Dear Administrator Oz,
Paragon Health Institute appreciates the opportunity to comment on the Centers for Medicare & Medicaid Services (CMS) proposed rule CMS-1834-P, RIN 0938-AV51, titled “Medicare and Medicaid Programs: Hospital Outpatient Prospective Payment and Ambulatory Surgical Center Payment Systems; Quality Reporting Programs; Overall Hospital Quality Star Ratings; and Hospital Price Transparency.”
Paragon is a non-profit health policy research institute committed to reforming government programs and restoring Americans’ control over their health and health care. We believe empowering consumers, not increasing government control, is the key to lowering costs and improving health outcomes.
We write in strong support of the recent rule’s provisions that would improve Medicare’s payments by removing antiquated restrictions that pay providers differently based on where they perform services (site neutral payment reforms), embracing market-based pricing, and conducting a 340B survey—a necessary step to reduce a distortionary payment.
Site Neutral Reforms
Paragon supports this proposed rule’s efforts to advance site neutral payment policy in Medicare. While site neutrality is typically linked to ensuring that the same services are reimbursed at the same rates regardless of the site of care, there are obstacles to full implementation. One of those obstacles is the inpatient only (IPO) list. Currently, Medicare restricts payment for some services to only inpatient settings via the IPO list, sometimes because those services have traditionally only been done in inpatient settings. This means if these services are performed in other settings, the provider performing the service cannot receive reimbursement from Medicare.
Over time, as medical technology and practice have advanced, many of these procedures can now be performed safely and effectively in outpatient settings, such as hospital outpatient departments (HOPDs), physician offices, or Ambulatory Surgical Centers (ASCs), which are outpatient facilities that focus on particular surgical procedures.
Despite these advances, the Medicare program has not kept pace. Instead, the program continues to relegate certain procedures to certain settings. This policy favors large hospitals over potentially more efficient facilities that are easier to set up in rural areas and less costly to operate. Any remaining concerns over safety issues are sufficiently addressed—without altering payment rates in a distortionary manner—through professional society standards, facility and professional licensure, tort law and malpractice insurer requirements, and state regulations.
This proposed rule recognizes advancements in modern medicine, and more importantly recognizes the ability of providers to decide the best setting of care for their patients. We support the two important ways the proposed rule would advance site neutral payment reforms: eliminating the IPO list and allowing more procedures to be done in ASCs.
A 2023 JAMA Health Forum study found that for colonoscopy procedures, hospital facility fees in the same county and under the same insurer were often more than 150 percent of those at outpatient surgery centers for the same service, and a 2024 JAMA Health Forum study shows that insurers pay 54 to 61 percent more in facility fees when a procedure is done in a hospital setting than when the same procedure is done in an ambulatory surgery center., While these examples are in the commercial market, they indicate how the perverse features of Medicare payment policies—higher rates for identical services in hospital outpatient departments—have migrated to the commercial market because of Medicare’s size.
Eliminating the IPO List
First, we support the proposed rule’s phase out of the inpatient only (IPO) list. We support this policy because it would:
Increase Savings and Lower Beneficiary Costs – Expanding the settings where procedures can be performed allows more of them to take place in lower-cost environments, ultimately reducing expenses for Medicare and out-of-pocket costs for beneficiaries.
Prioritize Doctors’ Clinical Judgments and Patients’ Preferences – The IPO list overrides both doctors’ clinical judgments and patients’ preferences by mandating where Medicare beneficiaries can receive certain care covered by Medicare, even if they and their doctors believe another setting is best for the patient.
Increase Competition – By giving preference to certain provider settings, the IPO list disproportionately benefits inpatient hospitals while unnecessarily precluding services in lower-cost sites of care, like ASCs. Such payment preferences create a less competitive health care market, which increases prices. Eliminating the IPO list would enable further site neutral payment reforms to extend to more procedures, thus increasing competition and reducing large providers’ market power.
Increase Choice for Rural Patients – Fundamentally, the Medicare program is about helping patients, not institutions. The restrictions on the IPO list have particularly negative effects on rural residents, who tend to have fewer options for care and often need to travel great distances to have procedures performed. Inpatient hospitals are costly to construct and operate. Permitting procedures currently on the IPO list to be reimbursed when performed in outpatient settings would incentivize the creation of more outpatient facilities in areas previously unable to sustain an inpatient hospital, extending access to patients in previously underserved areas. This rule could benefit rural patients by giving them more options on where to receive care.
Additions to the ASC Covered Surgical Procedures and Covered Ancillary Services List
We also support the proposed rule for further facilitating site-neutral reforms by expanding the ASC Covered Procedures List (CPL).
Medicare only reimburses for certain procedures performed in an ASC if they are on the CPL. The proposed rule wisely seeks to modify certain CPL criteria that would effectively add 547 procedures to the CPL.
This policy is justified for several reasons:
Reduces Costs for Medicare – Due to the site-specific nature of Medicare payments, ASC procedure payment rates average 60 percent of hospital outpatient departments for the same procedures. Expanding the services that can be done in ASCs will reduce costs for the Medicare program as more procedures would be permitted to be done in these lower-cost settings.
Reduces Out-of-Pocket Costs for Beneficiaries – Because beneficiaries pay a percentage of the cost of care, procedures done in lower-cost settings like ASCs will generally cost beneficiaries less.
Clinical Judgment – As CMS notes, ASCs already perform many of these procedures. They are also performed at HOPDs. Therefore, if a Medicare beneficiary elects to have this procedure done at an ASC, Medicare should not let reimbursement policy override medical judgment.
Benefit to Rural Patients – Similar to the IPO list repeal, this provision would likely benefit rural patients by removing barriers to growth for ASCs, potentially providing patients with more options on where to receive care over time. By restricting where beneficiaries can access certain procedures that are paid for by Medicare, the restrictive ASC criteria hurt rural patients who have fewer options and travel greater distances to receive care.
ASCs’ Specialization Advantages over HOPDs – ASCs have the potential to provide greater quality service because they often focus specifically on particular procedures. Research has shown that medical providers vary in quality depending on the number of procedures they practice. Among hospitals, research shows that those with greater volume often deliver more appropriate care and patients experience more positive outcomes., The Medicare Payment Advisory Commission reports that 68 percent of ASCs specialize in a single area, most commonly gastroenterology and ophthalmology. One study found HOPDs performed worse than ASCs in 30-day revisits and complication rates for older Americans. This was true for both those who had comorbidities and those who did not. By allowing Medicare reimbursement for more procedures at ASCs, this proposed rule could allow Medicare beneficiaries to reap the benefits of more specialized facilities that can provide higher quality outcomes for patients.
ASC Inflation Updates
In addition, CMS has chosen to extend for one year a temporary inflation update for ASCs to match a typically more-generous update for HOPDs. This will enable CMS to study in more detail if the long-standing differences in inflation updates has reduced the ability for ASCs to compete for market share with HOPDs. Due to the perverse incentives inherent in Medicare’s payment structure, including limited value in shopping for services, HOPDs are essentially rewarded for costing more via higher payment rates, which provides them with more capital to expand in a market and buy out competitors.
Site Neutral Drug Administration Payments
The proposed rule expands on a 2019 rule to equalize payments for drug administration services between off-campus HOPDs and physician offices. Despite some site neutral reforms passed in the Bipartisan Budget Act of 2015, most HOPDs remain eligible to bill the Medicare program and enrollees at much higher rates than physician offices can bill.
This provision further extends site neutral payment policies and ensures that the government and patients are not paying more for the same drug administration services simply because of the location at which they were rendered. CMS estimates that in 2026 alone, this provision would save Medicare $210 million in OPPS spending and would also save Medicare enrollees $70 million in out-of-pocket payments.
This policy would ensure that Medicare stops paying more for the same services merely because they are performed in hospital outpatient settings and even when the two settings are indistinguishable except for their ownership structure. The policy in the proposed rule would lower costs for both taxpayers and patients, reduce incentives for unnecessary utilization, reduce incentives for consolidation (from hospitals acquiring physician offices and then billing at higher rates), and ensure that the site of care is based on physician and patient considerations of what is best for the patient rather than distortionary payment rates.
In future years, CMS should expand this policy even further, for example, by expanding it to imaging services or any service often or usually performed in physician offices.
Market-Based Pricing Provisions
We support the proposed rule for seeking to infuse market discipline into the prices that Medicare pays to providers by requiring hospitals to include median Medicare Advantage (MA) rates in their cost reports. CMS’s proposal to incorporate those median MA rates in its determinations of the relative payment rates between different inpatient hospital services is an important step in the direction of including more market-based principles in payment calculations.
Hospital chargemaster rates tend to be much higher than market rates, as CMS correctly notes. Because of its size, Medicare has outsized power in influencing health care resource allocation because commercial plans often link their rates to a percentage of Medicare payments. Paragon has commissioned research that shows an extremely close correlation between relative DRGs in Medicare and commercial plans. As such, this proposal would not lead to significant changes from baseline Medicare rate-setting, so the proposal has little potential downside. However, on the margin, there are some services where the commercial plan weights on certain services or bundles are different than Medicare rates, and this represents useful information for Medicare rates better reflecting market conditions and value. Linking rates to relatively more market-based factors, as CMS proposes to do in this rule, may help mitigate the distortionary effects of CMS payment policy, especially over time. We support CMS beginning to move away from deceptive, inflationary cost-based pricing practices, including for the following reasons:
Greater Alignment with Statutory Requirements – Section 1886(d)(4)(B) of the Social Security Act requires the Secretary to assign appropriate weighting factors that reflect hospital resources. Currently, CMS develops Medicare’s payment rates by relying on hospital cost reports to determine the resources hospitals dedicate to certain diagnoses and procedures. These cost reports, in turn, rely on hospital chargemaster lists and cost-to-charge ratios to arrive at an estimate of costs. But hospitals tend to inflate or distort their chargemaster lists to receive greater reimbursement from payors. While these chargemaster lists may reflect negotiations’ starting points, MA rates reflect negotiations’ ending points. Therefore, MA prices are more likely to reflect the relativity of hospitals’ true resources they dedicate to each diagnosis or procedure and incorporating MA prices would better align with the statute’s requirements.
Recognizes the Importance of Prices in Efficiently Allocating Resources – In typical economic sectors, choice and competition incentivize providers to either lower prices or improve quality to attract consumers. Neither Medicare nor Medicare Advantage are market-based systems. However, under MA, insurance companies have leeway to negotiate with hospitals to determine the best mix of rates and supplemental benefits to attract enrollees. Over time, the change in this proposed rule would create an opportunity for such negotiations to reflect normal market dynamics, even if the immediate impact is minimal.
This proposed rule infuses greater market discipline and accuracy (with respect to resources) into the Medicare payment system by considering Medicare Advantage prices. The Medicare program will increase consumers’ input into prices rather than overly relying on the relativity of inflated or distorted hospital charges.
Hospital Price Transparency
The proposed rule contains a provision to expand existing hospital price transparency requirements to require more specific ranges of prices in accessible forms, so they can be more meaningful and relevant to patients and payers. This includes requiring hospitals to post the 10th, median, and 90th percentiles of the payer-negotiated amounts that hospitals have received for services where the charges are based on a percentage or an algorithm. It also requires improving the comparability of standard charges among hospitals. Finally, it would reduce the civil monetary penalties (CMPs) that hospitals must pay for violating the reporting requirements by 35 percent if the hospital waives its right to a hearing before an administrative law judge. Under this proposed rule, hospitals that waive their appeal but continue to commit the same violation will not be able to appeal any imposition of CMPs for the continued violation and must pay the standard, unreduced CMP. This change is meant to “encourage faster resolution and payment of CMPs and in exchange for a hospital’s admission of having violated HPT requirements.”
Increased price transparency requirements provide consumers and employers with information to shop and compare prices across providers. Price transparency holds the promise to lower prices by forcing providers and insurers to compete on price.
We understand the rationale for the agency to seek ways to increase the speed of resolving CMPs and support the agency creating guardrails to prevent hospitals from continuing to commit the same violations for a reduced fine.
340B Drug Acquisition Cost Survey
We strongly support the proposed rule’s hospital acquisition cost survey for drugs acquired through the 340B Drug Pricing Program (340B). The acquisition cost survey is the first step in reforming bloated Medicare Part B payments for 340B drugs. Current Medicare policy reimburses all drugs, regardless of acquisition cost, at average sales price plus 6 percent. Eligible hospitals that purchase drugs with 340B discounts, which can typically range between 25 and 50 percent of list price, are therefore able to make a significant profit when they are reimbursed by Medicare for these drugs. CMS tried to reduce reimbursement for 340B drugs in 2018, but the initiative was ultimately struck down by the courts because of a particular type of acquisition cost survey was not conducted first.
Conducting this acquisition cost survey will enable CMS to understand the true price hospitals pay for 340B drugs and therefore adjust reimbursement in the event that the agency decides to base Part B reimbursement for 340B drugs on actual acquisition costs. Due to budget neutrality rules, the savings from not paying as much for drugs in Part B will be redistributed via higher payments for non-drug items and services for all providers, regardless of whether they participate in 340B. This reduces the artificial advantage 340B hospitals have over other providers and creates a fairer marketplace with less government distortion, and should additionally help decrease industry consolidation driven by 340B.
Additionally, we support CMS shortening the repayment offset period related to paying back hospitals whose reimbursements for 340B drugs were reduced. The shorter repayment offset period, which is recouping the $7.8 billion paid out to affected hospitals by reducing payments for non-drug services, will ensure greater certainty in repayment amounts and also, due to the time value of money, reduce the strain on the federal budget.
Conclusion
This proposed rule would increase site neutral payments in Medicare by removing barriers that prevent Medicare enrollees from seeing their providers of choice. Furthermore, it would allow some market forces to influence Medicare payments by using input from Medicare Advantage negotiations and through greater price transparency. Finally, it would take a positive first step toward reforming the distortions in Medicare payment related to the 340B program, which has increased costs for patients. We strongly recommend that the agency finalize these measures, which would bolster the Medicare program through greater market discipline, increase beneficiary choice, and produce savings for taxpayers and the program. We believe this rule is a strong start for the administration’s goal of advancing market-based health reforms.
Thank you for the opportunity to comment on this proposed rule.
