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KU And Other Hospitals Say Unfair Medicare Rule Will Cost Them Hundreds Of Millions Of Dollars

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KU Hospital and the other plaintiffs say the reductions will cost hospitals $380 million in 2019 and $760 million in 2020.

The University of Kansas Hospital is one of 38 hospitals across the country challenging a rule cutting Medicare rates for outpatient hospital sites to match the lower rates paid to physicians’ offices.

Under the rule, which took effect Jan. 1, Medicare will pay the same rates for medical services regardless of whether they’re provided in a physician’s office or in a hospital department that’s off the main campus of the hospital.

In a lawsuit filed earlier this month in federal court in Washington, D.C., the hospitals claim the rule is unfair because medical services provided in hospital outpatient departments are far more resource-intensive, and therefore more costly, than those provided in independent physicians’ offices. The suit names Alex Azar II in his capacity as Secretary of the U.S. Department of Health and Human Services (HHS).

The rule comes after Congress enacted a site-neutral payment policy in 2015. But Congress specifically made an exception for off-campus outpatient hospital departments that were providing services before Congress made the change. The hospitals say Azar didn’t think the change went far enough and overrode the protection Congress intended to provide them.

The rule “is irrational,” the hospitals allege in their lawsuit, “a patent misconstruction” of the law and “a blatant attempt to circumvent the will of Congress …” It says the reductions will cost hospitals $380 million in 2019 and $760 million in 2020, according to Azar’s forecast of the rule’s effect.

“Even prior to this rate cut, plaintiffs were under significant financial strain from steadily increasing costs in the healthcare marketplace and reimbursement cuts from the government and private insurers alike,” the hospitals allege.

The lawsuit mirrors one filed against Azar in December by the American Hospital Association, the Association of American Medical Colleges and three other hospitals. That lawsuit, also filed in the District of Columbia, challenges the Medicare rate cut as executive overreach.

The American Hospital Association says the rule ignores crucial differences between hospital outpatient departments and other sites. Citing a study it commissioned, it says patients getting care in hospital outpatient departments are more likely to be poorer and have more severe chronic conditions than those treated in independent physicians’ offices. And it notes that hospitals are held to higher regulatory standards because of the complexities of caring for sicker patients.

Dan Peters, general counsel for The University of Kansas Health System, said in an email that the system has "relied for years upon our Hospital off-campus departments to expand access to care and bring hospital services directly to our community, many of which are underserved by other providers."

"Congress preserved their ability to do that work when it excepted hospital outpatient department from the changes contained in Section 603 of the Bipartisan Budget Act of 2015.  But we believe the Secretary of DHHS overstepped his bounds when he took that away.  We are asking the court to reinstate the decision Congress made," Peters said.

Although they didn’t join the lawsuit, other Kansas City-area hospitals, including Truman Medical Centers and Saint Luke’s, also weighed in with comments opposing the rule.

The Kansas Hospital Association, in a comment it filed to the rule, said the cuts “would be excessive and harmful” and would endanger the role off-campus hospital departments “play in their communities.”

Dan Margolies is a senior reporter and editor at KCUR. You can reach him on Twitter @DanMargolies.

Dan Margolies has been a reporter for the Kansas City Business Journal, The Kansas City Star, and KCUR Public Radio. He retired as a reporter in December 2022 after a 37-year journalism career.
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