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CMS Proposes New Payment Reduction for Off-campus Provider-based Departments

by Bill Finerfrock on July 26, 2017 at 3:21 PM


As required by Congress through Section 603 of the Better Budget Act of 2015 (BBA), the Centers for Medicare and Medicaid Services (CMS) has taken steps to implement a “site neutral” payment policy for services provided at off-campus hospital provider-based departments (PBD).

This policy was passed by Congress in response to concerns over hospitals purchasing physician practices and converting them to off-campus PBDs. These newly converted facilities could bill Medicare under the Hospital Outpatient Prospective Payment System (HOPPS) rather than the Medicare Physician Fee Schedule (MPFS).

HOPPS reimburses at higher rates than the MPFS, which made this a rather lucrative transaction for both the hospital and the physician practice. In these situations, the practice does not change how it provides care. In fact, the only thing that changes is the name on the door. However, based on the new designation as an off-campus PBD of a hospital, the practice could receive the higher HOPPS reimbursement rates instead of the MPFS rates.

MedPAC, an independent advisory body to Congress on Medicare payment policy, strongly recommended a site-neutral payment policy that would end the financial incentive to acquire and convert physician practices to off-campus PBDs. Congress agreed with MedPAC and included a provision in the BBA to require CMS to develop a site-neutral payment policy.

In 2017, through rulemaking, CMS finalized a site-neutral payment policy under which services provided at new hospital off-campus PBDs would no longer be reimbursed under the Hospital Outpatient Prospective Payment System (HOPPS), and would instead be reimbursed under the MPFS.

“New” off-campus PBDs are defined as those that were established by hospitals on or after November 2, 2015 (that is, the date the BBA was signed into law). PBDs established prior to this date are exempt from this site-neutral policy and are allowed to continue billing services under the HOPPS methodology.

Dedicated emergency departments (EDs) are also exempt from this policy. A dedicated ED, for purposes of this policy, is defined as:

Any department or facility of the hospital, regardless of whether it is located on or off the main hospital campus, that meets at least one of the following requirements:

  1. It is licensed by the State in which it is located under applicable State law as an emergency room or emergency department;
  2. It is held out to the public (by name, posted signs, advertising, or other means) as a place that provides care for emergency medical conditions on an urgent basis without requiring a previously scheduled appointment; or
  3. During the calendar year immediately preceding the calendar year in which a determination under this section is being made, based on a representative sample of patient visits that occurred during that calendar year, it provides at least one-third of all of its outpatient visits for the treatment of emergency medical conditions on an urgent basis without requiring a previously scheduled appointment.

A site-neutral payment policy does not necessarily mean that services must be reimbursed at the same rate regardless of the place of service. CMS certainly does not interpret the policy that way. CMS believes there is still a justification for reimbursing PBDs at the higher HOPPS rate, specifically for the facility portion of a service.

CMS conducted several studies comparing HOPPS and MPFS payment rates for the same services. These studies specifically focused on how the facility payments (which are often the technical component of services) differ across the two payment systems.

In 2017, CMS began applying a relativity adjuster that establishes the MPFS payment rate for services provided at new off-campus PBDs to be 50 percent of the HOPPS payment rate.

Rather than require providers to bill for the facility fee separately from the professional fee, CMS applies this 50 percent relativity adjuster; generally speaking, this results in a payment that is less than the full HOPPS payment, but still greater than the MPFS reimbursement.

However, CMS still believes it is reimbursing services provided in off-campus PBDs at higher rates than it should. In the recently released 2018 MPFS proposed rule, CMS is proposing payments for services provided by new off-campus PBDs to be 25 percent of the HOPPS payment rate (that is, 75 percent less than the normal HOPPS payment rate).

We compared the CY 2017 OPPS national payment rate for HCPCS code G0463 ($102.12) to the difference between the nonfacility and facility PFS payment amounts under the PFS using CY 2017 rates for the weighted average of outpatient visits (CPT codes 99201-99205 and CPT codes 99211-99215) billed by physicians and other professionals in an outpatient hospital place of service.

This reduced payment rate will likely create a chilling effect and discourage future acquisitions of physician practices by hospitals.

In the 2018 MPFS proposed rule, CMS stated that it intends to analyze claims data for 2017 and 2018 to develop a more refined methodology for equalizing payments for services provided in both settings. It will be interesting to see how updates to the payment methodology for off-campus PBDs are determined in future rulemaking. CMS is accepting comments on the proposed rule until September 11th

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This post was written by Bill Finerfrock

Bill Finerfrock is a consultant at Intermedix and is president of Capitol Associates (CAI). Finerfrock specializes in health care financing, health systems reform, health workforce and rural health. Finerfrock has worked in and with the U.S. Congress and Federal agencies on health policy matters for nearly 40 years