Lab Payment Issues Lead CMS to Propose Some Outpatient Cuts

If cash flow from outpatient business at hospitals and ambulatory surgical centers suffers in 2016, laboratories will be among the culprits. That’s because the Centers for Medicare & Medicaid Services (CMS) has proposed a 2 percent cut to the Hospital Outpatient Prospective Payment System (HOPPS) and Ambulatory Surgical Center Payment System (ASC) to address perceived inflation in the HOPPS payment rates. That inflation is linked to what the feds believe are excess payments for laboratory tests that are currently paid separate from the overall HOPPS and shifted last year from the Clinical Laboratory Fee Schedule. According to the CMS, excess payments to labs may have exceeded $1 billion last year. That cut would be mitigated by an overall market basket increase for HOPPS of 2.7 percent, minus a 0.6 percentage point adjustment for multi-factor productivity and a legally mandated 0.2 percentage point cut. Altogether, the HOPPS would experience a 0.1 percent payment cut next year. In addition to those changes, CMS has proposed a 2 percent payment reduction to providers that don’t meet the requirements of the Hospital Outpatient Quality Reporting Program. CMS is soliciting comments on its HOPPS proposal through August, and will likely make some changes accordingly. Hospitals will receive a very modest inpatient payment increase from the CMS for calendar year 2016 as a result of the Inpatient Prospective Payment System final rule that it issued in mid-August that is slated to go into effect in October. Altogether, the payment increase is expected to total 0.9 percent. That includes an overall 2.4 percent market basket increase for all hospitals that can demonstrate the meaningful use of electronic health records, mitigated by cuts stemming from increased productivity (0.5 percent), a cut mandated by the Affordable Care Act (ACA) (0.2 percent) and another reduction as a result of the American Taxpayer Relief Act of 2012 (0.8 percent). The cost of and work required to deliver laboratory services was included in the decisionmaking process. However, hospitals participating in the Disproportionate Share Hospital (DSH) program for safety net providers will also receive cuts totaling $1.2 billion in 2016. That’s also related to the ACA—the DSH was expected to be supplanted by the nationwide expansion of the Medicaid program. However, since the U.S. Supreme Court ruled in 2012 that participation in expansion by states is optional, only 30 states have participated to date, damaging cash flow to DSH hospitals that are operating in non-expansion states. CMS is collecting comments on the IPPS through the end of September. It is unclear if CMS would make any more changes. Although it had proposed doing away with the partial suspension of the so-called two-midnight rule for hospitals later this year, it recently agreed to extend the suspension through at least the end of this calendar year after coming under intense pressure from the American Hospital Association and other lobbying groups. That rule provides guidance to hospitals regarding how long they have to keep a short-stay inpatient before Medicare will cover costs beyond observation care.

Takeaway: Laboratories may be the linchpin for cuts in inpatient rates for the Medicare program.