On November 2, 2015, President Obama signed the Bipartisan Budget Act of 2015, a two-year budget deal with a key provision affecting hospitals and other health care providers. Effective January 1, 2017, the Act decreases the reimbursement paid to off-campus provider-based clinics, physician offices, and ambulatory surgical centers (generally, "hospital outpatient departments") established or acquired after November 2, 2015. After January 1, 2017, off-campus hospital outpatient departments will receive only the professional fee (under the Medicare Physician Fee Schedule (MPFS) or Ambulatory Surgical Center Payment System (ASC)) and will no longer receive an additional facility fee paid under the Medicare Hospital Outpatient Prospective Payment System (OPPS). This decrease in reimbursement does not apply to any off-campus hospital outpatient departments that existed and were billing as hospital outpatient departments for covered hospital outpatient department services on November 2, 2015 and such departments will continue to receive reimbursement under the OPPS.

What Hospital Outpatient Departments Are Affected?

The Act amends the definition of covered hospital outpatient department services to specifically exclude “items and services … that are furnished on or after January 1, 2017, by an off-campus outpatient department of a provider.”1 Under the Act, off-campus is defined as all locations except the hospital’s main buildings plus the area located within a 250-yard radius around the hospital’s main buildings. Therefore, this reduction in reimbursement applies to most off-campus hospital outpatient departments that satisfy the requirements of the Medicare provider-based regulations, such as provider-based clinics, physician offices and ambulatory surgical centers located within a 35-mile radius of the main hospital.The services affected are all “applicable items and services … other than emergency department services” identified by HCPCS codes 99281-99285, as amended from time to time.

What Hospital Outpatient Departments Are Not Affected?

The Act includes a grandfather clause that shields existing off-campus hospital outpatient departments from the reduction in reimbursement. The reduction does not apply to any off-campus hospital outpatient department that was billing as a hospital outpatient department for covered hospital outpatient department services furnished prior to the date of the enactment of the Act. Therefore, any off-campus hospital outpatient departments billing as such for covered hospital outpatient department services as of November 2, 2015 are not affected by the reduction. We note that the November 2, 2015 grandfather clause cut-off date is not consistent with the January 1, 2017 date that CMS will actually cease paying OPPS rates for new off-campus hospital outpatient departments. Absent contrary guidance from CMS, this means that a provider could theoretically begin operating and billing as a new off-campus hospital outpatient department after November 2, 2015 but only receive OPPS payment through December 31, 2016. After December 31, 2016, the new off-campus hospital outpatient department would then receive payment pursuant to the MPFS or the ASC payment systems. Although no reason has been stated for the discrepancy between the grandfather clause cut-off date and the date on which CMS will cease paying OPPS rates, it may be to allow entities that have recently signed agreements to create or acquire off-campus hospital outpatient departments but have not yet billed any qualifying services, and therefore are not protected by the grandfather clause, time to adjust their agreements to reflect the reduction in reimbursement.

The reduction in reimbursement also does not apply to on-campus outpatient departments of a provider. The Act considers the location comprised of the hospital’s main buildings plus the area located within a 250-yard radius around the hospital’s main buildings to be on-campus. Additionally, remotely located inpatient campuses of a multicampus hospital plus the surrounding 250-yard area are also considered on-campus.

Finally, the reduction in reimbursement does not apply to off-campus organizations, other than hospital outpatient departments, that are required to satisfy the provider-based regulations including satellite facilities and provider-based entities such as rural health clinics. Payments to these organizations, regardless of when they are established or acquired, will not be affected.

What do Hospitals and Health Care Providers Need to Know Going Forward?

The primary take-away from the Act is that going forward, hospitals and other health care providers seeking to establish new hospital outpatient departments in which services are provided in the hospital-based setting such that the hospital receives both a professional fee (under the MPFS or ASC) and a facility fee (under the OPPS), will need to locate such departments on the hospital campus within the meaning of the Act.