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Off-Campus Hospital Outpatient Departments Beware: CMS Releases Its Proposed Changes To The Outpatient Prospective Payment System

On July 14, 2016, the U.S. Department of Health and Human Services (HHS) Centers for Medicare & Medicaid Services (CMS) published its Proposed Rule for the Calendar Year (CY) 2017 Hospital Outpatient Prospective Payment System (OPPS) and Ambulatory Surgical Center Payment System policy changes, quality provisions and payment rates (Proposed Rule). See 81 Fed. Reg. 45681.  

The Proposed Rule, in part, implements Section 603 of the Bipartisan Budget Act of 2015 (Section 603) which establishes a site neutral payment policy for non-excepted, provider-based off-campus hospital outpatient departments (HOPDs). Effective January 1, 2017, CMS will cease paying OPPS rates for HOPDs (or “provider-based departments”) that began billing as such on or after November 2, 2015. Instead, these facilities will be paid under other applicable Medicare Part B payment systems. 

Pursuant to Section 603, there is an exception for services furnished at dedicated emergency departments. In the Proposed Rule, CMS broadly defines this exception and proposes to allow payment under the OPPS for all services furnished at a dedicated emergency department, not just emergency services, as well as exempting items and services furnished in a hospital department within 250 yards of a remote location of the hospital. In addition, those HOPDs billing under OPPS prior to November 2, 2015 will retain their excepted status. 

Below are some key things to note about the Proposed Rule:

  • HOPDs under construction. Significantly, CMS’s Proposed Rule did not address the treatment of HOPDs under development. The Helping Hospitals Improve Patient Care Act (H.R. 5273), legislation that has been passed in the House of Representatives and is pending in the Senate, addresses HOPDs that are under construction. This legislation includes an exception for mid-build HOPDs that have a binding written agreement for construction, entered into prior to November 2, 2015, with an outside unrelated party and that submit a provider-based attestation by December 31, 2016. Godfrey & Kahn will continue to monitor this legislation as it moves through the Senate. For more information on the mid-build topic, please see our prior guidance here.

  • CMS proposes that relocated off-campus HOPDs will not maintain grandfathered status. If an off-campus HOPD relocates, the HOPD and the items and services provided are no longer exempt and will no longer be reimbursed under the OPPS. CMS is soliciting comments on whether to develop “clearly defined, limited relocation exceptions” to this general rule related to disasters, extraordinary circumstances, or circumstances that are “completely beyond the control of the hospital.”

  • CMS proposes that any services not offered by a HOPD prior to November 2, 2015 will not be reimbursed under the OPPS. The Proposed Rule lists excepted services (e.g., “clinical families of services”), whereas Section 603 only states that a new department/facility can no longer qualify for provider-based status. CMS’s stance on this issue is contrary to prior CMS policy. CMS has previously guided that “provider-based rules do not apply to specific services; rather, these rules apply to facilities as a whole.” See 67 Fed. Reg. 50088 (August 1, 2002). 

  • Proposed CY 2017 Payment. CMS states that there is “no straightforward way” to implement by January 1, 2017 the payment changes under which a HOPD could bill and receive payment for furnishing non-excepted items and services—those services that do not meet the Proposed Rule’s exceptions to bill under the OPPS—under a payment system that is not the OPPS. For CY 2017, CMS proposes a one-year, temporary solution whereby the majority of non-excepted items and services are paid under the Medicare Physician Fee Schedule (MPFS). Alternatively, CMS proposes that a HOPD could enroll as a freestanding facility or supplier that is eligible for payment for the non-excepted items or services. CMS is seeking comments to assist in the development of “other payment systems” for CY 2018, including hospital cost reporting. Cost reporting for 2017 remains an open issue. CMS’s proposal for CY 2017 payment may cause payment delays for non-hospital facilities/suppliers (e.g., surgical centers).

  • 340B Drug Pricing Program. Section 603 and the Proposed Rule may impact a hospital’s ability to take advantage of 340B Drug Pricing Program (340B Program) moving forward and could also have significant implications for any future or under-development cancer treatment programs with drug purchasing to occur under the 340B Program. CMS did not mention the impact on 340B Program child site eligibility in the Proposed Rule. This issue will likely influence how and whether HHS Health Resources and Services Administration Office of Pharmacy Affairs adjusts its patient and child site eligibility criteria in the pending 340B Program Omnibus Guidance.

  • Mergers and acquisitions. The Proposed Rule appears to permit excepted locations to retain their excepted status following a change of ownership, but only if ownership of the main hospital entity is transferred as well and the Medicare provider agreement is accepted by the new owner. In other words, individual off-campus HOPDs cannot be transferred from one hospital to another and still maintain their grandfathered status.

Copyright © 2020 Godfrey & Kahn S.C.National Law Review, Volume VI, Number 208


About this Author

Wend Arends Government Attorney
Special Counsel

Wendy Arends is special counsel in the firm’s Madison office where she advises businesses, organizations and trade associations regarding their interactions with local, state and federal government. Her practice focuses on matters involving antitrust and consumer protection, health care, and international trade compliance. Prior to joining Godfrey & Kahn, Wendy practiced for more than four years at a large national law firm in Washington, D.C. where she worked on a variety of complex commercial litigation and regulatory matters.

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Thomas O'Day, Health Care Attorney, Godfrey & Kahn Law Firm
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Tom O’Day is a member of the Labor & Employment and Health Care Practice Groups in the Madison Office. Tom’s practice focuses on advising and representing employers in every aspect of labor and employment law, with a particular emphasis in employment law in health care settings.

Tom provides counseling to employers on the full range of human resource and employment law challenges confronted by employers, including the hiring and firing of employees, drafting and enforcing restrictive covenant agreements, litigating federal and state...

Thomas Shorter Healthcare Attorney Godfrey Kahn Law Firm

Thomas N. Shorter is a shareholder in the firm's Madison office and Chair of the Health Care Team. Tom represents hospitals, physicians' groups, research institutions and health care related organizations, as well as other businesses, providing counsel on health care, corporate, labor and employment and regulatory matters. For clients in the health care industry, Tom handles matters regarding Medicare compliance, Health Insurance Portability and Accountability Act (HIPAA), Emergency Medical Treatment and Labor Act (EMTALA), Physician Self-Referral (Stark), and Anti-Kickback. Additionally,...