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The Other Shoe Falls: The D.C Circuit Court Of Appeals Reinstates the Medicare Site-Neutral Policy

July 29, 2020

On July 17, 2020, the United States Court of Appeals for the District of Columbia reversed the prior decision of the D.C. District Court in the case of American Hospital Association et al. v. Azar which invalidated the “site neutral” payment policy that the Centers for Medicare & Medicaid Services (CMS) implemented in 2019. Click the link at the bottom of the page to read the full decision. This means that hospitals may have to repay additional payments received as a result of the District Court’s decision. This is certainly an unfortunate development for hospitals, particularly in light of the financial hardships and challenges with which hospitals must cope during the current pandemic.

Under the site-neutral policy, CMS paid hospital outpatient departments at the lower physician fee schedule equivalent rate for clinic visit services.  In compliance with the District Court decision invalidating this policy, CMS ordered additional hospital payment nationwide. See article

In essence, the D.C. Circuit Court deferred to the interpretation of CMS that it possessed the authority to impose the site neutral policy as a means of controlling the utilization of outpatient services.

The D.C. Circuit Court decision is not yet final, however, because the AHA plaintiffs have the opportunity to request rehearing and/or Supreme Court review, a process which could consume several months, or longer. Additionally, at present it is not known if the AHA plaintiffs will challenge the authority of CMS to recover the additional payments that have been made, or possibly seek a settlement forgiving repayment.

The AHA plaintiffs have also challenged the application of the site neutral policy in 2020, as have other litigants including clients of Honigman. The outcome of those cases, however, most likely will be dictated by the ultimate decision in the 2019 litigation.

In light of this development, the conservative assumption is that hospitals will be required to repay the additional amounts they received during 2019, and should reserve these amounts in their financial statements.

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