CMS Forges Ahead with Price Transparency, Major Payment Reductions in Proposed OPPS Rule

August 13, 2019

The Centers for Medicare and Medicaid Services’ proposed outpatient prospective payment system rule contains a number of significant changes and proposals impacting hospital operations and payments in calendar year 2020, including a sweeping new price transparency program and consequential payment reductions for 340B drugs and evaluation and management services in grandfathered off-campus provider-based departments.

The Centers for Medicare and Medicaid Services (CMS) has proposed a rule regarding changes to the outpatient prospective payment system (OPPS) and ambulatory surgical center payment systems, among other changes, for calendar year (CY) 2020 (Proposed Rule). The Proposed Rule is filled with significant proposals impacting hospital operations and payments, and in some instances forges ahead without waiting for additional congressional or judicial direction. Perhaps most dramatic among the list of changes is the agency’s push toward a broad and inclusive pricing transparency program that may affect the negotiating of future managed care contracts. CMS also moves forward with major payment reductions for 340B drugs and evaluation and management (EM) services in grandfathered off-campus provider-based departments—both the subjects of pending litigation in US District Court of the District of Columbia.

The Proposed Rule is not without suggestions for greater flexibility, including permission for general rather than direct supervision for therapy in outpatient hospital settings. We provide a summary of several of the Proposed Rule’s key elements below. Hospitals should carefully evaluate the sweeping changes set forth in the proposal, and consider submitting comments to ensure their voices are heard as the agency contemplates turning these recommendations into rules. Comments are due September 27, 2019.

Price Transparency

For the last year, hospitals have been required to post on the internet a list of their standard charges under CMS rules. In frequently asked questions published in connection with last year’s final IPPS rule mandating such posting, CMS described the requirement as applying to “standard charges as reflected in its chargemaster.” The Proposed Rule offers a substantial widening of this obligation for hospitals.

On June 24, US President Donald Trump signed an executive order directing HHS to propose rules requiring hospitals to publish standard charge information on the internet, “including charges and information based on negotiated rates and for common or shoppable items and services.” The Proposed Rule intends to build on these actions by adopting a new Part 180 to 42 CFR requiring hospitals to make public “standard charge” data for a limited set of “shoppable services” in a “consumer-friendly” manner and form. These rates would be included in the list of standard charges for all items and services that hospitals are currently required to post online. In addition, hospitals would be required to publish the negotiated rates for 300 "shoppable" services (including 70 defined by CMS and 230 hospital-selected services) in a consumer-accessible and searchable manner.

Certain Definitions and Requirements

Standard Charges

CMS proposes to define “standard charges” to mean gross charges and payer-specific negotiated charges:

We believe the proposal to define standard charges as gross charges and payer-specific negotiated charges reflects the fact that a hospital’s standard charge for an item or service is not typically a single fixed amount, but, rather, depends on factors such as who is being charged for the item or service, and particular circumstances that apply to an identifiable group of people, including, for example, health care consumers that are insured members of third party insurance products and plans that have negotiated a rate on its members’ behalf.

The Proposed Rule defines a “gross charge” as the charge for an individual item or service that is reflected on a hospital’s chargemaster, absent any discounts (i.e., consistent with the previously published requirement), and adds to the definition “payer-specific negotiated charge” as the charge that the hospital has negotiated with a third-party payer for an item or service. The term “third party” would exclude self-paying patients. CMS knew that this substantial change to a hospital’s obligations for providing pricing information would raise concerns, and has invited feedback from the industry relating to the “unintended consequences” associated with posting “payer-specific negotiated charges.”


CMS is also seeking public comment on its proposal defining “hospital” for purposes of new Part 180 as follows:

[A]n institution in any State in which State or applicable local law provides for the licensing of hospitals, (1) is licensed as a hospital pursuant to such law or (2) is approved, by the agency of such State or locality responsible for licensing hospitals, as meeting the standards established for such licensing.

As such, the term “hospital” would include “each institution that satisfies this definition, regardless of whether that institution is enrolled in Medicare or, if enrolled, regardless of how Medicare designates the institution for its purposes,” according to CMS. Hospitals located in rural areas, critical access hospitals (CAHs), or hospitals that are not federally owned or operated but that treat special populations (such as children’s hospitals and state psychiatric hospitals) would fall within the proposed definition.

Exemptions would include federally owned or operated hospitals (e.g., Indian Health Service facilities, VA facilities, and military treatment facilities) because “these hospitals do not treat the general public, their rates are not subject to negotiation, and the cost sharing obligations for hospital provided services are known to their patients in advance.” Similarly, ambulatory surgery centers (ASCs) or “other non-hospital sites-of-care from which consumers may seek health care items and services” are also exempt.

Hospital Items and Services

Hospital “items and services” would be defined as all items and services provided by a hospital to a patient in connection with an inpatient admission or outpatient department visit for which the hospital has established a charge. Examples of “items and services” include supplies, procedures, room and board, use of the facility and other items (generally described as facilities fees), services of employed practitioners (generally described as professional charges), and any other items or services for which the hospital has established a charge, according to CMS.

Shoppable Service

A “shoppable service” would be defined as “a service package that can be scheduled by a health care consumer in advance.” CMS described the term further in the proposal:

Shoppable services are typically those that are routinely provided in non-urgent situations that do not require immediate action or attention to the patient, thus allowing patients to price shop and schedule a service at a time that is convenient for them.

The agency proposes that standard charges for shoppable services be displayed along with charges for “ancillary items and services” the hospital customarily provides as part of, or in addition to, the primary shoppable service. Such items may include laboratory, radiology, drugs, delivery room, and operating room (including postanesthesia and postoperative recovery rooms) fees; therapy services; hospital fees; room and board charges; charges for employed professional services; and other special items and services for which charges are customarily made in addition to a routine service charge.

Requirements for Making Standard Charge Data for Shoppable Services Public

The Proposed Rule details hospital requirements for making “consumer-friendly charge information” available to the public online. Such information must be displayed “in such a way that the payer-specific negotiated charge and associated data elements can be located and accessed easily by consumers.” To that end, the agency directs that hospitals “make public a list of payer-specific negotiated charges” for at least 300 shoppable services, including 230 hospital-selected shoppable services and 70 CMS-selected shoppable services. Hospitals would be required to include charges for services in conjunction with the primary service that is identified by a common billing code (e.g., Current Procedural Terminology (CPT), Healthcare Common Procedure Coding System (HCPCS), Diagnosis-Related Group (DRG)).

The 70 CMS-selected shoppable services are found in Table 37 of the Proposed Rule, categorized as follows: EM services, laboratory and pathology services, radiology services, and medicine and surgery services. Under CMS’s proposal, if a hospital does not provide one or more of the 70 CMS-selected shoppable services, it must select additional shoppable services such that the total number of shoppable services is at least 300. As for the 230 hospital-selected shoppable services, CMS proposes that hospitals select these services based on the utilization or billing rate of the services in the last year.

Hospitals would also be required to update the standard charge information at least annually with the date of the last update clearly indicated.

Monitoring and Enforcement of Price Transparency

CMS proposes to rely predominantly on complaints made to the agency by individuals or entities with respect to identifying instances of noncompliance and material violations of one of more requirements. Under the Proposed Rule, CMS would have the authority to impose a civil monetary penalty after giving warning notice to a noncompliant hospital, or subsequent to a request for a corrective action plan. If the hospital fails to respond to the agency’s request for a corrective action plan, or fails to comply with its requirements, CMS may impose a civil monetary penalty on the hospital not in excess of $300 per day, and publicize these penalties on its website. CMS also proposes to establish an appeals process for a hospital to request a hearing before an administrative law judge should it be subject to the new enforcement rules.

Altogether, the Proposed Rule represents a dramatic expansion of the agency’s prior interpretation of the statutory authority under Section 1001 of the Patient Protection and Affordable Care Act (Pub. L. 111-148), as amended by Section 10101 of the Health Care and Education Reconciliation Act of 2010 (Pub. L. 111-152), that requires hospitals to make public their “standard charges.” It also reflects that “standard” can have two meanings, not just one, which, in our view, violates the plain meaning of the term “standard” and renders the entire proposal susceptible to challenge. CMS’s authority to levy civil monetary penalties is also questionable. Hospitals seeking to keep information that they reasonably deem confidential to remain that way will have a number of avenues to protect that information.

Operating Payment Update

For hospitals that successfully meet the hospital outpatient quality reporting requirements, CMS proposes to update the OPPS payment rates by 2.7% in CY 2020, reflecting a 1.45% increase over CY 2019. The FY 2020 update is based on the projected hospital market basket increase of 3.2% minus a productivity adjustment of 0.5 percentage points, according to CMS. The agency also proposes to update the CY 2020 ASC payment rate by 2.7%, a 0.6% increase over CY 2019.

Changes to Area Wage Index

CMS proposes to apply the fiscal year (FY) 2020 hospital Inpatient Prospective Payment System (IPPS) wage index to OPPS. Thus, any adjustments for the FY 2020 IPPS post-reclassified wage index for rural and urban areas would be reflected in the final CY 2020 OPPS wage index beginning January 1, 2020. CMS increased the wage index for IPPS hospitals with a wage index value (WIV) below the 25th percentile by half the difference between the otherwise applicable WIV for that hospital, and the 25th percentile WIV across all hospitals. This policy would begin in FY 2020 and be effective for at least four years. The urban to rural hospital reclassifications were also removed from the rural floor WIV calculation beginning in FY 2020. And to help mitigate any significant decreases in the WIVs of hospitals for FY 2020, CMS will impose a 5% cap on any decrease in a hospital’s wage index from its final wage index for FY 2019.

Site Neutrality Payment Reduction

Despite ongoing litigation challenging its statutory authority to do so, CMS proposes to move ahead with a two-year phase-in of the site-neutral payment rate finalized in CY 2019 for hospital outpatient clinic visits furnished in off-campus provider-based departments (PBDs), which were excepted from Congress’s mandate under the Bipartisan Budget Act of 2015 that new off-campus PBDs be paid on methodology other than OPPS. While Congress specifically excepted existing off-campus outpatient departments (OPDs) when it passed the law, CMS determined in last year’s OPPS rule that it would phase in a payment adjustment to these excepted OPDs that would equalize their reimbursement with nonexcepted PBDs for certain EM services. As a result, outpatient clinic visits would be paid at the physician fee schedule rate (i.e., 40% of the OPPS rate) in CY 2020. The proposed change would result in $810 million in reduced payments to hospitals under the Medicare program in 2020, and an average savings of $14 in cost sharing per clinic visit for beneficiaries, according to CMS.

The Proposed Rule for 2020 reflects the administration’s continued impatience with Congress relating to the agency’s desired site-neutrality policy for off-campus PBDs. The policy’s contrast with the law passed by Congress (which clearly delineated different treatment) provided hospitals with a solid legal basis to challenge last year’s final rule adopting phase one of the payment reduction in federal court. This year’s Proposed Rule suffers from the same legal frailties.

Drug Payment Policy

Medicare Part B reimbursement cuts for separately payable drugs and biologicals acquired under the 340B program would continue under the proposed OPPS rule. CMS proposes to pay an adjusted amount of the average sales price (ASP) minus 22.5% in CY 2020. Acknowledging the ongoing controversy and litigation with respect to the 340B payment adjustment, CMS has requested comment on alternative payment options for CY 2020 and potential remedies for CY 2018 and CY 2019 payments “in the event of an adverse ruling by the US Court of Appeals.” To that end, the agency is soliciting public comment “on the appropriate OPPS payment rate for 340B acquired drugs, including whether a rate of ASP+3 percent could be an appropriate remedial payment amount for these drugs, both for CY 2020 and for the purpose of determining the remedy for CYs 2018 and 2019.”

While the DC District Court ruled that CMS’s 2019 final rule regarding its “adjustment” to Part B payments for 340B drugs was unlawful, it did not enjoin the agency at the time of the decision. Instead, the court sought guidance from the parties on the appropriate remedy for the agency’s improper payment reductions. The Proposed Rule represents an opportunity for affected providers to comment on what may potentially serve as a resolution to the litigation, should CMS’s appeal to the circuit court be unsuccessful.

Quality Reporting Programs

To increase program alignment with respect to the Hospital Outpatient Quality Reporting (OQR) and Ambulatory Surgical Center Quality Reporting (ASCQR) programs, CMS is soliciting comments on utilizing a single set of patient safety measures for both programs.

Under the Hospital OQR Program, CMS proposes to remove one web-based measure for CY 2022 (External Beam Radiotherapy for Bone Metastases, OP-33). According to CMS, the costs and complexity associated with reporting the measure, which apparently imposed a substantial burden on hospitals, outweighs its continued use in the program. The agency is also soliciting public input on integrating four safety measures previously adopted for the ASCQR Program into the Hospital OQR Program in a future rulemaking: ASC 1-4 (including ASC-1: Patient Fall; ASC-2: Patient Burn; ASC-3: Wrong Site, Wrong Side, Wrong Procedure, Wrong Implant; and ASC-4: All-Cause Hospital Transfers/Admissions).

Finally, the agency proposes to adopt one claims-based measure, ASC-19: Facility-Level 7-Day Hospital Visits After General Surgery Procedures Performed at Ambulatory Surgical Centers (NQF #3357), beginning with the CY 2024 payment determination.

Inpatient-Only List Modifications

In the continued trend toward greater outpatient medical capacity, CMS proposes to remove total hip arthroplasty from the inpatient-only list, making it eligible to be paid by Medicare on an outpatient basis. This will likely promote competition from ASCs with hospitals on a procedure whose profitability may offset losses on other less profitable procedures.

ASC Covered Procedures List (CPL)

Likewise, the Proposed Rule would add total knee arthroplasty (TKA), knee mosiacplasty, and six coronary intervention procedures to the list of covered surgical procedures eligible for Medicare payment when furnished in an ASC. CMS is soliciting comments on providing safeguards for beneficiaries who should not receive the TKA procedure in an ASC setting. The agency is also soliciting comments on redesigning the CPL “to improve physician[s’] ability to determine the setting of care as appropriate for a given beneficiary situation.”

Prior Authorization Requirements

To ensure the medical necessity of services that are generally considered cosmetic, CMS proposes implementing a prior authorization requirement for blepharoplasty, botulinum toxin injections, panniculectomy, rhinoplasty, and vein ablation.

Device Pass-Through Payments

The Proposed Rule would establish an alternative pathway to qualifying for device pass-through payment status under OPPS. Specifically, transformative devices meeting the FDA’s breakthrough device designation that have received FDA marketing authorization will not be evaluated for “substantial clinical improvement” when determining device pass-through payment status. This is similar to a proposal made in the IPPS rule, where CMS solicited public comment on how to revise “substantial clinical improvement” criterion for the device pass-through payment.

Supervision of Outpatient Therapeutic Services

In a policy change from prior years, CMS proposes to lower the minimum required level of supervision from direct supervision to general supervision for hospital outpatient therapeutic services provided by all hospitals and CAHs.

Our experience indicates that Medicare providers will provide a similar quality of hospital outpatient therapeutic services, regardless of whether the minimum level of supervision required under the Medicare program is direct or general.

Noting that the enforcement instructions and legislative actions in place since 2010 “have created a two-tiered system of physician supervision requirements for hospital outpatient therapeutic services for providers in the Medicare program,” CMS says it “has come to believe” that the direct supervisions requirement “places an additional burden on providers.” Further, the agency maintains that it has not learned of “any data or information from CAHs and small rural hospitals indicating that the quality of outpatient therapeutic services has been affected by requiring only general supervision for these services.” CMS is seeking comment on whether specific types of services, “such as chemotherapy administration or radiation therapy,” should be accepted from this proposal. While this is a welcome development, hospitals should still concentrate on making sure they will have the requisite documentation supporting general supervision, as general supervision is still not the same as “no” supervision.

Children’s Hospitals Within Hospitals

Stating that it believes “there is no Medicare payment policy rationale” for prohibiting grandfathered children’s hospitals within hospitals (HwHs) from increasing their bed counts, CMS is proposing to allow a grandfathered children’s HwH to increase its number of beds without the loss of its grandfathered status. To that end, the agency is seeking public comment on whether this proposal “could create unintended or inadvertent consequences.”

Two Midnight Rule: Medical Review Policies

CMS proposes to establish a one-year exemption from site-of-service claim denials and certain medical review activities for procedures that are removed from the inpatient only (IPO) procedure list under OPPS in CY 2020 and subsequent years. Specifically, the agency proposes that such procedures would not be eligible for referral to recovery audit contractors (RACs) for noncompliance with the two-midnight rule within the first calendar year of their removal from the IPO list. During the one-year period, Beneficiary and Family-Centered Care Quality Improvement Organizations (BFCC-QIOs) may review such claims in order to educate practitioners and providers on compliance with the two-midnight rule, but claims identified as noncompliant would not be denied with respect to the site of service under Medicare Part A.

Laboratory Date of Service

CMS is seeking comment on potential revisions to the laboratory date-of-service (DOS) policy with respect to (1) determining when a molecular pathology test is a hospital service; (2) limiting the laboratory DOS exception to tests designated by CMS as an advanced diagnostic laboratory test (ADLT); and/or (3) excluding blood banks and blood centers from the laboratory DOS exception.


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

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

Greg Etzel
Scott McBride

San Francisco
Reece Hirsch 

Mark Stein