Federal judge tosses CMS final rule cutting Medicare payments for hospital clinic services

The ruling marks a stinging rebuke of HHS efforts to steer some services from the hospital outpatient setting to physicians.

A federal judge has ruled that a Centers for Medicare & Medicaid Services (CMS) final rule slashing Medicare payments for certain hospital outpatient clinical evaluation and management (E&M) services to the tune of more than $1 billion over just two years never should have been enacted. 

In the matter of American Hospital Association (AHA) v. U.S. Department of Health and Human Services Director Alex M. Azar II, U.S. District Court Judge Rosemary M. Collyer on Tuesday granted the AHA’s motion to vacate the final rule, denied a cross-motion filed by CMS, and remanded the matter for consideration of future remedies.

“CMS believes it is paying millions of taxpayer dollars for patient services in hospital outpatient departments that could be provided at less expense in physician offices,” Collyer wrote in the conclusion of her 28-page decision. “CMS may be correct. But CMS was not authorized to ignore the statutory process for setting payment rates in the Outpatient Prospective Payment System (OPPS) and to lower payments only for certain services performed by certain providers.”

The two parties are now required to submit a joint status report to the Court within two weeks to “determine if additional briefing on remedies is required, along with the CMS estimate as to the duration of further proceedings.”

Specifically, Collyer noted that the CMS rule, which took effect at the start of the calendar year, didn’t qualify as an approved “method” for controlling spikes in hospital usage.

“That context (the applicable governing statutory language) does not make clear what a ‘method’ is, but it does make clear what a ‘method’ is not: it is not a price-setting tool, and the government’s effort to wield it in such a manner is manifestly inconsistent with the statutory scheme,” she wrote. “CMS cannot shoehorn a ‘method’ into the multi-faceted congressional payment scheme when Congress’s clear directions lack any such reference.”

The ruling was interpreted as a striking and clear-cut victory for providers; Modern Healthcare noted that AHA had projected cuts of about $380 million this year and $760 million in 2020 as a direct result of the final rule.

While the ruling did not order CMS to repay hospitals what had been withheld to this point, as the plaintiffs had requested, the scope of the remedy to come is anticipated to be substantial in scope.