CMS Proposed OPPS Rule Implements Limitations on Medicare Payments for Off-Campus Outpatient Department

By: Vasilios J. Kalogredis

Printed in the Legal Intelligencer, Friday, September 2, 2016

On July 6, 2016, the Centers for Medicare & Medicaid Services (“CMS”) released a proposed Outpatient Prospective Payment System (“OPPS”) rule containing CMS’s plans on how it will implement Section 603 of the Bipartisan Budget Act of 2015 (the “Act”), which will affect how Medicare pays for certain items and services furnished in certain “off-campus” outpatient departments of a provider (such as a hospital).

This article is intended to supplement my December 2015 Legal article titled “Changes to Reimbursements to Off-Campus Outpatient Departments,” in which I discussed the Congress’s rationale in enacting Section 603 of the Act in response to concerns that off-campus outpatient departments of hospitals were receiving enhanced reimbursements provided under the Hospital

Outpatient Prospective Payment System (“HOPPS”) without truly providing more from a patient care standpoint than what would be provided by a free-standing, non-hospital based facility (for example, a doctor-owned practice office).

CMS’ s newest proposals reflect a very expansive view of Section 603 ‘s application and, if implemented, will create operational difficulties for thousands of hospitals. Effective January 1, 2017, Section 603 bars Medicare payments under the OPPS for items or services (other than services furnished by a dedicated emergency department) furnished at an off-campus, provider based department (“PBD”), unless the location was billing as an outpatient department of a hospital prior to November 2, 2015. CMS estimates that the proposed implementation of Section 603 will reduce net OPPS payments by $500 million in 2017 and increase payments to physicians under the Medicare Physician Fee Schedule by $170 million, resulting in a reduction of Part B expenditures by $330 million. To implement Section 603, CMS proposed the following:

“Excepted” Items and Services

As briefly addressed above, Section 603 includes a number of important exceptions. First, the new limitations only apply to items and services furnished at provider-based locations that are “off-campus”. On-campus provider-based locations will continue to be paid under the OPPS. The description of “on-campus” and “off-campus” locations in Section 603 is slightly different from -the definitions used in the existing provider-based regulations. Section 603 states that “off-campus” includes not only those facilities that are not “on-campus” (as defined under the current provider-based regulations), but also facilities that are not within 250 yards of a “remote location of a hospital.”

Second, facilities that meet the definition of a “dedicated emergency department” under existing regulations are excluded from the reimbursement change and may continue to receive provider-based reimbursement even if located off-campus.

Third, Section 603 includes an exception for grandfathered off-campus provider-based locations. This grandfather exception protects off-campus PBDs that were furnishing services and billing Medicare under the OPPS prior to November 2, 2015. Those grandfathered off-campus PBDs will be permitted to continue to bill Medicare for currently provided items and services as hospital departments under the OPPS after December 31, 2016.

Service Expansions in Excepted Off-Campus PBDs

CMS believes that Section 603 applies to excepted facilities “as they existed at the time of enactment and only excepts those items and services that were being furnished and billed by off-campus PBDs prior to November 2, 2015.” Accordingly, CMS proposed that off-campus PBDs may continue to be paid at OPPS rates for items and services in the “clinical families of services” that were furnished and billed as of November 2, 2015. CMS proposed creating 19 “clinical families of services,” which are defined by APC and HCPCS code. However, services beyond those clinical families of services will not be excepted services (i.e., not payable under the OPPS). CMS is not proposing to limit the volume of excepted services at a location.

Relocation of Excepted Off-Campus PBDs

CMS also proposed that an excepted off-campus PBD will lose its excepted status if it changes location, i.e., moves or relocates from the physical address that was listed on the provider’s hospital enrollment form as of November 1, 2015. In the case of addresses with multiple units (multi-office building), the unit number is considered a part of the address. Therefore, an excepted hospital PBD could not purchase and expand into other units in the building and retain its excepted status.

Change in Ownership of Excepted PBDs

CMS proposed that if a hospital has a change of ownership, the off-campus PBD may maintain its excepted status only if the new owners accept the existing Medicare provider agreement from the prior owner. However, individual off-campus PBDs cannot be transferred from one hospital to another and maintain excepted status.

Alternative Payment System

Section 603 provides that items and services furnished at non-excepted PBDs will be paid under an “applicable payment system” other than the OPPS beginning January 1, 2017. CMS said that in the majority of cases, this payment system would be the Medicare Physician Fee Schedule (“MPFS”). CMS acknowledged that non-excepted off-campus departments could still be PBDs of a hospital (remember: Section 603 only impacts the Medicare reimbursement for non-excepted facilities and non-excepted items and services). CMS noted, however, that it does not currently have the systems capabilities to allow an off-campus PBD to bill and be paid under any other system than the OPPS.

CMS has projected numerous regulatory and operational changes that will need to be made (including changes to enrollment and billing forms and processes) in order to allow for a hospital to bill and be paid for non-excepted items and services under any other system than the OPPS. This may include CMS establishing a completely different provider/supplier type for the non-excepted off-campus PBDs and for non-excepted items and services. CMS is projecting that it will not have a straightforward way for hospitals to do this billing until CY 2018, and proposes a temporary 1-year solution (for CY 2017) that the non-excepted items and services would be billed and paid for in the off-campus PBD under the MPFS at the non-facility rate instead of the facility rate. There would be no separate facility payment made to the hospital, and the beneficiary cost sharing for such non-excepted items and services would be the same as if the service were provided in a freestanding facility.

Open Issues

Section 603 left hospitals with a number of questions regarding the limitations for off campus hospital departments. For example, Section 603 did not address the expansion, changes in ownership, or relocation of grandfathered facilities. The proposed OPPS Rule addresses many of these unanswered questions. In almost every case, CMS has proposed a restrictive interpretation of the language included in Section 603 that will, undoubtedly, have the effect of reducing the number of items and services furnished in off-campus provider-based departments which can be reimbursed under the OPPS. Bottom line is it will reduce reimbursements in the “big picture.”

However, there are a number of issues that CMS did not address in the proposed OPPS rule, including but not limited to: the treatment of off-campus PBDs that were under development when Section 603 was enacted, but had not yet billed for services under the OPPS (i.e. “mid-build” facilities); how none-excepted facilities should enroll; how it will pay for non-excepted services after CY 2017; how it would treat an excepted PBD that was acquired by a merger or other acquisition where the main hospital became a part of another hospital; how services that are covered under the OPPS, but not under another system, will be paid; whether and how hospitals will be required to report information on excepted facilities and services; impact a provider-based denial or overpayment issued on or after November 2, 2015 will have on a facility’s excepted status; and so on.

CMS had requested comments. Hospital providers had until September 6, 2016 to make comments on this proposed rule.

*Rachel E. Lusk, Esquire, an associate with Lamb McErlane PC, contributed to this article. 

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