On November 13, 2015, the Centers for Medicare & Medicaid Services (CMS) is publishing its final rule updating the Medicare Hospital Outpatient Prospective Payment System (OPPS) and the Ambulatory Surgical Center (ASC) Payment System rates and policies for calendar year (CY) 2016. CMS estimates that total federal expenditures under the OPPS will drop by $133 million in CY 2016 compared to CY 2015 due to the changes in the final rule, while overall ASC payments are expected to increase by approximately $128 million in 2016.

The OPPS update for 2016 is -0.3%, driven in large part by CMS’s correction of a $1 billion error it made when estimating “packaged payment” for clinical laboratory tests under a policy implemented in 2014. Specifically, the -0.3% update reflects a 2.4% market basket increase, which is partially offset by a -0.5% multifactor productivity (MFP) reduction and an additional 0.2% reduction (both mandated by the Affordable Care Act), further reduced by a 2.0 percentage points to recoup the prior $1 billion overestimation of laboratory test packaging.Hospitals that fail to meet the Hospital Outpatient Quality Reporting (OQR) Program reporting requirements are subject to an additional 2% reduction. The actual update for individual procedures can vary dramatically, however, based on reconfiguration of ambulatory payment classifications (APCs) and other policies in the rule.

Other highlights of the final rule include the following:

  • CMS adopted its proposal to restructure the following nine clinical APC families: Airway Endoscopy Procedures; Diagnostic Tests and Related Services; Excision/Biopsy and Incision and Drainage Procedures; Gastrointestinal Procedures; Imaging Services; Orthopedic Procedures; Skin Procedures; Urology and Related Services Procedures; and Vascular Procedures (Excluding Endovascular Procedures). The effect of the proposed restructuring generally is to consolidate/collapse the APCs into broader categories, in some cases resulting in dramatic payment swings, although CMS did adopt certain limited revisions to various new APCs in response to comments.
  • CMS is again expanding its ancillary packaging policy to consider APCs with geometric mean costs exceeding $100. CMS also will conditionally package Level 4 minor procedures, Level 3 and 4 pathology services, and certain additional drugs that CMS states function as supplies in a surgical procedure. In addition, CMS adopted modifications to its laboratory packaging policy.
  • CMS is adopting 10 new comprehensive APCs (C-APCs) to the current 25, including a C-APC for Comprehensive Observation Services. In response to comments, CMS will exclude claims reporting a surgical procedure from being bundled into the observation C-APC. While CMS had proposed establishing a new modifier to use in reporting all services related to a C-APC primary procedure that are reported on a separate claim, in the final rule CMS is limiting the use of this modifier to certain stereotactic radiosurgery services.
  • The threshold for separate payment for outpatient drugs in 2016 will be cost per day that exceeds $100 – up from $95 in 2015. The final rule clarifies that nonpass-through biosimilar biological products will be subject to the annual threshold-packaged policy. Also with regard to biosimilars, the final rule provides that OPPS payment for biosimilar biological products will be based on the payment allowance for the reference biological product. CMS is also extending pass-through payment eligibility to biosimilar biological products, but the final rule clarifies that pass-through payment will only be made to the first eligible biosimilar biological product to a reference product, since subsequent biosimilar biological products would not meet the newness criterion.
  • CMS adopted procedural changes to the pass-through device application process to enhance transparency and opportunities for stakeholder input. CMS also finalized a more specific newness standard for pass-through device applications. Beginning with applications received on or after January 1, 2016, a device will only be eligible for transitional pass-through payment if the date of original FDA approval or clearance (as applicable) or U.S. market availability (if there is a documented, verifiable delay in market availability) is within 3 years from the date of the application for transitional pass-through payment.
  • CMS is establishing a modifier to be used on claims for computed tomography (CT) services furnished using equipment that does not meet National Electrical Manufacturers Association (NEMA) dose standards, such as older, higher-dose scanners.  Claims that include the CT modifier will be subject to a payment reduction for the technical component of the CT service in accordance with the Protecting Access to Medicare Act of 2014 (PAMA) of 5% in 2016 and 15% in 2017 and thereafter.  In response to a comment, CMS clarified that the PAMA payment reduction will only be applied when the CT modifier is included on a claim for CT services identified by specific HCPCS codes.  CMS will not apply the payment reduction when the service described by an applicable CT scan code is packaged, since there is no payment amount associated with packaged CT scans.
  • CMS adopted changes to its “2-midnight” hospital admission policy as it applies to stays expected to last less than two midnights (CMS is not modifying its policy for stays over the 2-midnight benchmark). Under the final rule, CMS will allow Medicare Part A payment to be made on a case-by-case basis for inpatient admissions that do not satisfy the 2-midnight benchmark, if the documentation in the medical record supports the admitting physician’s determination that the patient requires inpatient hospital care (subject to medical review). CMS reiterated its expectation that it is “unlikely for a beneficiary to require inpatient hospital admission for a minor surgical procedure or other treatment in the hospital that is expected to keep him or her in the hospital for a period of time that is only for a few hours and does not span at least overnight.” CMS plans to prioritize such admissions for medical review. CMS has also modified its medical review strategy to have Beneficiary and Family Centered Care (BFCC) Quality Improvement Organization (QIO) contractors, rather than the Medicare Administrative Contractors (MACs) or Recovery Auditor Contractors (RACs), conduct initial medical line reviews of short inpatient stays. BFCC-QIOs may refer cases to RACs based on patterns of practices, such as high denial rates. For additional details, see a CMS fact sheet on the 2-midnight policy.
  • Among other policy changes, CMS also is: establishing additional new technology APCs; revising its procedure-to-device edit policy; removing nine procedures from the inpatient only listmodifying Partial Hospitalization Program per diem amounts for services provided in outpatient hospital departments and community mental health centers; and clarifying requirements for chronic care management services furnished in the hospital outpatient setting. CMS also is making a series of changes to the OQR Program to revise measures and administrative requirements, such as revisions to data submission and reconsideration timeframes.

With regard to ASCs, final 2016 ASC PPS update is 0.3%. This update reflects a CPI-U update of 0.8%, offset by a 0.5% multifactor productivity reduction. ASCs that do not meet quality reporting requirements are subject to a 2% payment reduction. CMS is adding 11 procedures to the ASC list of covered surgical procedures, and making various technical changes to the ASC quality reporting program.

The final rule and associated payment files are posted on the CMS website. CMS will accept comments on limited provisions of the rule until December 29, 2015.