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CMS Proposes to Limit Site Neutral Payment Exceptions Applicable to Certain Off-Campus Hospital Departments Following Relocation, Service Expansion, or Certain Ownership Changes

On July 6, 2016, CMS released the 2017 Outpatient Prospective Payment System (OPPS) Proposed Rule which, among other things, implements Section 603 of the Bipartisan Budget Act of 2015.  Despite extensive lobbying efforts by the hospital industry, CMS’ proposed rule would effectively preclude the relocation or the expansion of service lines of existing off-campus provider-based departments.  In reaching this position, CMS noted its belief that Section 603 was intended to “curb the practice of hospital acquisition of physician practices that then result in receiving additional Medicare payment for similar services.”

Background on Provider-Based Department Designations

Under the Medicare Program, hospitals that function as a single entity while owning and operating multiple departments are able to enroll those departments as locations of the hospital and bill for the services provided in those departments under the OPPS at facility rates, provided that those departments meet certain Medicare criteria set forth at 42 C.F.R. 413.65.  As part of the hospital, each of the provider-based departments are required to meet Medicare conditions of participation and conditions of payment applicable to hospitals. Currently, Medicare makes two payments for items and services furnished in a hospital outpatient department – one payment under the OPPS for the facility fee and one payment under the Medicare Physician Fee Schedule (“MPFS”) for the professional services. Together, these two payments are generally higher than the non-facility payment under the MPFS that Medicare would have paid had the same services been performed in a non-hospital setting.

Section 603 of the Bipartisan Budget Act of 2015 (“BBA”)

The BBA, enacted on November 2, 2015, amended section 1833(t) of the Social Security Act such that items and services furnished by certain off-campus hospital outpatient departments on and after January 1, 2017, will not be considered covered outpatient department services for purposes of payment under the OPPS and will instead be paid under an alternate payment system under Medicare Part B. The BBA exempts certain off-campus hospital outpatient departments such as emergency departments and those off-campus departments that were billing Medicare for covered services under the OPPS prior to November 2, 2015 and permits these departments to continue to bill and receive reimbursement under the OPPS after January 1, 2017.  With respect to these grandfathered off-campus departments, questions arose from the hospital community regarding whether grandfathered departments would be able to (1) relocate, (2) expand services, or (3) undergo a change of ownership, after November 1, 2015 without losing their excepted status.

The 2017 OPPS Proposed Rule

CMS addressed these questions regarding changes to grandfathered departments in the OPPS Proposed Rule and proposes the following:

(1) Relocation or Physical Expansion of Grandfathered Departments After November 1, 2015:

In order to remain excepted from the BBA’s site neutral payment policy, a grandfathered department must continue to furnish covered outpatient services at the same physical address that was listed on the main hospital’s Medicare enrollment file as of November 1, 2015.  In other words, a grandfathered department would lose its exempt status if it relocated and might lose its exempt status if it expanded its physical space after November 1, 2015. The “same physical address” includes unit or suite numbers within a building such that a relocation or expansion to a new suite within an existing building would have the effect of terminating the department’s exempt status.  (Expansions of space that do not result in a change in address may not imperil exempt status.)  CMS reached this determination because the BBA cited to the then-existing regulatory definition of a “department of a provider” (as defined at 42 C.F.R. 413.65(a)(2)) which comprises both the specific physical facility that serves as the site of services and the personnel and equipment needed to deliver the services at the facility. CMS is soliciting public comments on whether it should develop a limited exception process for grandfathered departments that must relocate for reasons beyond their control, such as to meet Federal or State requirements or due to a natural disaster.

(2) Expansion of Service Lines Provided by Grandfathered Departments After November 1, 2015:

Guided again by the regulatory definition of a department of a provider, CMS proposes that grandfathered departments may only continue to receive reimbursement under the OPPS for the provision of     services within the “clinical family of services” that were provided by the grandfathered department prior to November 2, 2015. CMS proposes to define “clinical family of services” by 19 categories of hospital outpatient department services, such as advanced imaging, diagnostic tests, and physician visits. To the extent that a grandfathered department expands its service lines into new clinical families of services after November 1, 2015, those new service lines would be reimbursed under an alternate payment system, such as the MPFS. CMS is soliciting public comment on the categories of clinical families, its decision not to limit the volume of services furnished within a clinical family, and whether CMS should adopt a timeframe for which billing for clinical family of services had to occur.

(3) Changes of Ownership After November 1, 2015:

CMS proposes that where the main hospital changes ownership, through merger or acquisition, and the new owner accepts the Medicare Provider Agreement of the prior hospital, the provider-based status of the existing hospital departments would likewise be transferred and any grandfathered departments would retain exempt status. If the new owner does not accept the prior hospital’s Provider Agreement and that Provider Agreement is terminated, all grandfathered departments and the excepted items and services furnished by such grandfathered departments would no longer be eligible for reimbursement under the OPPS.  In the event that a grandfathered department itself changes ownership, without the change of ownership of the main hospital in its entirety, the grandfathered department would also lose its exempt status.

In addition to these proposals, CMS is proposing that for calendar year 2017, the “applicable payment system” to be used in lieu of the OPPS in the majority of cases will be the MPFS. Practitioners furnishing services in non-exempt off-campus departments would be paid the professional fee for their services at the non-facility rates under the MPFS. Alternatively, the hospital has the option of enrolling the non-exempt off-campus department as the provider/supplier type for which it wishes to bill, such as a physician office or an independent diagnostic testing facility (IDTF). With respect to calendar year 2018, CMS is soliciting public comment on regulatory and operational changes that could be made to allow non-exempt departments to bill and be paid for non-covered services under an applicable payment system.

CMS expects that hospitals will maintain proper documentation of the service lines that were provided at each of its off-campus grandfathered departments prior to November 2, 2015 and to make this documentation available upon request. CMS is also soliciting public comment on whether hospitals should be required to affirmatively identify all excepted off-campus departments, the date that each excepted off-campus department began billing under the OPPS, and the clinical families of services that were provided by the excepted departments prior to November 2, 2015.

The American Hospital Association intends to submit detailed comments in response to the Proposed Rule, due September 6, 2016.

Additionally, recent draft legislation, the Helping Hospitals Improve Patient Care Act of 2016, seeks to further exempt certain facilities that were “mid-build” as of November 2, 2015, and may provide certain hospitals with limited relief.  The legislation passed through the House and is currently with the Senate Finance Committee. If passed, the legislation would create a mid-build exemption that would kick in on January 1, 2018 to allow facilities that met certain “mid-build” requirements to bill and receive payment under the OPPS. To meet the mid-build requirements, the main hospital must have entered into a written agreement with an “outside unrelated party for the actual construction” to build the off-campus provider-based department, prior to November 2, 2015.  To take advantage of this limited relief, the hospital would be required to submit to CMS: (1) a provider-based attestation not later than December 31, 2016; (2) updated Medicare provider enrollment information (855 location updates); and (3) prior to December 31, 2016, a written certification from the Chief Executive Officer or Chief Operating Officer that the facility meets the “mid-build” requirements.

Copyright © 2019, Sheppard Mullin Richter & Hampton LLP.

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About this Author

Kristi VanderLaan Kung, Sheppard Mullin, fraud abuse counseling lawyer, Anti-Kickback Statute attorney
Counsel

Kristi Kung is counsel in the Corporate Practice Group in the firm's Washington D.C. office.

Kristi Kung represents healthcare industry clients in a range of regulatory, compliance, and transactional healthcare matters including: fraud and abuse counseling (Anti-Kickback Statute, Stark Law, and False Claims Act issues), internal compliance investigations, responses to government anti-fraud enforcement actions and investigations, responses to reimbursement audits, Medicare/Medicaid enrollment and reimbursement issues, health information privacy...

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