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On Monday, the U.S. Supreme Court declined to hear a challenge to the U.S. Department of Health and Human Services’ (“HHS”) site-neutral payment policy, allowing Medicare reimbursement cuts to hospitals to continue.

The case stemmed from a final rule issued in 2018 that made $600 million in cuts to hospitals when services are provided at off-site outpatient clinics. Before the final rule, the Centers for Medicare and Medicaid Services (“CMS”) would pay hospitals a hospital rate, as opposed to the lower physician office rate, for services that are provided in an office setting operated by a hospital. In an attempt to overturn the final rule, the American Hospital Association (“AHA”) and dozens of hospitals sued CMS, arguing that it exceeded its authority when it finalized the cuts.

In 2019, a federal judge initially ruled in favor of the AHA, finding that HHS exceeded its rulemaking authority. However, on appeal, the U.S. Court of Appeals for the District of Columbia (“Appeals Court”) reversed the lower court’s decision and ruled that HHS's payment cuts to hospitals’ off-site outpatient departments were legal because the changes were volume-control measures that do not have to be budget-neutral. The Appeals Court also found that HHS’s interpretation of federal law was adequate, as the federal law governing the payment rule allows the agency some latitude on changing its payment formula.

The U.S. Supreme Court did not provide reasons as to why it declined to hear the appeal. However, in declining to take up the case, the U.S. Supreme Court has effectively permitted the Appeals Court ruling to stand, impacting the way CMS establishes payment rates under the Outpatient Prospective Payment System, and perhaps other services, for the foreseeable future.