Provider‐based off-campus hospital outpatient departments (OC-HOD’s) established after November 1, 2015 will be subject to a new site-neutral payment limitation starting Jan. 1, 2017 as a result of provisions in the Balanced Budget Act of 2015.

Prior to the effective date of the new law, hospitals will continue to receive higher reimbursement for certain types of services, such as evaluation and management services, procedures and surgeries, provided to Medicare beneficiaries at OC-HOD’s, regardless of when the OC-HOD is established.  Commencing on the effective date, however, services provided at OC-HOD’s established after November 1, 2015 will be reimbursed under the Ambulatory Surgical Center or the Medicare Physician Fee Schedule – the same fee schedules currently utilized to reimburse for services provided at free-standing physician offices and ambulatory surgery centers.   OC-HOD’s established prior to November 2, 2015 will be grandfathered and will continue to be reimbursed for services to Medicare beneficiaries pursuant to the Medicare Hospital Outpatient Prospective Payment System (OPPS) – at least for now.

The change could have a significant impact on the rate of hospital acquisitions of certain types of suppliers – specifically physician practices– given that the hospital may no longer be able to realize a higher income stream from the provision of physician services by designating the site as “provider-based”.

Proposed regulations issued between now and the effective date will likely address issues such as (i) how a hospital will differentiate between services provided at an OC-HOD site established before or after the effective date of the new law, (ii) the impact of the rule on OC-HOD sites established as provider based prior to November 2, 2015, but subsequently amending their Medicare enrollment application, (iii) what it means to have an “established” OC-HOD location as of November 1, 2015, and (iv) the ability to include OC-HOD established after November 1, 2015 on hospital cost reports (for instance, for purposes such as 340B eligibility) and how inclusion on the cost-report may impact accreditation requirements.