Off-campus provider-based departments (PBDs) of hospitals face changes in reimbursement beginning Jan. 1, 2017, the effective date of the Centers for Medicare & Medicaid Services (CMS) outpatient prospective payment system (OPPS) final rule.

Pursuant to congressional mandate and the 2017 OPPS rule, only excepted off-campus PBDs — which include those operating and billing as off-campus PBDs before Nov. 2, 2015 — will continue to be paid under the hospital outpatient prospective payment system. Non-excepted facilities must receive payment under another system, such as the Medicare physician fee schedule (MPFS), as discussed in further detail in Item 1 below. Compared with the proposed version of the rule, the 2017 OPPS rule loosens the grip on off-campus provider-based billing in some ways but restricts it in others.

To assist providers in navigating these provisions and changes, this legal alert details seven key elements that providers should be aware of regarding off-campus PBDs and OPPS compliance.

1. Section 603 of the Bipartisan Budget Act Restricted New Off-Campus PBDs

The 2017 OPPS rule implements Section 603 of the Bipartisan Budget Act of 2015, which stated that off-campus PBDs first billing Medicare after Nov. 2, 2015, were no longer eligible to be paid under the OPPS. CMS noted that this change was guided by Congress’s desire to curb the incentive for hospitals to acquire physician practices and receive enhanced reimbursement under the OPPS (i.e., taking advantage of differential payment systems to receive more for the same service at the same site merely due to ownership). Specifically, the Bipartisan Budget Act requires non-excepted off-campus PBDs to receive payment under another system, such as the ambulatory surgery center payment system or the MPFS. In most cases, this reduces reimbursement and moves toward some policymaker’s site-neutral payment goal.

Despite requests from parts of the healthcare industry to postpone Section 603’s adoption, CMS implemented it with the 2017 OPPS rule, retaining many of the proposed rule’s controversial aspects but clarifying some key elements. The 2017 OPPS rule explains that Section 603 does not apply to on-campus PBDs, dedicated emergency departments (as defined at 42 C.F.R. § 489.24(b)), remote locations of a hospital (i.e., those located within 250 yards of the hospital’s main buildings), or off-campus PBDs that were billing and operating as outpatient departments prior to Nov. 2, 2015. Further, the 2017 OPPS rule sets forth new rates for non-excepted items and services under the MPFS, which Item 3 discusses in greater detail. CMS estimates that implementing Section 603 will reduce Medicare Part B expenditures by approximately $50 million in 2017.

2. The 21st Century Cures Act

On Dec. 13, 2016, President Obama signed the 21st Century Cures Act into law, which revises Section 603 of the Bipartisan Budget Act. Section 16001 of the Cures Act establishes two exceptions to the payment policy as if enacted under Section 603 of the Bipartisan Budget Act.

The first exception involves off-campus PBDs that: (1) were under development but not billing as provider-based for services as of Nov. 2, 2015; and (2) submitted a voluntary provider-based attestation to CMS before Dec. 2, 2015. If the above requirements are met, this category of off-campus PBDs will be temporarily grandfathered and join other excepted facilities to continue OPPS payments through CY 2017.

The second exception involves off-campus PBDs that were “mid-build” prior to Nov. 2, 2015. “Mid-build” means that the provider entered into a binding written agreement with an unrelated third party for the actual construction of an off-campus PBD. Beginning Jan. 1, 2018, these off-campus PBDs may bill for services under the OPPS if they: (1) submit a certification to CMS from their chief executive officer or chief operating officer by Feb. 13, 2017, certifying that the off-campus PBD meets the definition of “mid-build”; (2) submit an attestation to CMS by Feb. 13, 2017, stating that the off-campus PBD meets the requirements of being provider-based; and (3) add the new off-campus PBD to the hospital’s Medicare enrollment form.

In sum, the first exception is narrower, will likely affect only a short list of hospitals, and extends only through CY 2017 (at least for now). The second exception offers broader relief to “mid-build” off-campus PBDs if the above-mentioned requirements are met, but it will not apply until Jan. 1, 2018. Lastly, Section 16002 of the Cures Act added an exemption for certain cancer hospitals as long as said cancer hospital submits an attestation to CMS within 60 days of the latter of either February 13, 2017, or the date the cancer hospital meets the provider-based requirements.

3. New Interim Rule for 2017: Payment Rates for Non-Excepted Items and Services

Under the 2017 OPPS rule, CMS stated that the MPFS will be the ‘“applicable payment system’ for the majority of nonexcepted items and services furnished by nonexcepted Off-Campus PBDs”; however, the 2017 OPPS rule departs from CMS’s original proposal.

CMS proposed to pay for the majority of items and services furnished by non-excepted off-campus PBDs under the MPFS at the already-established non-facility rate. This would have required hospitals and physicians to split such fees. However, in response to public comment, CMS recognized that establishing the MPFS without implementing new simultaneous billing mechanisms could result in significant negative consequences under existing laws (e.g., physician self-referral and anti-kickback). Further, CMS wants to account for institutional providers not currently receiving MPFS payments. Therefore, CMS developed new site-of-service specific payment rates under the MPFS for non-excepted items and services in CY 2017.

Absent limited exceptions, CMS will pay these hospitals under the MPFS at a rate that is approximately 50 percent of the OPPS rate for the same code. CMS estimates this approach will be budget-neutral when adding this payment and the physician’s professional service reimbursement, compared with the non-facility MPFS rate, based on a review of the top 25 codes where 55 percent of OPPS is paid. CMS is aware that this arrangement could be an overestimate and prove problematic. Consequently, CMS established this interim rule with regard to payment rates and requested comment. CMS may continue to make changes throughout CY 2017, planning to replace it by 2019.

4. New Claim Line Modifier for Non-Excepted Items and Services

In 2016, use of the “PO” modifier became mandatory for services furnished on or after Jan. 1, 2016, for all off-campus PBDs, with the exception of remote locations, satellite facilities and emergency departments. The 2017 OPPS rule sets forth another new claim line modifier, PN, that must be billed for non-excepted items or services furnished at excepted off-campus PBDs on or after Jan. 1, 2017. The new PN modifier triggers payment under the newly adopted site-of-service-specific MPFS rates discussed in Item 3 above. There are no billing changes for excepted items and services provided at off-campus PBDs because said items and services remain covered outpatient department services paid under OPPS.

5. Ability to Offer New Services at Excepted Off-Campus PBDs

CMS backed away from its proposal to limit excepted off-campus PBDs’ ability to expand their range of services beyond the same “clinical families” of services already offered. CMS agreed this would be operationally difficult. Consequently, under the 2017 OPPS rule, excepted off-campus PBDs will not be limited in their ability to expand services in 2017, and they will retain the ability to receive OPPS payments for new services. Nevertheless, CMS did not back off its position that it maintains authority to limit service expansion, stating that it will continue to monitor off-campus PBDs’ billed services to ensure compliance with the Bipartisan Budget Act and dissuade hospitals from purchasing physician practices and locating them at excepted off-campus PBDs merely to receive higher reimbursement. CMS may revisit this in the future if service expansion continues unabated.

6. Excepted Off-Campus PBDs and Relocation

Perhaps one of the more contentious elements addressed in the 2017 OPPS rule is the limitation on relocation. CMS stood its ground by adopting its initial proposal to terminate off-campus PBDs’ excepted status if they relocate. Thus, if an off-campus PBD moves from its existing physical address, which includes changes in suites within the same building, it will no longer maintain excepted status. After an excepted off-campus PBD relocates, it can no longer bill OPPS and must receive payment under another system (absent narrowly defined “extraordinary circumstances,” such as natural disasters, significant seismic building code requirements, or significant public health and safety issues). The applicable CMS regional office will decide these relocation exceptions on a case-by-case basis, but CMS has explicitly stated that these exceptions will be “both limited and rare.” CMS intends to offer additional subregulatory technical guidance on these appeals and exceptions in the future.

7. Excepted Off-Campus PBDs and Changes in Ownership

CMS adopted its initial proposal that permits excepted off-campus PBDs undergoing a change in ownership to retain their excepted status and continue OPPS payments as long as two requirements are met: (1) the same entity acquires the entire hospital, including the off-campus PBD; and (2) the new owner accepts assignment of the hospital’s Medicare provider agreement. Consequently, under the 2017 OPPS rule, an excepted off-campus PBD cannot be transferred from one hospital to another and maintain excepted status. Further, CMS stated that if an operator combined two certified entities under one provider number, the off-campus PBDs of the non-retained hospital would lose excepted status.

The 2017 OPPS rule sets forth multiple changes and revisions to provider-based billing that will affect providers throughout the next several years, including those who may have otherwise sold their practice to a hospital. Although this alert details seven key policies, the 2017 OPPS rule has additional provisions that should be reviewed to ensure compliance. Hospitals should closely examine existing off-campus PBDs to determine what, if any, locations are affected by the 2017 OPPS rule. Lastly, CMS has expressly noted that it may provide further guidance and revisions to the policies it finalized in the 2017 OPPS rule; thus, providers should monitor CMS’s position throughout the coming year.

Please consult with one of the authors to discuss compliance with the 2017 OPPS rule and its provisions.

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