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Bipartisan Budget Act Section 603's Impact on Off-campus Hospital Departments

Section 603 of the Bipartisan Budget Act of 2015 was initially passed to cut payments to hospital departments in order to provide funding to lift the Federal debt ceiling, increase domestic spending in Fiscal Year 2016, and keep Medicare Part B premiums down. The effect of Section 603, however, is that payments to off-campus hospital departments are to be “site-neutral.” The section applies to any provider-based off-campus departments that were not billing as a hospital department as of November 2, 2015. Effective January 1, 2017, these new off-campus departments will be subject to “site-neutral” payments, meaning that the hospital’s services will not be reimbursable under the Medicare Outpatient Prospective Payment System (OPPS), but will need to be paid under another system, such as, perhaps, the Medicare physician fee schedule or the Ambulatory Surgery Center (ASC) fee schedule. Moss Adams LLP and Foley & Lardner LLP recently co-hosted a webinar outlining the “Impact of Section 603 of Bipartisan Budget Act of 2015 on Hospital Off-Campus Outpatient Departments” and their insights can be summarized below:

Section 603 Does Not Apply to:

  • On-campus outpatient departments (whether old or new).
  • “Grandfathered” departments; off-campus hospital departments that were billing as an outpatient hospital department under OPPS prior to November 2, 2015. These departments are grandfathered in and not subject to Section 603. These grandfathered facilities continue to be eligible for the higher payments as outpatient departments of the hospital.
  • Separately certified hospital-based Home Health Aides (HHAs), Hospices, Critical Access Hospitals (CAHs), Rural Health Clinics (RHCs) or Federally Qualified Health Clinics (FQHCs), except for certain look-alike FQHCs.
  • Inpatient remote locations of a hospital.
  • Dedicated emergency departments (DEDs).


Although Section 603 will reduce payments for off-campus hospital departments to the physician or ASC fee schedule, a hospital/health system can still set up off-campus hospital departments for other purposes, such as 340B program eligibility and the 3-day DRG payment window. Although there is no payment differential for your new off-campus hospital outpatient department from a physician practice, such providers should still consider reporting the off-campus department in the ancillary services or outpatient services section of the Medicare cost report, which confirms your facility is a department of the hospital and eligible for the 340B program. This outpatient department would not be treated as a non-reimbursable department in the Medicare cost report. We note that since the Centers for Medicare and Medicaid Services (CMS) and Health Resources and Services Administration have not weighed in on the impact of Section 603, there remains some uncertainty in the provider community around these critical planning issues.

CMS will need to develop instructions to states and Medicare Administrative Contractors on how to implement Section 603. Such questions to be resolved are:

  • Will Medicaid payment systems follow Medicare, for those states that pay more for services in hospital outpatient departments?
  • Will states continue to license off-site locations as provider-based?
  • Will there be a consistent definition of what constitutes off-campus in each state?
  • What happens if a grandfathered department undertakes significant changes to the scope of service, the facility, or its location?
  • Will CMS interpret the statute differently?

CMS is expected to issue clarifications in the proposed rules in the coming months. They may have some commentary in the FFY 2017 Inpatient Prospective Payment System (IPPS) rule typically issued in April, but CMS has stated that we will receive the first guidance in the CY2017 Outpatient Prospective Payment System (OPPS) proposed rule, issued in June or July.

This post was co-authored by Partner Cheryl Storey of Moss Adams LLP.

© 2020 Foley & Lardner LLPNational Law Review, Volume VI, Number 44



About this Author

Lawrence W. Vernaglia, Health Care Attorney, Foley Lardner Law Firm

Lawrence Vernaglia is a partner and health care lawyer with Foley & Lardner LLP and serves as chair of the firm’s Health Care Industry Team – named “Health Law Firm of the Year” for three of the past four years on the U.S. News - Best Lawyers® "Best Law Firms" list. Mr. Vernaglia represents hospitals, health systems and academic medical centers and a variety of other health care providers. Mr. Vernaglia's practice involves regulatory and transactional matters, including Medicare/Medicaid reimbursement compliance advice and appeals; mergers, acquisitions and...