In July 2020, we discussed a ruling by the D.C. Court of Appeals upholding the Department of Health and Human Services’ (HHS) site-neutral payment rules. On Monday, June 28, 2021, the Supreme Court declined, without comment, to hear an appeal from the American Hospital Association (AHA) and other provider groups asking it to reverse this ruling.

In the past, the Centers for Medicare and Medicaid Services (CMS) generally paid more for clinic visits conducted in hospital outpatient settings than those conducted in physician office settings.  However, some industry experts expressed concern that hospitals might be purchasing physician’s offices and rebranding them as outpatient departments to collect higher Medicare payments. In response to these concerns, Congress enacted site-neutral payments for new, off-campus provider-based hospital outpatient departments (PBDs) in Section 603 of the Bipartisan Budget Act of 2015, despite the different cost structures between PBDs and physician offices.

HHS further cemented this change with its Outpatient Prospective Payment System (OPPS) final rule in 2018, effectively equalizing the Medicare reimbursement for patient evaluation and management (E&M) services provided in a PBD and E&M services provided in a physician office. CMS estimated that the OPPS final rule could save the Medicare program about $760 million annually.

In 2019, AHA and other hospitals brought suit in the D.C. District Court to contest the site-neutral payment policy, arguing that the rate cut exceeded HHS’ statutory authority because the reduction didn’t qualify as a “method for controlling unnecessary increases” in volume. The hospital plaintiffs also contended that the cut to preexisting off-campus PBD reimbursement contravened Congress’ decision not to change reimbursement for preexisting facilities in Section 603. Though the District Court sided with AHA and vacated the site-neutral payment rule, the Court of Appeals overturned this decision in July 2020, stating that HHS’s rate cuts were consistent with its authority to control unnecessary increases in the volume of Medicare-covered services.

In February 2021, AHA requested an appeal, arguing that (1) there is a deep circuit split on whether Chevron deference applies to statutory interpretation questions that determine the court’s jurisdiction; (2) the decision to defer to HHS’s interpretation of a statute that determines the court’s jurisdiction not only violates separation of powers but also incorrectly delegates from Congress to the agency to fill in statutory gaps; and (3) the question of agency deference in the Medicare program is recurring, with conflicting results, making this case an ideal vehicle to resolve this important issue.

HHS submitted a reply brief in May that supported the appellate court’s decision and urged the Supreme Court not to grant AHA’s appeal request. It argued that the Court’s review is not warranted because a provision of the OPPS statute precludes judicial review of the challenge to HHS’s volume-control rate reduction. Further, HHS argued that the appellate decision was correctly determined because the “service-specific, non-budget-neutral rate reduction” the agency adopted falls comfortably within the plain text of the statute. HHS also contended that AHA did not argue with the merits of the reasoning of the appellate court, instead inappropriately focusing on the Chevron framework. Ultimately, the Court declined to hear the appeal without comment.

Responding to the Supreme Court’s decision not to hear the case, AHA general counsel, Melinda Hatton, expressed disappointment. As reported by Health Leaders, Ms. Hatton stated that payment cuts for PBDs “directly undercut the clear intent of Congress to protect them because of the many real and crucial differences between them and other sites of care. Hospital outpatient departments are held to higher regulatory standards and are often the only point of access for patients with the most severe chronic conditions, all of whom receive treatment regardless of ability to pay.”

*Sheela Ranganathan is a law clerk in the firm’s Washington, D.C. office.