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Proposed Rule May Significantly Cut Reimbursement to Existing Hospital Off-Campus Outpatient Clinics Beyond Congressional Intent

On July 6th, CMS released a proposed rule (expected to appear in the Federal Register on July 15th) that, if it takes effect, could be devastating to hospital off-campus outpatient department reimbursement – an effect not intended by Congress, and certainly unwelcome to the healthcare industry.

Bipartisan Budget Act Changes Reimbursement – But Only For Some

When Congress passed the Bipartisan Budget Act of 2015 last November, includes in Section 603 a site-neutral payment provision. This provision would not allow off-campus outpatient departments to be paid under the Medicare Hospital Outpatient Prospective Payment System (OPPS) (OPPS provides reimbursement to the hospital in addition to the physician’s reduced payment for professional services). Instead, effective January 1, 2017, the reimbursement for off-campus outpatient department services will be limited to the lower rates set forth in the Medicare Physicians Fee Schedule (MPFS), used to determine payment in a physician’s private practice.

However, the law included a grandfather provision that provides an exception to this payment reduction. Those off-campus outpatient departments that were billing as a provider-based facility before November 2, 2015 (“Pre-Existing Outpatient Department”) when the Budget Act took effect will continue to be paid under the OPPS.

CMS Proposed Rule Would Place Limits on the Exception

Nevertheless, Pre-Existing Outpatient Department facilities are at risk of losing their exception and may be hampered in the services they offer if the CMS proposed rule interpreting and implementing Section 603 takes effect. CMS takes a more draconian view of what Section 603 requires in light of the evil it perceives with hospital acquisition of physician practices. The proposed rule, if finalized in its current form, would not recognize the exception for Pre-Existing Outpatient Departments if the hospital relocated the facility and/or expanded the types of physicians or services available at the facility.

Specifically, a Pre-Existing Outpatient Department may lose the exception if it:

  • Relocates to a new address or location other than the one listed on the CMS 855 form on file as of November 2, 2015;
  • Bills for items and services not furnished at that location prior to November 2, 2015, as determined by review of billing codes used prior to that date; or
  • Expands the area of its existing facility to include additional space or units within the building where it is located.

In addition, items and services that were not part of the “clinical family of services” furnished and billed by the outpatient department at that facility prior to November 2, 2015, will be paid under the MPFS. In that situation, a department may have two distinct billing methods in use at a single location.

CMS Proposed Rule Inconsistent With Request from Legislators and Industry

The proposed rules seem to go against health care policy that encourages greater access to health care services to meet the needs of the community, and may yet garner attention from federal policymakers who weighed in with CMS even prior to its issuance. In May of this year, 51 U.S. Senators – both Republicans and Democrats - sent a letter to CMS urging the agency to include flexibility in the proposed rule that will enable hospitals to continue to serve patients in off-campus outpatient departments and to provide predictability for the hospital field. The letter, coordinated by the American Hospital Association (AHA), specifically encouraged CMS to include flexibility for those additional services provided at a dedicated emergency department, relocation or rebuilding for already existing hospital outpatient departments, change of ownership, and needed expansion of services and personnel to meet patient care needs of a community. With the exception of dedicated emergency departments, the CMS proposal did not provide flexibility in these areas. 

Assuming the proposed rule appears in the Federal Register on July 15th, the last day to submit comments and suggestions to include more flexibility in the rule is September 6, 2016. Arent Fox LLP, whose Government Relations group already lobbies for clients injured by OPPS reimbursement decisions, will be working with hospitals and associations on specific comments and invites others with concerns to participate in the preparation of responses. Absent changes in the final rule on this subject, hospitals may need to go back to Congress and ask it to confirm its intent and legislate the flexibility in the implementation of the law as it affects Pre-Existing Outpatient Departments.


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