On July 8, 2015, the Centers for Medicare & Medicaid Services (CMS) published its proposed rule to update the Medicare Hospital Outpatient Prospective Payment System (OPPS) and the Ambulatory Surgical Center (ASC) Payment System rates and policies for calendar year (CY) 2016.  Perhaps most notably, CMS is proposing a -0.1% OPPS update for 2016, driven mainly by a proposed correction of a $1 billion error the agency made when estimating the extent to which clinical laboratory tests would be packaged (rather than paid separately) under a new policy implemented in 2014. Specifically, the proposed -0.1% update reflects a 2.7% market basket increase, which is partially offset by a -0.6% multifactor productivity (MFP) adjustment and an additional 0.2% reduction (both mandated by the Affordable Care Act), further reduced by a -2.0 percentage point adjustment to recoup the prior $1 billion overestimation of laboratory test packaging. CMS expects that overall OPPS payments under the proposed rule would fall by 0.2%, or $43 million, compared to 2015 levels. Hospitals that fail to meet the Hospital Outpatient Quality Reporting (OQR) Program reporting requirements are subject to an additional reduction of 2.0 percentage points. The actual update for individual procedures can vary dramatically, however, based on changes in relative weights and other policies in the proposed rule.

Other highlights of the proposed rule include the following:

  • CMS again proposes to expand its ancillary packaging policy to consider APCs with geometric mean costs exceeding $100. Additional ancillary services proposed for packaging for 2016 include: Level 4 minor procedures, Level 3 and 4 pathology services, and certain additional drugs that CMS states function as supplies in a surgical procedure.   CMS also proposes modifications to its laboratory packaging policy.
  • CMS is proposing 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.
  • Under the proposed rule, the threshold for separate payment for outpatient drugs in 2016 would be a cost per day that exceeds $100, up $5 from 2015.
  • The proposed rule would revise OQR measures and make certain administrative changes, such as revisions to data submission and reconsideration timeframes.
  • CMS proposes procedural changes to the pass-through device application process to enhance transparency and opportunities for stakeholder input, along with a more specific newness standard for pass-through device applications.
  • The proposed rule would add nine new comprehensive APCs (C-APCs) to the current 25, including a C-APC for Comprehensive Observation Services. CMS also is proposing a new modifier to use in reporting all services related to a C-APC primary procedure that are reported on a separate claim.
  • CMS would establish a modifier required to be used on claims that describes computed tomography (CT) services furnished using equipment that does not meet the dose standards of the National Electrical Manufacturers Association (NEMA) standards. Use of this proposed modifier would result in the applicable payment reduction for the technical component of the CT service in accordance with the Protecting Access to Medicare Act of 2014 (PAMA), with payments reduced to 95% of the Medicare payment level in 2016 and 85% in 2017 and thereafter.
  • CMS also proposes updating OQR program measures; establishing a new set of new technology APC; revising the procedure-to-device edit policy; removing seven procedures from the inpatient only list; and modifying Partial Hospitalization Program (PHP) per diem amounts for services provided in outpatient hospital departments and community mental health centers.
  • CMS proposes modifications of its “2-midnight” hospital admission policy as it applies to stays expected to last less than 2 midnights. Specifically, CMS is proposing to modify its “rare and unusual” exceptions policy to allow for Medicare Part A payment 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 despite an expected length of stay that is less than 2 midnights. CMS also announced that that no later than October 1, 2015, it is changing its medical review strategy to have Quality Improvement Organization (QIO) contractors conduct first-line reviews of short inpatient stays rather than the Medicare administrative contractors (MACs). Recovery auditor patient status reviews will be conducted by the recovery auditors for those hospitals that have consistently high denial rates based on QIO patient status review outcomes.
  • For CY 2016, CMS proposes an ASC prospective payment system update of 1.1%, reflecting a 1.7% inflation update, offset by a 0.6% MFP adjustment. ASCs that do not meet quality reporting requirements are subject to a 2% payment reduction.  CMS proposes adding 11 procedures to the ASC list of covered surgical procedures and refining the ASC quality reporting program. 

The proposed rule is available at , and associated payment files are posted athttp://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HospitalOutpatientPPS/Hospital-Outpatient-Regulations-and-Notices-Items/CMS-1633-P.html?DLPage=1&DLEntries=10&DLSort=2&DLSortDir=descending.  CMS will accept comments on the proposed rule until August 31, 2015.