Site-neutral payments all but stopped hospitals from building outpatient facilities in 2016.
Outpatient development effectively froze in 2016, down from $19.6 million in projects in 2015, to $16.4 million in 2016, according to Revista, a resource for healthcare property data.
Historically, hospital-owned outpatient centers received significantly higher reimbursement than private physician offices or ambulatory surgical centers performing the same procedures.
The Medicare Payment Advisory Commission recommended closing the gap between the rates. There was also concern that hospitals were buying up physician practices to take advantage of the higher reimbursement rate.
Congress enacted the Bipartisan Budget Act of 2015, putting site-neutral payments into effect.
New outpatient facilities that used to be paid on the outpatient prospective payment system are now reimbursed by Medicare on the physician fee schedule. The estimate on savings to Medicare runs into the billions.
Those hospitals that had new off-campus departments and began billing before Nov. 2, 2015, were still reimbursed at the higher outpatient rate. Outpatient facilities built later than the cut-off date are now paid under the less lucrative physician fee schedule.
The result of the legislation that went into effect on January 1, was to effectively freeze the geographic footprint of hospitals that rely heavily on Medicare reimbursement, according to Larry Vernaglia, an attorney and chairman of Foley & Lardner’s healthcare practice group in Boston.
For some hospitals, Medicare represents half of their operating revenue.
“It’s one more assault on the financial stability of hospitals,” Vernaglia said. “It definitely means the economics of outpatient services are dramatically different now. Hospitals have to work twice as hard to structure their outpatient buildings to get proper reimbursement.”
While some experts predicted a continued freeze in outpatient building, a surprising thing happened in 2017. The amount of outpatient projects soared to $22.9 million, the highest it has been in four years, according to Revista. However, that could be driven by the latest way skirt site-neutral rules.
“There was a big jump in 2017, that may come down a little bit,” said Revista principle Hilda Martin. “There was a sudden hold-off while systems wrapped their head around (the new policy). It is coming back. I’m wondering if this is beginning of a new trend, because so much inventory is starting this year.”
Martin said Revista is still analyzing the building boom, especially the new focus on micro-hospitals.
There’s been a significant uptick in micro-hospital development, she said. At medical real estate conferences, micro-hospitals are the hot topic because they offer a way to circle around the change in reimbursement, Martin said.
Also, the outpatient slowdown in 2016 may reflect in pause as providers submitted applications to the Centers for Medicare and Medicaid Services to show they were far enough along in planning to get an exemption and remain on the outpatient prospective payment system.
The 21st Century Cures Act provided exemptions. Hospitals in the middle of building an off-site facility could submit an application under the mid-build requirement by Feb. 13.
Many hospitals submitted mid-build applications before the deadline, including 40 in New York, seven in Massachusetts and five in Maine, Vernaglia said.
Applications are still being reviewed, and CMS did not respond to a request for information on the total number of submitted requests, or the names of the applicants.
“I’m familiar with at least 86 of them,” said Vernaglia, who also did not give specific information.
Exemptions allow hospitals to build new outpatient settings on-campus and be reimbursed at the outpatient rate.
“You’re going to see hub and spoke arrangements,” Vernaglia predicted of facility design.
Hospitals can also can build an emergency facility and still receive the higher reimbursement.
In a proposed 2017 payment rule, CMS originally required off-campus provider-based sites to offer the same services they did on Nov. 2, 2015, in order to be excluded from the site-neutral payment provisions, but opted not to include that requirement in the final rule.
For 2017, CMS finalized a Medicare physician fee schedule policy to pay non-excepted, off-campus provider-based departments at 50 percent of the outpatient rate for most services. For 2018, CMS proposed to reduce those payments further, by 25 percent.
Site neutrality creates hardships for hospitals trying to provide more services, integrate care and stay competitive in regions where patients have numerous choices for healthcare.
“There is quite a bit of cynicism in Congress and others that led to passage of Section 603 of the Bipartisan Budget Act of 2015,” Vernaglia said. “It assumed the only reason hospitals were developing these sites was to take advantage of preferential outpatient payment.”
Site neutrality also gave an advantage to hospitals that were early movers in getting their outpatient facilities built. The downside, said Vernaglia, is they’re stuck with what they’ve got. They can’t build another one or relocate. And if they don’t own the building, they can’t threaten to move if the landlord jacks up the rent.
“Soon we’ll see facilities getting long in the tooth,” he said. “There will be fewer outpatient facilities off-campus. I think you’ll see more on-campus. It’s status quo for sure, unless you do some creative things like off-campus emergency.”
Developer Henry Johnson, chief strategy officer for Freese Johnson in Atlanta, Georgia, said hospitals are still building, because not to do so would mean the loss of a competitive edge. The ambulatory facilities may be less profitable now, but there’s the risk that the gap for off-site care will be filled by another facility, or physician practice.
“There’s a greater impact not filling these gaps in the marketplace,” Johnson said. “Right now it’s a battle for marketshare, rather than site-neutral payments.
Johnson has been in the business for over 20 years, working with healthcare systems and large physician practices.
“We’re building micro hospitals, ambulatory surgery centers, outpatient surgery centers,” Johnson said. “Everyone is trying to build a network.”
Value-based care has also given incentives to have patients visit outpatient clinics, rather than the more expensive emergency room.
“They want to keep less expensive procedures in a less expensive environment,” Johnson said.
Providers are being cost-conscious on square-foot costs as well, he said.
“Most of our clients are saying, ‘This is expensive real estate. Let’s build a building that costs half as much, that’s what we want to do.'”
The two trends he’s seeing are micro hospitals, and smaller, acute care facilities, which he likens to “a hospital without beds.”
These freestanding ER facilities are still reimbursed at outpatient rates.
Patients would also rather go to a local, smaller facility, than drive to a hospital, try to find parking and walk the long hallways.
“They’re not going to go places if it’s inconvenient,” Johnson said.
Off-campus buildings, he said, invite people in.
“I’m personally seeing in healthcare, patients aren’t just patients now, they’re consumers,” Johnson said. “The biggest trend we’re seeing, is the consumerization of healthcare.”
When John Battelle’s teenage son broke his leg at a suburban soccer game, naturally the first call his parents made was to 911. The second was to Dr. Jordan Shlain, the concierge doctor here who treats Mr. Battelle and his family.
“They’re taking him to a local hospital,” Mr. Battelle’s wife, Michelle, told Dr. Shlain as the boy rode in an ambulance to a nearby emergency room in Marin County. “No, they’re not,” Dr. Shlain instructed them. “You don’t want that leg set by an E.R. doc at a local medical center. You want it set by the head of orthopedics at a hospital in the city.”
Within minutes, the ambulance was on the Golden Gate Bridge, bound for California Pacific Medical Center, one of San Francisco’s top hospitals. Dr. Shlain was there to meet them when they arrived, and the boy was seen almost immediately by an orthopedist with decades of experience.
For Mr. Battelle, a veteran media entrepreneur, the experience convinced him that the annual fee he pays to have Dr. Shlain on call is worth it, despite his guilt over what he admits is very special treatment.
“I feel badly that I have the means to jump the line,” he said. “But when you have kids, you jump the line. You just do. If you have the money, would you not spend it for that?”
Increasingly, it is a question being asked in hospitals and doctor’s offices, especially in wealthier enclaves in places like Los Angeles, Seattle, San Francisco and New York. And just as a virtual velvet rope has risen between the wealthiest Americans and everyone else on airplanes, cruise ships and amusement parks, widening inequality is also transforming how health care is delivered.
I started and stopped writing this post many times because it’s mostly whining. But, dammit, it’s a consumer’s right to whine, so here it is: in my experience (YMMV) — and that of many others I know — the health care system largely treats patients like garbage.
I was reminded of this fact during my recent experience dealing with my daughter’s broken arm. It started well enough. Our pediatrician has late hours and an X-ray machine, so we were able to skip the Friday night (and more expensive) emergency department visit for our initial diagnosis, and therefore missed all the attendant waiting and frustration.
Upon viewing the X-rays, the pediatrician conveyed that it was not a bad break and didn’t need to be addressed immediately. A brace, which she provided, was good enough for now. Fair enough. But what was our next step? “The X-rays need to be examined by a radiologist before I can tell you that,” my wife was told. OK …
I wonder how long we would have waited for that to happen. By the middle of Saturday, we became too uncomfortable to find out, so I called the pediatrician’s office. Now, and with no further consideration of the X-rays, they were wiling to give us some recommendations for orthopedic clinics. Why couldn’t those have been given to us on Friday?
Naturally, one clinic was closed on the weekend. But, the other, hospital-based one, had Sunday hours. Great! A call to that clinic got me a voice-mail. I left a message. I have never gotten a call back, but I didn’t wait for one. I called again later and got a person who told me they had 7AM walk-in hours. Just go to the main hospital entrance and ask for the walk-in orthopedic clinic, I was told.
This was bad advice. After dragging my broken-limbed daughter through every door that plausibly seemed like the main entrance, we finally found someone who said we should go through the ED entrance. That was the right answer, but not what we were told on the phone.
After waiting and registering, we finally saw the orthopedist. He was great. It was, in fact, not a bad break. Now it is safely casted. All is well. But not before we had to do a lot of legwork — and received a lot of wrong answers, promises of follow-ups that didn’t happen, etc. Meanwhile, our pediatrician has not (yet) checked in on her patient.
I get it. She’s busy with more urgent matters. It makes sense, but it sucks, and all the more knowing that we spend a fortune for such treatment. No other business would treat customers this way. In health care, inconvenience, uncertainty, lost records, lack of follow-up and coordination, the necessity of self-advocacy, and lots and lots of waiting is the norm.
Of course, there are some examples of good customer service in health care. I’ve even experienced them. But every tasty crumb I’m tossed just reminds me how awful the rest of the meal is.