CMS Proposes More Payment Cuts for Hospital Off-Campus Provider-Based Departments

by McGuireWoods LLP

Since the passage of the Bipartisan Budget Act of 2015, certain off-campus provider-based departments (PBDs) have seen their payment rates cut by nearly 60 percent. Now, in its recently released calendar year (CY) 2019 proposed rules regarding the Medicare physician fee schedule (PFS) and the hospital outpatient prospective payment system (OPPS), the Centers for Medicare & Medicaid Services (CMS) plans to continue (and even expand) such payment rate cuts for excepted off-campus PBDs’ most popular service lines. CMS explained that the reason behind these payment cuts is that it is “not prudent for the Medicare program to pay more for these services in one setting than another.”

To assist providers in navigating these proposed rules, here are seven potential, key changes that could impact hospitals and physician groups in 2019.

1. Non-Excepted Items and Services Continue With 40 Percent Relativity Adjuster

As discussed in a Dec. 13 McGuireWoods legal alert, 2018 Reimbursement Cuts for Some Off-Campus Hospital Provider-Based Departments, CMS implemented Section 603 of the Bipartisan Budget Act of 2015’s “site-neutral” payment policies for newly acquired, developed or relocated PBDs. As a result, only excepted, off-campus PBDs — such as those facilities that billed as PBDs prior to Nov. 2, 2015 — continue to be paid under the OPPS. Non-excepted PBDs, including facilities that did not bill as PBDs prior to that date, are now reimbursed under the PFS, which reimburses PBDs based on a “relativity adjuster” to the OPPS rate. Currently, non-excepted PBDs receive approximately 40 percent of the OPPS rates for non-excepted items and services. This rate was changed in the CY 2018 PFS final rule after CMS initially set the relativity adjuster at 50 percent but, thereafter, proposed slashing that relativity adjuster in half to 25 percent — a proposal that would have greatly impacted reimbursement for non-excepted PBDs.

In its CY 2019 PFS proposed rule, CMS keeps the relativity adjuster for 2019 at 40 percent of the OPPS rates for non-excepted items and services, reasoning that more specific data regarding the appropriate setting of the relativity adjuster is not yet available. Therefore, although CMS intends to maintain the PFS relativity adjuster for CY 2019, it certainly will continue to consider updated data or other considerations in the future, which may lead to further rate changes down the road. In fact, CMS expressly requested that commenters provide additional information and data for its consideration.

2. Additional Clinical Families in Excepted Off-Campus PBDs to Receive Reduced Rate

In its CY 2019 OPPS proposed rule, CMS re-proposes that if excepted off-campus PBDs (i.e., those receiving full OPPS rates) expand their paid range of services beyond the same “clinical families” of services already offered, such expanded service lines also will receive the reduced payment rate, equal to 40 percent of the OPPS. As discussed in a Jan. 18, 2017, McGuireWoods legal alert, Reimbursement Changes for Hospital Off-Campus Provider-Based Departments, CMS initially made this proposal in its CY 2017 OPPS proposed rule but backed away from the proposal as it agreed with commenters that implementation would be operationally difficult. Notwithstanding the foregoing, in withdrawing this proposal in 2017, CMS did state that it believed it had authority to limit service-line expansion to dissuade hospitals from purchasing physician practices and relocating them to excepted off-campus PBDs merely to receive higher reimbursement. CMS went on to note that it would revisit this concept in the future if expansion continued unabated.

Alas, CMS has returned to this concept in the CY 2019 OPPS proposed rule, in which it proposes that each hospital PBD in operation before Nov. 2, 2015, would be excepted only for items or services contained within 19 clinical families it offered at such time. The clinical families would be defined with reference to the OPPS Ambulatory Payment Classification (APC) group in which they fit — a table of the APC groups is directly below. If CMS moves forward with its proposed rule, then any services offered at the excepted PBD will need to fit within a clinical family of services that the PBD offered during the period beginning Nov. 1, 2014 and ending Nov. 1, 2015, absent limited circumstances. Any service that falls outside one of these baseline clinical families will need to be billed with a “PN” modifier and, therefore, will receive only 40 percent of the OPPS rate under the PFS.

Clinical Families APCs
Airway Endoscopy 5151–5155.
Blood Product Exchange 5241–5244.
Cardiac/Pulmonary Rehabilitation 5771; 5791.
Diagnostic/Screening Test and Related Procedures 5721–5724; 5731–5735; 5741–5743.
Drug Administration and Clinical Oncology 5691–5694.
Ear, Nose, Throat (ENT) 5161–5166.
General Surgery and Related Procedures 5051–5055; 5061; 5071–5073; 5091–5094; 5361–5362.
Gastrointestinal (GI) 5301–5303; 5311–5313; 5331; 5341.
Gynecology 5411–5416.
Major Imaging 5523–5525; 5571–5573; 5593–5594.
Minor Imaging 5521–5522; 5591–5592.
Musculoskeletal Surgery 5111–5116; 5101–5102.
Nervous System Procedures 5431–5432; 5441–5443; 5461–5464; 5471.
Ophthalmology 5481, 5491–5495; 5501–5504.
Pathology 5671–5674.
Radiation Oncology 5611–5613; 5621–5627; 5661.
Urology 5371–5377.
Vascular/Endovascular/Cardiovascular 5181–5184; 5191–5194; 5200; 5211–5213; 5221–5224; 5231–5232.
Visits and Related Services 5012; 5021–5025; 5031–5035; 5041; 5045; 5821–5823.

3. Clinic Visits to Receive Reduced Rates for All Off-Campus PBDs

Pursuant to the CY 2019 OPPS proposed rule, CMS plans to pay code G0463 “hospital outpatient clinic visit,” which is the most commonly billed OPPS code, at the reduced, non-excepted rate for all off-campus PBDs. CMS reasons that these services under code G0463 — a single claim for the various evaluation and monitoring (E&M) professional codes within the OPPS represents 49 percent of all claim lines separately payable or conditionally packaged services furnished by non-excepted PBDs representing 30 percent of separately payable or conditionally packaged payments do so— could be provided in a non-hospital setting for less. In making this proposal, CMS cited its authority to do so under Section 1833(t)(2)(F) of the Social Security Act, as a means of controlling unnecessary increases in volume of outpatient services. CMS goes on to cite the Medicare Payment Advisory Commission (MedPAC), who noted that one-third of all outpatient codes in 2014 and 2015 consisted of E&M visits. CMS further bolsters its proposal by indicating that in 2015, providers would have received $400 million in additional beneficiary cost-sharing due to the higher rates that exist in the OPPS setting versus a physician’s office. 

Given the substantial potential impact of this proposal, expect significant comments against this proposal, and, if finalized, potential litigation. Commenters likely will take notice with the fact that CMS stated that it does not have authority to go beyond congressional intent with respect to PBD site-neutrality payments, and, Congress never made such a distinction when it imposed site-neutrality payments for new PBDs.  If implemented, this change could have a significant impact on existing PBDs, which Congress had appeared to carve out based on the excepted status for such facilities.

4. Changes for 340B Drugs at Non-Excepted PBDs

In its CY 2019 OPPS proposed rule, CMS changes payment rates for 340B drugs provided at non-excepted, off-campus PBDs in an effort to treat non-excepted PBDs in the same manner as excepted PBDs, which receive a lower rate. CMS recently changed reimbursement rates for 340B drugs under the OPPS to equal the average sales price minus 22.5 percent (versus the PFS, which is equal to the average sales price plus 5 percent) the payment that hospitals receive).   By requiring non-excepted PBDs to be paid under the PFS, hospitals could effectively get the reduced 340B rate from manufacturers and continue to bill it at the higher PFS rate, which could continue the financial reason to convert physician offices to off-campus PBDs. 

5. New Claim Modifier for Off-Campus Emergency Departments

CMS proposes to add a new claim-line modifier, “ER,” that must be billed for outpatient hospital services furnished in an off-campus, provider-based emergency department. In reaching this proposal, CMS cites the March 2017 and June 2017 MedPAC reports, in which MedPAC proposed that CMS adopt such a modifier to track the growth in off-campus emergency department spending. The proposed claim modifier will allow CMS and other policymakers, including MedPAC, to monitor growth in utilization and spending, as well as make additional proposals to Congress regarding the same. Providers should note, however, that critical access hospitals’ off-campus emergency departments are not subject to this proposed modifier.

6. Comparison Website for OPPS and ASC Rates

CMS notes in its CY 2019 OPPS proposed rule that it intends to create a website that will allow Medicare beneficiaries to compare the differences in payment rates between the OPPS and ambulatory surgery centers (ASCs), as required by Section 4011 of the 21st Century Cures Act. This proposal is another effort by policymakers and CMS to reduce utilization of more expensive sites of care. CMS notes that it hopes this website will lead beneficiaries to seek lower cost options, particularly since they are responsible for 20 percent cost-sharing copayments. With that said, CMS also indicates that information alone is not enough to stem the growth and utilization of more expensive outpatient settings; hence, the proposal mentioned in item 3 with respect to Code G0463, as well as the other proposed changes described herein.

7. Request for Additional Proposals to Avoid More Expensive Care

In the CY 2019 proposed rules, CMS indicates that it will “continue to recognize the importance of not impeding development or beneficiary access to new innovations.” For that reason, CMS is “soliciting public comments on how to maintain access to new innovations while controlling for unnecessary increases in the volume of covered hospital OPD services.” In making these statements, it appears that CMS would like to expand the use of Section 1833(t)(2)(F) of the Social Security Act (used to justify item 3 above) to avoid unnecessary increases in outpatient services. Comments from industry and other policymakers will be closely watched, particularly as CMS has made it clear that the changes under this section will not be budget neutral. Consequently, it will be important to monitor the OPPS to see if it continues to face site-neutrality adjustments that reduce government spending, while also reducing hospital reimbursement.

Bottom Line

The CY 2019 PFS and OPPS proposed rules set forth multiple changes and revisions to PBD billing that will affect providers throughout the next several years. In addition, the proposed rules include additional policies that should be reviewed and monitored to ensure compliance in the years to come. CMS appears committed to furthering site-neutrality payments and reducing government spending as it relates to hospitals. If these proposals are finalized, hospitals and physician groups could feel significant impact. Accordingly, providers should closely examine, review and continue to monitor these proposed rules.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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