Rae Woods:
From Advisory Board, we're bringing you A Radio Advisory. My name is Rachel Woods. You can call me Rae. Early last week CMS unveiled the proposed payment rule for hospital outpatient departments and ambulatory surgery centers for the year 2022. This is OPPS and this is always a big deal, so we wanted to put together a little bit of a bonus episode.

Rae Woods:
I wanted to bring back two policy experts, Heather Bell and Rob Lazerow to do a quick update on what the proposed rule means, especially for two big themes; price transparency and site of care shifts.

Rae Woods:
Hey Heather. Hey Rob.

Heather Bell:
Hey Rae.

Rob Lazerow:
Hey Rae.

Rae Woods:
We already have to have you back to talk about a topic we had you on just a couple of weeks ago, which is price transparency and other policy changes. Did you think you would be back on the pod this fast?

Rob Lazerow:
I think we're just as surprised as you.

Rae Woods:
Well, speaking of surprises, let's start with one of the more surprising moves coming out of OPPS. Just last year, CMS finalized our proposal to eliminate the inpatient only list entirely, by the year 2024. But then last week, CMS announced plans to halt that elimination. Why the big reversal here?

Heather Bell:
The reason CMS gave is patient safety. CMS for the past decade has taken a very methodical approach to determining which procedures should be removed from the list each year and stepping away from that process really raised a lot of red flags amongst stakeholders. They were concerned about the speed at which things would be removed and basically the lack of quality and safety check. And now, it looks like CMS is agreeing with those concerns.

Rae Woods:
But maybe taking a step back, practically speaking, why should we be caring about the inpatient only list at all? Why is this move a big deal?

Rob Lazerow:
So Rae, I think this is a big deal on two fronts and I think about it both in the immediate implications, as well as the potentially longer term ones. Immediately this averts or reverses what would have been price cuts and that's frankly all it comes down to how the inpatient only list really functions. Because remember, just because something is taken off that list where the list itself is eliminated, that doesn't immediately lead to a free for all with care being delivered anywhere providers want. In order for something to be provided for Medicare beneficiaries in an ambulatory surgery center or ASC, it then has to be on the, technically called, the covered procedures list for ASC's. So there's this middle ground where services aren't on the inpatient only list, but they haven't yet been approved for full ambulatory care and what ends up happening is they're in this murky area that we call hospital outpatient. It's still hospital-based care, but it's reimbursed at a lower price. So it's functionally a price cut and anecdotally services can live in that murky area for about two years when they come off the inpatient only list before they're approved for ambulatory care.

Rob Lazerow:
So that's the immediate element, the pricing cut. Longer-term, there's a question about services actually leaving the hospital campus altogether. And that can either come from, again, CMS putting that service on the covered procedure list for ASC's or commercial payers following suit. But that's the longer-term question.

Rae Woods:
And this is exactly why I think people are paying attention. Because there are questions about what this means for site of care shift more broadly. When the rule was finalized last year, this was a big signal to push services into the outpatient space. What does the reversal of that final rule mean for site of care shifts more broadly?

Heather Bell:
So Rae, it could be very easy to read the reversal as a pause or a reversal of the site of care shift. That's not how we're reading it. We're reading this as more of a return to normal than an about face on site of care shift.

Rob Lazerow:
But Heather, I would argue that it's really important for leaders to still understand how vulnerable they would be and to be ready for, even if it is a slower more drawn out process of shifting services to either hospital outpatient or ambulatory altogether, as you suggested. So, I think leaders really need to know where they are most vulnerable and that's work that we were well underway doing because frankly we didn't anticipate that this was going to change so quickly.

Rae Woods:
And maybe take advantage of the fact that there is more time, right? Coming back to those safety concerns that others and I guess CMS agreed with, right? It is in an effort to give hospitals more time to deal with the downstream effects for themselves and ultimately for patients.

Heather Bell:
Exactly.

Rob Lazerow:
Let's assume that's still the destination, even if it's a longer journey, a longer process. So leaders need to understand what services are most vulnerable. We looked at the period of time right before the pandemic to understand what cases were most vulnerable. So we were looking for short-stay, uncomplicated cases and the two areas that really rose to the top were joint replacement and spinal fusion. More than half of joint replacements and nearly 40% of spinal fusions fell into that category and the financial ramifications were huge. So if you think about the effect on profit on margin, it was more than a 35% reduction for joint replacement and over 80% for spinal fusion.

Rae Woods:
Wow.

Rob Lazerow:
And what that means to me by the way, is that as reimbursement rates, as prices come down, costs aren't scaling down accordingly. So all of those pricing reductions really hit the bottom line.

Rae Woods:
And by the way, this isn't the only big policy change that we have been as part of the proposed outpatient payment systems rule. The other big one that we've been talking about is actually all about price transparency. Which is of course, what you talked to me about the last time that you came on this podcast. And at the time we had sort of concluded that while this was a big step to require hospitals to disclose what were previously private negotiated rates, that it wasn't actually clear how CMS was going to enforce the new rule, right? We couldn't even say what it meant to be compliant or not and the penalties were just too small for a lot of hospitals to actually make a change. What's different about this proposed rule?

Heather Bell:
So CMS essentially is raising the enforcement bar. They want to increase compliance. So in order to do that, they're increasing the financial penalties to the point where they really can't be ignored by hospitals.

Rob Lazerow:
I don't want to understate how much they're upping the ante. So under the current rules, every hospital, regardless of how big you are, would have the same maximum penalties. $300 per facility, per day, almost $110,000 a year.

Rae Woods:
And the problem with that is that larger hospitals could basically ignore that. It wasn't enough of a penalty. It wasn't enough of a stick for them to change their behavior.

Rob Lazerow:
And that was the message that CMS got. So they've said there's a split now. For smaller hospitals, those with 30 beds or fewer, it would stay under the current rules, $300 per facility per day. But once you get above 30 beds, the penalty becomes $10 per bed per day, up to a maximum of, ready for it, over $2 million.

Rae Woods:
Wow, and that seems like something that hospitals can't ignore.

Rob Lazerow:
Especially when you realize that the penalty is levied per hospital. So if you think about multi-hospital health systems, the exposure grows very quickly.

Rae Woods:
And that gets at one of the big challenges that we talked about last time, right? Again, that the penalty wasn't high enough to actually see behavior change among hospitals. But the other problem that we talked about was just not being able to define what non-compliance is. Do we actually have a better understanding now of what it means to be compliant?

Heather Bell:
Well, sort of. CMS did propose more clarity on the price estimator tool requirements and what it means to have easily accessible data, essentially data without barriers. I think a good example of that is earlier in the year we saw media headlines of hospitals using coding to basically hide this data set from search engines. And that's something that CMS in this rule is saying no more, we can't do this anymore. But it did leave many questions unanswered. It's seeking requests for comment on ways to standardize the machine readable file, whether to require specific plain language standards and a bunch more.

Rob Lazerow:
There's still a lot of open questions though, and for me, the two most important are first, how will CMS judge noncompliance? Is it an all or nothing proposition? And that's really important when you think about the size of these penalties. And second, will more price transparency actually bring down prices? And if you want to understand that one, go back to the original episode because we had an extended conversation.

Rae Woods:
And this is a good reminder that this is a proposed rule. And like Heather said, CMS is seeking commentary on some of these open, unanswered questions to try to inform what will become the final rule.

Rob Lazerow:
Including whether this idea of scaling the penalty with bedsides is the right approach.

Rae Woods:
Let me ask a little bit of a blunt question. We started off this conversation by saying that the new administration was maybe not taking a complete about face, but certainly was going back on some of the demands from the previous administration. Is there any concern that, that would happen again this time with price transparency?

Rob Lazerow:
Here I am, I might come to eat my words on this one, but I don't think so. I think there's an important difference between the Biden administration reversing or slowing down a decision by the Trump administration around the inpatient only list, [inaudible 00:10:01] for price transparency, it's really doubling down. And if you think about the bi-partisan focus and support for price transparency that we've seen, this one seems like it's here to stay.

Rae Woods:
Well Rob, Heather, what's the one thing you want to leave our audience with when it comes to these policy changes?

Heather Bell:
Well Rae, I'll be diving more into these topics and several others in our upcoming webinar on August 19th. So if you want a deeper dive, definitely join us for a Stay Up to Date then.

Rob Lazerow:
Well Heather, since you went practical I'm going to go a bit philosophical on this one. If I think about these two rules together, they are fundamentally about trying to depress hospital prices. They are two different means to the same end. So if I'm a hospital leader and I'm trying to roll the film forward. I should definitely be spending time thinking about what do I do in a world where I can't fuel my growth through price increases? So what are my strategies for how I'm going to grow my top line revenue by growing my market share rather than my prices and how do I protect my bottom line margin by making sure that my cost structure can scale down along with prices? I know that's a lot to tackle as an immediate next step, but I think that is the long-term conversation to have though these and the other [inaudible 00:11:12] policies.

Rae Woods:
Well Rob, Heather, thanks for coming back on Radio Advisory.

Heather Bell:
Thanks for having us Rae.

Rob Lazerow:
We'll see you for the next policy surprise.

Rae Woods:
Like Heather said, over the coming weeks our team is going to continue to analyze all 863 pages of this rule. So be sure to join us on August 19th for an hour long conversation breaking down everything you need to know. And it's a lot more than just the two policy announcements we talked about today. Because remember, we're here to help.