'Unexpectedly Restrictive' Medicare Outpatient Pay Changes Proposed

July 18, 2016

Rich Daly, HFMA Senior Writer/Editor


July 7—Rebuilt or relocated off-campus outpatient facilities would no longer qualify for hospital-level payment from Medicare, under payment changes proposed this week.

The outpatient department payment changes were among a range of payment tweaks included in the Outpatient Prospective Payment System (OPPS) proposed rule issued this week by the Centers for Medicare & Medicaid Services (CMS).

The rule aimed to interpret provisions of the Bipartisan Budget Act of 2015, which required Medicare to reduce hospital outpatient rates to physician fee schedule rates at off-campus hospital outpatient departments (HOPDs) that became active after Nov. 2, 2015.

Without the restriction on OPPS payments to relocated HOPDs, CMS stated in the rule, hospitals could relocate HOPDs “to larger facilities, purchase additional physician practices, move these practices into the larger relocated facilities, and receive OPPS payment for services furnished by these physicians.” Such strategies would be counter to the law’s intent, CMS officials wrote in the rule.

CMS may develop a limited exception process for relocations stemming from natural disasters or other emergencies.

Although the Budget Act did not address specifically which rates would apply to off-campus HOPDs already under construction, CMS decided those facilities would qualify only for the lower physician rates.

“This was an unexpectedly restrictive interpretation of the statute,” said Chad Mulvany, director of healthcare finance policy, strategy and development, for HFMA. “For organizations that were mid-build, this is going to have a significantly negative financial impact.”

A House-passed bill, The Helping Hospitals Improve Patient Care Act, would amend the required switch to physician office rates for remote outpatient departments that are newly acquired or built by hospitals. The bill would change the start of the required rate switch from November 2015 to 60 days after the measure is enacted. The Senate has yet to take up the bill.

However, the bill would not address CMS’s decision to reduce rates for facilities that are moved—such as in the case of facilities in aging building—or when services (e.g., imaging services) are added to existing HOPD facilities.

Expanding the types of services paid at OPPS rates at existing remote HOPDs would allow hospitals “to purchase additional physician practices and add those physicians to existing excepted off-campus PBDs [provider-based departments],” CMS officials wrote in the rule.

Adding services to existing HOPD facilities was common in recent years as hospitals sought to move more services to outpatient facilities, according to hospital finance experts.

The approach CMS used to implement the remote-HOPD payment provisions of the 2015 law was informed by—among other sources—a 2014 Medicare Payment Advisory Commission (MedPAC) report. MedPAC concluded that the payment difference between HOPDs and practices created a financial incentive for hospitals to purchase freestanding physician offices and convert them to HOPDs without changing their location or patient mix.

However, the CMS rule was seen as going beyond the MedPAC recommendations, which were limited to specific services offered at HOPDs.

Unintended consequences of the CMS interpretation could include removing the incentive to shift to population-based payment models as a means of reducing utilization in costlier inpatient settings, according to some. For instance, some of the accountable care organizations in a collaborative operated by Premier have sought savings by shifting more patients from inpatient to outpatient settings.

“At the micro level it may cost more to use an off-campus [HOPD] compared to a physician office, but when you look at it from a macro level, using them may help you reduce your overall spending if you’re avoiding the hospitalizations and readmissions,” Danielle Lloyd, a vice president for Premier, said in an interview. “CMS is essentially removing an important tool from their toolbox.”

Another impact of the payment policy change, according to some hospital finance experts, would be to further restrict access to the 340B program’s drug discounts for hospitals because those are unavailable only for drugs prescribed in specific types of hospitals and select outpatient clinics.

CMS wrote in the rule that it would use a “transitional” system for 2017 until it could figure out a way to apply the physician payment system to off-campus HOPDs that became active after Nov. 2, 2015. That transitional system also has drawn concerns because of the potential for unforeseen impacts.

The HOPD payment changes required by the law are estimated to save Medicare $9.3 billion over 10 years, according to the Congressional Budget Office.

Major Provisions

Other major provisions in the OPPS rule included a 1.55 percent increase in the payment rate for the CY17 outpatient department fee schedule—or $671 million more for providers when patient cost-sharing is included.

Among a range of changes to the electronic health record (EHR) meaningful use program, the rule would allow hospitals and clinicians to use a 90-day EHR reporting period in 2016 instead of the current requirement for full-calendar-year reporting.

“This recognizes the significant time required to upgrade software which accommodates new program requirements,” Blair Childs, senior vice president of public affairs for Premier, said in a written statement. “We also appreciate that CMS has heard our concerns and proposed to lower the threshold for several performance measures, recognizing that the bar is simply too high.”

Another provision would remove the pain management provision of the HCAH PS survey from use in the value-based purchasing program, starting in FY18. Some provider advocates had raised concerns that the provision may have encouraged physicians to over-prescribe opioids in borderline cases.

“The pursuit of high patient-satisfaction scores can create incentives for medical providers to honor patient requests for unnecessary and even harmful treatments,” Jay Kaplan, MD, president of the American College of Emergency Physicians (ACEP), said in a release. The OPPS provision “will align federal policies to be consistent with current efforts to reduce opioid use.”

Knee Replacement Payment Proposal

The proposed rule also caused waves when it solicited comments on the removal of knee replacement surgery from the list of inpatient-only procedures, which must be performed on an inpatient basis to be paid for by Medicare. Moving all but the most complicated knee-replacement procedures to HOPD settings would leave DRG payments for several years far short of the cost of providing knee replacements in the remaining complex cases, according to hospital finance experts.

Knee replacements are a large revenue stream for hospitals and would be the highest-revenue procedure removed from the inpatient-only list since it was launched in 2000, according to healthcare finance observers. It is unclear how the removal would affect various joint replacement bundled payment initiatives.

CMS previously proposed moving the procedure to the outpatient setting in 2012 but backed off amid widespread safety concerns.

CMS will accept comments on the proposed rule until Sept. 6.

Rich Daly is a senior writer/editor in HFMA’s Washington, D.C. office. Follow Rich on Twitter: @rdalyhealthcare

Publication Date: Thursday, July 07, 2016

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