CMS Releases CY 2016 Proposed Rule on OPPS and ASC Payment Systems, Including Changes to the Two Midnight Rule

King & Spalding

On July 1, 2015, CMS released a Proposed Rule that would revise the Hospital Outpatient Prospective Payment System (OPPS) and Ambulatory Surgery Center (ASC) Payment System payment rates for calendar year (CY) 2016, and would revise the so-called “Two Midnight” Rule governing payment for hospital inpatient admissions under Medicare Part A.  The Proposed Rule would also modify the requirements for the quality reporting programs for outpatient hospitals and ASCs and clarify the role of hospitals in providing Chronic Care Management services.  The Proposed Rule is scheduled to be published in the July 8, 2015 Federal Register, and comments are due by August 31, 2015. 

With respect to OPPS payment, CMS begins with a projected hospital market basket increase of 2.7 percent, but ends up with a net decrease in OPPS rates of -0.1 percent after applying offsetting reductions.  Those reductions include a -0.6 percentage point adjustment for multi-factor productivity and a -0.2 percentage point adjustment required by the ACA.  The majority of the adjustment, however, or -2.0 percent, is meant “to redress inflation in the OPPS payment rates resulting from excess packaged payment under the OPPS for laboratory tests that continue to be paid separately outside of the OPPS.”  In particular, CMS explains that “about $1 billion in laboratory tests payments that were projected to be packaged into OPPS payment rates continued to be paid separately in CY 2014” and the 2.0 percent reduction is meant to recapture that amount. CMS estimates that total payments to hospitals under the OPPS would decrease by 0.2 percent ($43 million) in CY 2016 if all of the changes in the Proposed Rule are adopted.

Notably, CMS reiterated in the Proposed Rule that it would not reverse the 0.2 percent reduction in inpatient payments the agency implemented beginning in FFY 2014 that it claimed were necessary to maintain the budget neutrality of the Two Midnight Rule.  This payment adjustment remains the subject of Federal court litigation.

CMS proposes to increase ASC payment by 1.1 percent, which is based on a projected CPI-U update of 1.7 percent less a multifactor productivity (MFP) adjustment of -0.6 percent.  CMS estimates that total ASC payments under the Proposed Rule would increase by approximately $169 million.    

With respect to the Two Midnight Rule, CMS proposes to revise its policy to permit payment under Part A on a “case-by-case” basis for stays expected to last fewer than two midnights based on the judgment of the admitting physician, as supported by documentation in the medical record.  Among other factors, CMS cites the following as relevant to determining when an inpatient admission expected to last fewer than two midnights is appropriate for Part A payment: (1) the severity of the signs and symptoms exhibited by the patient; (2) the medical predictability of something adverse happening to the patient; and (3) the need for diagnostic studies that appropriately are outpatient services (i.e., their performance does not ordinarily require the patient to remain at the hospital for 24 hours or more).  CMS is not proposing to change its policy for stays expected to last two midnights or longer.  In other words, if the admitting physician expects the patient to require hospital care that spans at least two midnights, the services are generally appropriate for Part A payment. 

In addition, CMS states that no later than October 1, 2015, patient status review of claims for short-stay admissions will be conducted by Quality Improvement Organizations (QIOs) and not Medicare Administrative Contractors.  Only those hospitals with high error rates during the QIO review will be referred to Recovery Audit Contractors for further audits and potential payment recoupment.

With respect to quality reporting, CMS is proposing to add to the Hospital Outpatient Quality Reporting (OQR) Program measures OP-33: External Beam Radiotherapy for Bone Metastases (for the CY2018 payment determination and subsequent payment years) and OP-34: Emergency Department Transfer Communication Measure (for the CY2019 payment determination and subsequent years), and to remove measure OP-15: Use of Brain Computed Tomography in the Emergency Department for Atraumatic Headache (effective January 1, 2016).  CMS is not proposing to add any new measures to the Ambulatory Surgical Center Quality Reporting (ASCQR) Program, but is requesting comment on two measures for future consideration: Normothermia Outcome and Unplanned Anterior Vitrectomy.

CMS is also proposing several policy changes to align the OQR Program with the ASCQR Program, including: (1) changing the deadline for withdrawing from the program from November 1 to August 31; (2) shifting the quarters on which payment determinations are based and making conforming changes to the validation process requiring a one-time change in the payment determination timeframe to cover three quarters instead of four quarters; (3) changing the data submission timeframe for measures submitted via the CMS web-based tool to January 1 through May 15; and (4) changing the deadline for submitting a reconsideration request to the first business day on or after March 17 of the affected payment year.

Finally, CMS cites “confusion” regarding the implementation of the Chronic Care Management (CCM) fee and uses the proposed rule to “respond[] to hospital requests for clarification of their role in furnishing CCM services and defin[e] the scope of service elements for the hospital outpatient setting that are analogous to the scope of service elements finalized as requirements to bill for CCM services.”

CMS expects to issue a final rule on or around November 1.  Please click here for a copy of a CMS fact sheet on the proposed rule’s payment changes, and here for a fact sheet on the Two Midnight Rule. 

For more information about CMS’s proposed changes to the Two Midnight Rule, please refer to our King & Spalding Client Alert, available here.

Reporters, Daniel J. Hettich, Washington, D.C., +1 202 626 9128,, and Kerrie S. Howze, Atlanta, +1 404 572 3594,

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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