On July 1, 2015, the Centers for Medicare and Medicaid Services (CMS) released the calendar year (CY) 2016 outpatient prospective payment system (OPPS)/ambulatory surgical center (ASC) payment system proposed rule that updates payment policies and rates for hospital outpatient departments and ASCs. The proposed rule also includes certain proposals relating to the hospital inpatient prospective payment system (IPPS), including changes to the two-midnight rule.

Comments on the proposed rule are due by August 31, 2015, and a final rule is expected in November 2015. If adopted, the changes will take effect January 1, 2016.

Highlights of the proposed rule are noted below.

Key Changes Impacting Inpatient Stays

“Case-by-Case” Exception to the Two-Midnight Rule

CMS proposes to revise its two-midnight policy regarding when hospital stays are appropriate for payment under Medicare Part A.

CMS established its two-midnight policy in the fiscal year (FY) 2014 IPPS final rule. The two-midnight rule provides that a hospital inpatient admission generally is considered reasonable and necessary if a physician or other qualified practitioner orders such admission based on the expectation that the beneficiary’s length of stay will exceed two midnights or if the beneficiary requires an inpatient-only procedure. Hospital stays expected to span less than two midnights presumptively are considered outpatient cases and, therefore, not appropriate for Part A payment.

The proposed rule does not change the two-midnight policy for hospital stays that are expected to cross two midnights or longer. For stays expected to last less than two midnights, CMS acknowledged stakeholder concerns that the two-midnight rule removes physician judgment from the decision to admit a patient for inpatient hospital services. Although CMS will continue to adhere to the two-midnight benchmark, the proposed rule would allow Part A payment on a “case-by-case basis” under the existing “rare and unusual” exceptions policy for inpatient admissions that do not satisfy the two-midnight benchmark provided that documentation in the beneficiary’s medical record supports the admitting physician’s determination that the patient requires inpatient hospital care despite an expected length of stay that is less than two midnights. CMS further reiterated that inpatient admissions for minor surgical procedures or other treatments expected to require hospitalization for only a few hours would be considered “rare and unusual.” According to CMS, these rare and unusual cases will be a priority for medical review organizations.

CMS considers the following factors to be relevant in determining whether a patient stay that is expected to be less than two midnights is nonetheless appropriate for Part A payment:

  • The severity of the signs and symptoms the patient exhibits;
  • The medical predictability of something adverse happening to the patient; and
  • The need for diagnostic studies that are appropriately outpatient services (the performance of which ordinarily would not require the patient to remain in the hospital for 24 hours).

QIO Review of Inpatient Stays

CMS also announced that by October 1, 2015, Quality Improvement Organizations (QIOs) will take over first-line medical reviews of short inpatient stays from Medicare Administrative Contractors in order to foster a more collaborative approach to education and enforcement. The QIOs are expected to better educate hospitals and physicians about claims denied under the two-midnight rule. This change will take effect regardless of whether the other proposed changes to the two-midnight rule are finalized. Hospitals that are found to consistently have high denial rates will be referred to the appropriate recovery audit contractor for further payment audits.

Key Changes Impacting OPPS/ASC Payments

The proposed rule also includes payment rate adjustments, new requirements for computed tomography (CT) payment, and changes in quality measurement and reporting for the OPPS. In addition, CMS adopted policy changes consistent with its stated goal to make OPPS payments for all services paid under the OPPS more consistent with those of a prospective payment system and less like a fee-for-service payment system.

Restructuring and Consolidation of APCs

In the CY 2014 OPPS/ASC final rule, CMS finalized a comprehensive payment policy that packages payment for adjunctive and secondary items, services, and procedures, and beginning in CY 2015, establishes 25 comprehensive ambulatory payment classifications (C-APCs). This results in a single prospective payment for each of the primary comprehensive services based on the costs of all reported services at the claim level. For CY 2016, CMS proposed nine new C-APCs to be paid under the existing C-APC payment policy: ENT procedures, intraocular procedures, gynecology procedures,

laparoscopy (2), musculoskeletal procedures, urological procedures and related services, ancillary outpatient services when a patient expires, and comprehensive observation services.

CMS also proposes to restructure existing APCs in nine clinical families:

  • Diagnostic tests and related services
  • Endoscopy procedures
  • Gastrointestinal procedures
  • Imaging services
  • Incision and drainage and excision/biopsy procedures
  • Orthopedic procedures
  • Skin-related procedures
  • Urology and related procedures
  • Vascular procedures

Expansion of Ancillary Services Packaging

In the CY 2015 OPPS/ASC final rule, CMS conditionally packaged payment for ancillary services assigned to APCs with a geometric mean cost of less than or equal to $100. In the proposed rule, CMS reiterated that conditional packaging may be appropriate for more costly ancillary services given the context in which the service is performed. Thus, for CY 2016, CMS proposes to expand the set of conditionally packaged ancillary services to include services in three APCs – Level 4 Minor Procedures, Level 3 Pathology, and Level 4 Pathology – each of which has a geometric mean cost of more than $100. However, to avoid packaging certain high-cost pathology services with lower-cost and non-primary services such as low-cost imaging services, the Level 3 and Level 4 pathology services will be packaged only when they are billed with a surgical service.

Packaging of Clinical Diagnostic Laboratory Tests

Under CMS’s current policy, certain clinical diagnostic tests are packaged in the OPPS payment system as “integral, ancillary, supportive, dependent, or adjunctive” to the primary service or services provided in the hospital outpatient setting on the same date of service as the laboratory test. Under the proposed rule, CMS plans to expand this policy and consider laboratory tests provided during the same outpatient stay (rather than specifically provided on the same date of service as the primary service) as “integral, ancillary, supportive, dependent, or adjunctive” to a primary service or services, except when a laboratory test is ordered for a different purpose and by a different practitioner than the practitioner who ordered the other OPPS service(s).