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Massachusetts Proposed Legislation to Curb Health Care Costs by Regulating Hospital Reimbursement Rates
In a previous blog post, we began to dissect the new Massachusetts State Senate bill, “An Act Furthering Health Empowerment and Affordability by Leveraging Transformative Health Care,” and focused on a provision that would ban hospitals from billing payors for many common outpatient hospital services. In this second of a multipart series, we review how this bill proposes to improve the affordability of health care in the Commonwealth.
During the debate before the Massachusetts Senate Working Group on Health Care Costs and Containment Reform, the Senate Working Group stated that this proposal will curb costs associated with health care and predicted a savings of $425 million by 2020 to achieve goals including slowing the rate of premium increases.
Setting a Target Hospital Rate Distribution to Help Moderate Costs
One of the primary ways the bill proposes to moderate costs is by establishing a hospital alignment and review council which will set a “target hospital rate distribution,” the minimum floor payment that an insurance carrier must reimburse a hospital for services. The Senate Working Group hopes that setting a floor payment for carriers will address the price variation across hospitals in the Commonwealth and subsequently stabilize the market. During the hearing, Senators requested industry feedback on setting the rate at 0.9%. Some argue that setting a floor will help hospitals that currently receive lower reimbursement rates to “thrive and survive.” Others assert that setting a floor is not sufficient, rather, a cap on reimbursement rates should be implemented as well to compress rates and control spending.
To make sure that the target hospital rate distributions are met, Section 111 tasks insurance carriers with submitting annual certifications to the review council. If a certification uncovers that any hospital received an increase in reimbursement, all other hospitals contracting with that carrier must have received a similar increase.
Other Items to Achieve a Slower Growth Rate
The proposed bill provides the review council with other tools to achieve a slower growth rate. One such measure is that the council will set a “target growth in hospital spending.” In the event that hospital spending is greater than the target rate, the council may penalize the top three hospitals that contributed to above target spending. Each of these three hospitals will be required to pay its proportional share of the difference between the actual growth in hospital spending and the council’s target growth in hospital spending. Some view this penalty as needed government intervention to correct price variation in the market. In contrast, others argue this is penalty unfairly attacks three hospitals and will create perverse incentives for hospital spending just below the top three.
Setting a target hospital rate distribution will be one mechanism for addressing price variation, but the Working Group is still collecting industry feedback to determine the ultimate amount of governmental control needed in the Commonwealth’s health care market.
This bill is currently open for comments. Any interested parties should strongly consider commenting on the State Senate bill.
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Will the Massachusetts Proposed Legislation on Hospital Outpatient Facility Fees Have a Nationwide Impact?
In some states, including the Commonwealth of Massachusetts, “site neutrality” for outpatient hospital reimbursement is factoring into state-specific health reform and cost containment initiatives. This potentially goes well-beyond Medicare’s limitation of reimbursement at new off-campus outpatient hospital departments under Section 603 of the Bi-partisan Budget Act of 2015. Since Massachusetts’ state health reform law was the model on which the Affordable Care Act was based, many other jurisdictions look to Massachusetts to see how the state is addressing the “cost” component of the equation, especially now that the “access” component is addressed by the ACA and state initiatives. Massachusetts has taken several swings at the cost conundrum, including the latest legislation introduced in October of 2017. This recent legislation includes a provision that would essentially eliminate a large number of hospital outpatient costs, both on-and off-campus.
Treatment of “Facility Fees” Under the New State Senate Bill
On October 17, 2017, the Massachusetts State Senate released a proposed bill entitled “An Act Furthering Health Empowerment and Affordability by Leveraging Transformative Health Care.” This bill was discussed on October 23, 2017 in a packed hearing room before a Special Senate Committee on Health Care Cost Containment & Reform where representatives from teaching and community hospitals, health plans, and patient/citizen groups were present.
This bill also includes several far-reaching provisions, which we will address in future posts, including the provider price variation and out-of-network payment issues; as these provisions are also of great interest to the hospital industry. But, a major concern in the bill, from a hospital operations consideration, is a prohibition on hospitals charging facility fees for many common outpatient services, as a condition of licensure.
The contours of this prohibition are not entirely clear, but it would appear to be targeting so-called outpatient evaluation & management (E&M) services within any department of a hospital that submits a claim to any insurer (public and commercial) as an outpatient service. The bill permits the Department of Public Health (DPH) to add additional services to the ban beyond outpatient E&M. In addition to the billing ban, the proposed legislation serves up several other dishes designed to restrict or burden hospital billing for outpatient services, including limitations on payment for state employees under the Group Insurance Commission (GIC), and several sections requiring notices to patients by hospitals and other providers referring patients for hospital services. At least one of these notices is required before delivery of services in the emergency room (ER), “if practical.”
What is Included in the Massachusetts State Senate Bill?
Presumably, more will be known about the intentions of the drafters in the coming days and weeks, as well as what the House of Representatives will make of this. In the meantime, here are a few observations on the bill as written:
- If passed, Massachusetts hospitals (and, once the insurance provisions kick in, likely hospitals throughout New England and other states treating Massachusetts-covered beneficiaries), will not be able to charge facility fees for many common procedures, but must continue to incur the costs of those services, including nurses, other staff, medical supplies, facilities, overhead, power, electronic medical records, patient safety, infection control, )
- There is serious ambiguity regarding what services are subject to the ban. Is it just outpatient E&M or are other services where a physician performs some E&M service, like an emergency department or observation services impacted? Given the wording of the bill, it would appear to be extremely broad in scope, encompassing many different locations, including on-campus outpatient departments. Indeed, the accompanying Senate Report suggests that a more sweeping set of services would be subject to the payment ban.
- It is unclear which payors are covered. Since the prohibition is incorporated not in the insurance laws but, rather, as part of the hospital licensing requirements, it would appear that it should apply to all payors, including Medicare and employer-sponsored health plans covered by ERISA. This raises serious preemption and other questions. Perhaps it was intended only to apply to commercial payors and the GIC by including similar language in those statutory provisions, but clarification as to the extent of the application of this bill will be needed especially given the placement in multiple statutory provisions.
- Unlike the Medicare site-neutrality law, which permits payment to hospitals at a reduced rate for outpatient services at non-exempt site, Massachusetts is proposing a zero reimbursement rule, not a payment reduction, and with no “grandfathering” of existing locations. If the law is passed, only physicians will be able to charge for impacted services at all sites.
- Also, unlike the Medicare rule, the Senate bill appears to apply to both on-campus as well as off-campus services. Because the accompanying Senate Report suggested recommendation is that only off-campus services be targeted, we wonder if the Senate intended such broad geographic coverage.
- If only physicians can bill for these services, will physicians be required to share their fees back with the hospitals to cover the hospital’s overhead? You may recall that this was a feature of the initial CMS proposal under Medicare site neutrality. If not, is there a “Stark” (physician self-referral) Law implication on the theory that the physician is receiving “free” use of hospital space? If so, will physicians be able to charge a full physician fee schedule payment, without reduction for the “site of service differential? And if physicians cannot bill the full professional fee, does that mean that both hospitals and physicians will be provide these services for free or at a massive discount to all payors?
- Does the bill require hospitals to provide a notice of fees to emergency room patients prior to the delivery of services, and, “if practical”, does it put hospitals on a collision course with the federal government and its implementation of the Emergency Medical Treatment and Labor Act (EMTALA, also known as the patient anti-dumping law)? CMS has long been concerned that talking to patients about costs and charges before receiving emergency services may cause patients to leave a hospital ER in an unsafe medical condition and violate EMTALA.
The Impact of this Proposal May Reach Beyond Massachusetts
While we are asking a number of questions about this initial proposal on hospital costs, it appears that the Commonwealth is heading in a direction that could have a material impact on hospital reimbursements, budget, and operations if passed in any form. Hospital administrators in Massachusetts will be watching this closely. Hospital and health system leaders nationally should also be concerned that this type of state strategy may be considered in other jurisdictions too.
Interested parties should consider commenting on the State Senate bill.
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