The Proposed Medicare OPPS Payment Rule: CMS Gets Tough on Site Neutral Payment

August 03, 2018

Topping the list of significant policy changes are efforts by the Centers for Medicare & Medicaid Services (CMS) to expand site neutral reductions in payment for outpatient clinic visits and to reduce payment for 340B drugs furnished by certain off-campus provider-based departments. 

CMS has released its annual proposed policy and payment update under the Hospital Outpatient Prospective Payment System (OPPS). Consistent with the steady stream of payment rules released by CMS over the past 90 days, this latest proposed rule reflects many of the agency’s priorities including lowering drug costs, reducing beneficiary out-of-pocket costs, addressing the opioid crisis, and lessening the regulatory burden on healthcare providers. And in keeping with the other proposed payment regulations, requests for information on a host of issues including interoperability and price transparency concerns also figure prominently. Most notable, however, are the proposed policy changes aimed at reducing the payment differential between sites of service in the proposed rule.

Comments are due by Sept. 24, 2018.

Site Neutral Payment Policy Changes

Payment for Hospital Outpatient Clinic Visits

To the extent that similar services can be safely provided in more than one setting, it is not prudent for the Medicare program to pay more for these services in one setting than another.

As an effective means for controlling “unnecessary volume increases,” CMS proposes to eliminate the payment differential for hospital outpatient clinic visits furnished in off-campus provider based departments (PBDs) excepted under Section 603 of the Balanced Budget Act of 2015 and non-excepted off-campus PBDs. To that end, clinic visit services using HCPCS code G0463 would be paid at the physician fee schedule rate for all off-campus PBDs effective January 1, 2019, lowering copayments for beneficiaries.

The agency is also soliciting comments on expanding this policy to additional items and services “that may represent unnecessary increases in hospital outpatient department utilization.”

Payment for Excepted Items and Services

 … we continue to be concerned that if excepted off-campus PBDs are allowed to furnish new types of services that were not provided at the excepted off-campus PBDs prior to the date of enactment of the Bipartisan Budget Act of 2015 and can be paid OPPS rates for these new types of services, hospitals may be able to purchase additional physician practices and add those physicians to existing excepted off-campus PBDs.

CMS seeks to limit service line expansion for excepted off-campus PBDs using 19 clinical families identified in Table 32 of the proposed rule. As a result, services furnished by an excepted off-campus PBD from any clinical family of services (Table 32) from which it did not furnish an item or service and subsequently bill for during a baseline period of Nov. 1, 2014, through Nov. 1, 2015, would be paid the reduced physician fee schedule amount. If an excepted off-campus PBD furnishes a new item or service from a clinical family of services listed in Table 32 from which the off-campus PBD furnished a service from November 1, 2014, through November 1, 2015, the service would continue to be paid under the OPPS. For providers that met the “mid-build” requirement, CMS proposes establishing a one-year baseline period that begins on the first date the off-campus PBDs furnished a service billed under the OPPS.

Payment for 340B Drugs

We agree with commenters that the difference in the payment amounts for 340B acquired drugs furnished by hospital outpatient departments--excepted off-campus PBDs versus nonexcepted off-campus PBDs--creates an incentive for hospitals to move drug administration services for 340B-acquired drugs to nonexcepted off-campus PBDs to receive a higher payment amount for these drugs, thereby undermining our goals of reducing beneficiary cost-sharing for these drugs and biologicals ….

The proposed rule would pay 340B-acquired drugs furnished by nonexcepted, off-campus PBDs under a formula determined by the average sales price (ASP) minus 22.5% for CY 2019. OPPS-exempt cancer hospitals, children’s hospitals, and rural sole community hospitals would be exempt from this policy change.

Off-campus Provider-Based Emergency Departments

We agree with MedPAC’s recommendation and believe we need to develop data to assess the extent to which OPPS services are shifting to off-campus provider-based emergency departments. Therefore, we are announcing in this proposed rule that we are implementing through the subregulatory HCPCS modifier process a new modifier for this purpose effective beginning January 1, 2019.

CMS proposes creating a HCPCS modifier (ER—Items and services furnished by a provider-based off-campus emergency department) that would be reported with every claim line for outpatient hospital services furnished in an off-campus provider-based emergency department. Critical access hospitals would not be required to report this modifier under the proposed rule.

Operating Payment Update

For hospitals that successfully meet the hospital outpatient quality reporting (OQR) requirements, CMS proposes to increase payment rates by 1.25% for CY 2019. This update is based on a proposed hospital market basket increase of 2.8% minus a productivity adjustment of 0.8 percentage points and a statutory reduction of 0.75 percentage points. However, when compared to FY 2018, overall payment for hospital outpatient departments will result in a net decrease of 1.2% when the proposed site neutral policy changes are factored in because they would not be budget neutral.

Hospital Outpatient Quality Reporting Program

CMS has identified 10 measures as being “topped out” and appropriate for removal from the OQR beginning with the CY 2020 and CY 2021 payment determination periods. The proposal to remove these measures is consistent with the agency’s Meaningful Measures Initiative, which also heavily influenced CMS’s proposed rule for inpatient hospital payment earlier in the Spring. A Fact Sheet published by CMS details the eliminated measures and the rationale behind their removal.

Removing Pain Management Questions from the Patient Experience Survey

Responding to stakeholder concerns that hospital staff may feel pressured to prescribe opioids, CMS proposes to remove the “Communication About Pain” questions from the Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) Survey effective with January 2022 discharges for the FY 2024 payment determination.

In its final report, the President’s Commission on Combating Drug Addiction and the Opioid Crisis recommended removal of the HCAHPS pain management questions under the Hospital Inpatient Quality Reporting (IQR) Program to ensure providers are not incentivized to offer opioids in order to raise their HCAHPS Survey score.

Drug Payment Policy

Nonpass-through biosimilars acquired under the 340B program would be paid at ASP minus 22.5% of the biosimilar’s own ASP rather than ASP minus 22.5% of the reference product’s ASP.

CMS proposes to pay separately payable drugs and biological products that do not have pass-through payment status and are not acquired under the 340B Program at wholesale acquisition cost (WAC) plus 3% instead of WAC plus 6% if ASP data are not available.

If WAC data are not available for a drug or biological product, CMS proposes to pay separately payable drugs and biological products at 95% of the average wholesale price (AWP) consistent with current policy.

Drugs and biologicals acquired under the 340B Program would continue to be paid at ASP minus 22.5%, WAC minus 22.5%, or 69.46% of AWP, as applicable.

CMS is seeking feedback through a Request for Information on leveraging the agency’s authority under the competitive acquisition program (CAP) to test whether allowing private sector vendors to administer payment arrangements for separately payable Part B drugs and biologicals “would improve beneficiary access and quality of care while reducing Medicare expenditures.” It is anticipated that the proposal, which is intended to build on the President’s Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs, would create incentives for lower list prices and lower out-of-pocket costs and accelerate the move to a value-based healthcare system, according to CMS.

New Technology APC Payment

In an effort to promote payment rate “predictability” for low-volume new technology procedures, CMS proposes to apply a “smoothing methodology” based on multiple years of claim data. To that end, the agency would use up to four years of data to calculate the geometric mean, the median, and the arithmetic mean costs for services assigned to new technology ambulatory payment classifications (APCs) with fewer than 100 claims per year under the OPPS.

Comprehensive Ambulatory Payment Classifications

For CY 2019, the proposed rule would create three new comprehensive APCs (C-APCs) for ears, nose, and throat (ENT) and vascular procedures – bringing the total number of C-APCs to 65.

Inpatient Only List

The following procedures would be removed from the inpatient only (IPO) list for CY 2019:

  • CPT code 31241 - Nasal/sinus endoscopy, surgical; with ligation of sphenopalatine artery
  • CPT code 01402 - Anesthesia for open or surgical arthroscopic procedures on knee joint; total knee arthroplasty

CMS would also add one procedure to the IPO list described by HCPCS code C9606 (Percutaneous transluminal revascularization of acute total/subtotal occlusion during acute myocardial infarction, coronary artery or coronary artery bypass graft, any combination of drug-eluting intracoronary stent, atherectomy and angioplasty, including aspiration thrombectomy when performed, single vessel).

Promoting Interoperability

CMS includes a Request for Information on solutions for achieving interoperability in the proposed rule. Specifically, the agency seeks feedback on revising the Conditions of Participation to promote electronic data sharing.

Price Transparency

Consistent with the proposed physician fee schedule rule for CY 2019, CMS invites comments via a Request for Information on potential actions appropriate for helping patients understand their potential financial liability for medical services and to compare charges for similar services across providers and suppliers and in different medical settings.


If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:

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Washington, DC
Kathleen McDermott
Scott Memmott
Albert Shay
Howard Young
Jacob Harper

San Francisco
Reece Hirsch