CMS Publishes Final Rule for CY 2020 Hospital Outpatient Prospective Payment System

King & Spalding

On November 1, 2019, CMS posted the final rule establishing the payment rates for the Hospital Outpatient Prospective Payment System (OPPS) and the Ambulatory Surgery Center (ASC) Payment System for calendar year (CY) 2020 (the Final Rule). The Final Rule announces that OPPS and ASC rates will increase by 2.6 percent in CY 2020. The Final Rule also addresses several contentious topics, including CMS’s decision to continue the rate cuts for excepted off-campus provider-based departments and 340B-acquired drugs, despite recent federal court decisions invalidating both of those policies. Other highlights include CMS’s decision not to adopt its proposed price-transparency regulations (yet), changes to the conditions for coverage for organ acquisition costs, and a new requirement that providers obtain prior authorization for certain outpatient department services.

Continuation of Controversial Site Neutrality Payment Reductions for Excepted Off-Campus Provider-Based Departments

The Final Rule implements CMS’s controversial plan to further reduce payment on OPPS Medicare payment rates for so-called “excepted” off-campus provider-based departments (PBDs). CMS implemented initial reductions in PBD rates in CY 2019 as part of a planned two-year phased reduction. However, King & Spalding represented a group of more than 40 hospitals challenging these reductions and won a summary judgment ruling in September 2019 in the U.S. District Court for the District of Columbia vacating the portion of the CY 2019 final rule implementing the reductions. CMS nevertheless announced in the Final Rule that it plans to continue with the second year of its planned two-year phase-in by paying off-campus PBDs approximately 40 percent of the OPPS rate. For CY 2020, CMS estimates that affected hospitals will see a total decrease of $800 million (comprising $640 million of OPPS payments and $160 million of beneficiary copayments) as a result of the reduction.

As background, under Section 603 of the Bipartisan Budget Act of 2015, CMS reimburses hospitals for outpatient services provided at certain off-campus PBDs under the Medicare Physician Fee Schedule (PFS), commonly referred to as a “site neutral” payment policy. Certain off-campus PBDs furnishing services to Medicare beneficiaries prior to November 2, 2015 were excepted by Congress from these reductions and continued to be paid the applicable (and higher) OPPS rate. CMS nevertheless finalized a policy in the CY 2019 OPPS final rule to pay the lower site-neutral PFS payment rate for clinic visit services for all off-campus PBDs, even when provided in an excepted off-campus PBD. CMS planned to phase these payment reductions in over a two-year period.

In overturning the reductions implemented in the CY 2019 OPPS Final Rule, the District Court held that the reductions were outside of the scope of CMS’s authority because the agency had tried to circumvent a requirement in the OPPS statute that payment adjustments be conducted in a budget-neutral manner. CMS acknowledges the District Court’s decision in the Final Rule, but states that the agency “do[es] not believe it is appropriate at this time” to change the policy and is still considering whether to appeal.

Proposed Price-Transparency Regulations Not Yet Adopted

The Final Rule does not adopt the price-transparency regulations that CMS discussed adopting (at 45 C.F.R. Part 180) in the proposed rule issued by CMS in July 2019 for the CY 2020 OPPS. CMS indicated in the proposed rule that the proposed regulations were intended to implement a statutory requirement that hospitals make available a list of their current standard charges and a recent Executive Order instructing the agency to propose a price-transparency regulation. In the Final Rule, CMS stated that it received over 1,400 comments on the proposed regulations and that a final rule is still forthcoming.

Details regarding the initial proposed regulations are available here. Among other things, the proposed regulations would expand the “standard charges” that hospitals are required to publicize to include payer-specific negotiated charges. The proposed regulations also include requirements for hospitals to publish (1) all standard charges in a prescribed machine-readable format (e.g., .XML or .CSC) with certain standardized data elements and (2) standard charges for certain “shoppable” services in a consumer-friendly format. The Final Rule does not address whether CMS intends to modify these requirements, but CMS previously requested comments in the proposed rule regarding possible alternatives to publicizing payer-specific charges (e.g., volume-driven negotiated charges; minimum, median, and maximum negotiated charges; all allowed charges; discounted cash prices; and median cash prices).

Rural Health Wage Index

The Final Rule implements CMS’s proposal to use the Inpatient Prospective Payment System (IPPS) wage index for urban and rural areas as the wage index for purposes of determining the OPPS payment rate and copayment standardized amount for CY 2020. Notably, the IPPS final rule for CY 2020 includes an increase in the wage index for hospitals below the 25th percentile. CMS previously considered offsetting this increase by decreasing the wage index for hospitals above the 75th percentile but opted instead to implement a budget-neutrality adjustment to the national standardized amount.

Continuation of Payment Cuts for 340B-Acquired Drugs

CMS announced in the CY 2020 Final Rule that it will continue to reimburse providers for 340B-acquired drugs at the lower rate adopted in the CY 2018 OPPS final rule. Prior to CY 2018, CMS paid providers the average sales price (ASP) plus six percent for 340B-acquired drugs. In the CY 2018 OPPS final rule, CMS dramatically cut the rate to ASP minus 22.5 percent, which the agency believes is closer to hospitals’ actual costs for 340B-acquired drugs. In the CY 2019 OPPS final rule, CMS expanded this policy to apply to 340B-acquired drugs administered to patients in nonexcepted off-campus provider-based departments, which are paid under the physician fee schedule instead of OPPS.

The 340B rate cut is the subject of ongoing litigation. In late 2017, soon after the rate cut was first adopted, the American Hospital Association and several affected hospitals filed suit to challenge the new rate in the United States District Court of the District of Columbia. On December 27, 2018, Judge Rudolph Contreras ruled that the rate cut exceeded CMS’s authority under the statute. Am. Hosp. Ass’n. v. Azar, 348 F.Supp.3d 62 (D.D.C. 2018). CMS has appealed that decision to the United States Court of Appeals for the District of Columbia, which just heard oral argument on the appeal last Friday, November 8, 2019. The agency believes it is appropriate to continue the rate cut in CY 2020 pending the outcome of its appeal.

CMS has a back-up plan in the event its appeal is unsuccessful. CMS believes that certain language from Judge Contreras’s decision left an opening for the agency to set reimbursement rates at levels consistent with hospitals’ acquisition costs. Therefore, on September 30, 2019, CMS published in the Federal Register a notice of intent to conduct a survey to collect drug acquisition cost data from 340B hospitals. If CMS loses on appeal, it will use the data collected from this survey to establish new rates for 340B-acquired drugs. CMS intimates that a rate based on this survey data would be lower than the current rate of ASP minus 22.5 percent.

CMS also used the CY 2020 rulemaking to solicit comments on the appropriate remedy for hospitals affected by the rate cuts in CYs 2018 and 2019. If the agency loses its appeal, it plans to propose specific remedies for CYs 2018 and 2019 in the CY 2021 proposed rulemaking. Those proposals will be informed by the comments that CMS received to the CY 2020 rule. CMS floated several ideas for the appropriate remedy, such as ASP plus three percent. Alternatively, the agency is considering using the drug acquisition cost data that will be collected in its upcoming survey to determine the appropriate rate for CYs 2018 and 2019. Commenters roundly opposed any remedy that was less than the difference between the old rate (ASP plus six percent) and the current rate (ASP minus 22.5 percent).

CMS also asked for comments regarding the structure of the remedy for CYs 2019 and 2020. In particular, the agency asked whether affected hospitals should be compensated retrospectively on a claim-by-claim basis or prospectively with an upward adjustment to rates in later years. Commenters were split on this question. Some commenters favored a retrospective remedy, noting that CMS could identify affected claims with minimal effort using the JG modifier. Other commenters were concerned that a prospective remedy would be too complex and administratively burdensome, and instead supported an aggregate payment for each affected 340B hospital.

CMS also asked commenters to address the issue of budget neutrality. Commenters roundly rejected the notion that a remedy for Medicare underpayments has to be budget neutral. Although the Medicare statute requires CMS to set prospective payment rates in a budget neutral manner, commenters argued that CMS cannot revisit those estimates ex post if its predictions turn out to be incorrect.

Changes for Organ Procurement Organizations

The Final Rule modifies the conditions for coverage (CfCs) that Organ Procurement Organizations (OPO) must meet in order to receive payment from Medicare for the costs associated with organ procurement. OPOs are not-for-profit entities that are responsible for procuring, preserving and transporting transplantable organs from deceased donors to eligible recipients. If the OPO meets the CfCs, Medicare will cover the OPO’s costs for procuring, preserving and transporting an organ to a Medicare beneficiary.

The existing CfC regulations require OPOs to meet two of three outcome measures. One of those measures is whether the observed donation rate is significantly lower than the “expected donation rate” as calculated by the Scientific Registry of Transplant Recipients (SRTR). The regulations currently define “expected donation rate” as the rate expected for an OPO based on the national experience for OPOs serving similar hospitals and donation services, subject to adjustments for hospital characteristics. 42 C.F.R. § 486.302. But this definition is not in sync with the definition that SRTR currently employs. Since 2009, the SRTR has defined “expected donation rate” as the rate expected for an OPO based on the national experience for OPOs serving similar eligible donor populations subject to adjustments for patient characteristics such as age, sex, race and cause of death. In the CY 2020 Final Rule, CMS is changing the existing regulatory definition of “expected donation rate” to conform to SRTR’s definition.

OPOs are required to certify compliance with the CfCs every four years. To determine whether an OPO has met the outcome performance measures, CMS looks at data from the 36 months following the start of the re-certification cycle. Because the current re-certification cycle for all OPOs ends in 2022, and the new definition of “expected donation rate” will not take effect until January 1, 2020, CMS is making a one-time modification to the lookback period. To determine if an OPO has met the “expected donation rate” for the 2022 re-certification cycle, CMS will use 12 of the 24 months of data between January 1, 2020 through December 31, 2021.

In addition to changing the existing CfCs, CMS also solicited comments about two new outcome measures currently under consideration. One proposed measure would be the actual decreased donors as a percentage of inpatient deaths among patients 75 years of age or younger with a cause of death consistent with organ donation. The data for this measure would be derived from the CDC’s detailed mortality file. Another potential measure under consideration is the actual organs transplanted as a percentage of inpatient deaths among patients 75 years of age or younger with a cause of death consistent with organ donation. Most commenters supported these measures, though offered varying modifications. CMS said that it would consider adopting these measures in future rulemakings.

Prior Authorization Process and Requirements for Certain Outpatient Department Services

Starting in CY 2020, providers will be required to submit a request for authorization prior to performing certain hospital outpatient department (OPD) services in order to receive Medicare payment for those services. The OPD services that will require prior authorization include botulinum toxin injections, panniculectomy, vein ablation, rhinoplasty, and blepharoplasty. CMS has observed a recent surge in these services and believes that many of them may be cosmetic services masquerading as therapeutic services. Commenters questioned whether CMS has authority to implement preapproval requirements. The agency responded that it has discretion under the statute to implement appropriate methods to control unnecessary increases in the volume of OPD services. The prior approval process will not apply to ambulatory surgical centers (ASCs) and other provider types. CMS explained that its statutory authority to implement measures to control unnecessary costs is specific to OPPS. Therefore, the agency does not believe it has statutory authority to implement prior approval procedures requirements for other provider types.

Pass-Through Payments for Devices: Alternative Qualification Criterion for Transformative New Devices

When a new medical device first enters the market, it can take two to three years for CMS to collect the necessary data to incorporate the cost of that device into the OPPS rates. In the interim, the Medicare statute authorizes CMS to pay for qualifying new devices at cost (i.e., pass-through payments). This ensures that providers receive adequate reimbursement for these devices at the outset, thereby improving the likelihood that these new devices will be immediately accessible to Medicare beneficiaries.

CMS has adopted regulations at 42 C.F.R. § 419.66 for determining whether a new medical device qualifies for pass-through status. One criterion is that the device must substantially improve clinical outcomes.

In the CY 2020 Final Rule, CMS modified the eligibility criteria for pass-through status. Starting with applications for pass-through payment received on or after January 1, 2020, devices that are part of the FDA’s Breakthrough Devices Program will be treated as meeting the substantial clinical improvement criterion. The rationale behind this change is that there is a lot of overlap between the criteria CMS uses to evaluate substantial clinical improvement and the criteria that the FDA uses to determine whether a device qualifies for the Breakthrough Devices Program.

Changes to the Inpatient Only (IPO) List

CMS maintains a list of procedures that the agency believes should only be administered in the inpatient setting. Any procedure on that list cannot be paid under the OPPS. Each year, CMS considers whether a procedure can be removed from the IPO list so that it can be paid for by OPPS if performed in an outpatient setting. In the CY 2020 Final Rule, CMS determined that Total Hip Arthroplasty (THA) (CPT code 27130) could be removed from the IPO list because the simplest THA procedure can be performed in most outpatient departments, and THA is related to other procedures that have already been removed from the IPO list. Additionally, CMS also removed CPT codes 22633, 22634, 63265, 63266, 63267, and 63268 (pertaining to arthrodesis and laminectomy procedures) from the IPO list because these procedures are related to other procedures that have already been removed from the list.

Other Updates

  • New Surgical Procedures to be Covered Under the Ambulatory Surgical Center (ASC) Payment System: CMS is finalizing its proposal to add Total Knee Arthroplasty (TKA) (CPT Code 27447), Knee Mosaicplasty (CPT Code 29867), and several coronary intervention procedures (CPT Codes 92920, 92921, 92928, 92929) to the list of surgical procedures covered under the ASC.
  • Hospital Outpatient Quality Reporting Program (OQR) and Ambulatory Surgical Center Quality Reporting Program (ASCQR): CMS has adopted a new claims-based measure for the ASCQR, ASC-19: Facility-Level 7-Day Hospital Visits after General Surgery Procedures Performed at Ambulatory Surgical Centers (NQF #3357). This measure will be used for CY 2024 payment determinations and subsequent years.

A copy of the CY 2020 OPPS Final Rule is available here. The CMS Fact sheet is available here.

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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