forth remedies for impacted hospitals and the patients they serve."

The plaintiffs requested that the court order CMS to issue make-whole payments associated with prior 'underpayments' improperly made due to the 2018 Final OPPS Rule, but the Court noted that when "a court reviewing agency action determines that an agency made an error of law, the court's inquiry is at an end: the case must be remanded to the agency for further action consistent with the correct legal standards." The Court, however, has required a joint status report from the parties by October 1, 2019 to determine if additional briefing on remedies is required. Hospitals operating grandfathered PBMs should watch the evolution of this outstanding issue closely, as it may have potentially substantial financial implications – for both future and potentially past reimbursement of clinic visits at those sites.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
23 Oct 2019, Other, Dallas, United States

Marketing Wants To Do What? Sweepstakes, Influencers, Loyalty, and Other Advertising and Promotional Fun

25 Oct 2019, Webinar, Los Angeles, United States

Matthew Bonovich will be a speaker at this webinar.

State and local governments continue to incentivize renewable energy and battery storage, causing an increase in mergers and acquisitions among producers and specialized renewables.

29 Oct 2019, Seminar, California, United States

Please join us for Sheppard Mullin's Labor & Employment Law Update & Happy Hour Seminar Series. There are many new developments in California labor and employment laws that will significantly affect the way you run your day-to-day business operations.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions