CMS Proposes to Reform Reimbursement for Off-Campus Provider Based Departments
On July 6, 2016, the Centers for Medicare & Medicaid Services (CMS) proposed new rules that implement recent legislation intended to address rising costs to Medicare and patients associated with the increased trend of hospital acquisition of physician practices. Specifically, along with the annual updates to the Outpatient Prospective Payment System (OPPS), CMS proposes to implement section 603 of the Bipartisan Budget Act of 2015 relating to payment for items and services furnished by certain off-campus hospital outpatient departments.1 The Proposed Rule will be published in the Federal Register on July 14, 2016.  Comments are due by September 6, 2016. 
Section 603 of the Bipartisan Budget Act of 2015 (Pub. L. 114-74) was enacted on November 2, 2015 (Enactment Date) and requires that applicable items and services furnished by certain "off-campus outpatient departments of a provider" on or after January 1, 2017 no longer be considered covered outpatient department services for purposes of payment under the OPPS. These services would be reimbursed under another payment system, such as the Medicare Physician Fee Schedule (MPFS), which generally has lower payment rates. CMS estimates that this law will reduce Medicare spending by US$500 million in 2017.
Since the Bipartisan Budget Act was passed, hospitals and other stakeholders have questioned whether the new law would apply to an off-campus provider-based department (PBD) that moved locations, expanded its facility, or changed the services it offers after the Enactment Date. CMS's proposals would answer these questions by narrowly defining the facilities and services that are excepted from the new policy.

Excepted Providers

CMS proposes that, generally, off-campus PBDs that were appropriately billing for services payable under the OPPS prior to the Enactment Date (i.e., off-campus PBDs that met all applicable requirements for provider-based status under 42 CFR § 413.65 prior to the Enactment Date) will continue to be paid for those services under the OPPS provided the off-campus PBD maintains its excepted status. Additionally, CMS specifically excludes from this proposed policy items and services furnished by dedicated emergency departments whether it is located on or off the main hospital campus.

CMS proposes that the excepted status of an off-campus PBD:

  • Would terminate with respect to all provided services if the excepted off-campus PBD relocates to a location that is different from the physical location it occupied on or prior to the Enactment Date;
  • Would not apply to additional or new spaces at the same physical address occupied by the off-campus PBD on or prior to the Enactment Date.2
  • Would terminate with respect to all provided services if the excepted off-campus PBD changes ownership independently of the main provider; and
  • Would be retained should the ownership of the main-provider and the excepted off-campus PBD both change and the single new owner accepts the existing Medicare provider agreement.

Excepted Services:

CMS also proposes to limit the items and services payable under the OPPS for excepted off-campus PBDs. CMS proposes that excepted items or services be determined on a PBD-by-PBD basis according to whether or not an item or service is in the same clinical family as items or services billed for by off-campus PBD prior to the Enactment Date. The 19 proposed clinical families are:

  • Advanced Imaging
  • Airway Endoscopy
  • Blood Product Exchange
  • Cardiac/Pulmonary Rehabilitation
  • Clinical Oncology
  • Diagnostic tests
  • Ear, Nose, Throat (ENT)
  • General Surgery
  • Gastrointestinal (GI)
  • Gynecology
  • Minor Imaging
  • Musculoskeletal Surgery
  • Nervous System Procedures
  • Ophthalmology
  • Pathology
  • Radiation Oncology
  • Urology
  • Vascular/Endovascular/Cardiovascular

Any services that are not part of the same clinical family as services that were furnished and billed by the PBD prior to the Enactment Date would be reimbursed under the MPFS.

Payment to Physicians and Practitioners, not Hospitals, Until January 1, 2018:

CMS believes that it currently does not have a mechanism to allow off-campus PBDs to be paid directly under the MPFS, but it plans to adapt its systems to permit these payments by January 1, 2018. In the meantime, the Proposed Rule would require these locations to enroll in Medicare as another supplier type, such as a group practice, in order to be paid for non-excepted services in 2017. As a temporary measure, CMS will make payment for these services, effective January 1, 2017, to the physician or practitioner who performs the service at non-facility rates under the MPFS.


CMS solicits comments on potential changes to enrollment forms, claim forms, the hospital cost report, and other operational issues that need to be addressed to allow the PBDs to be paid under the MPFS. CMS also solicits comments on the impact of other billing and claims submission rules, the fraud and abuse laws, and other statutory and regulatory provisions on the proposal to make payment to physicians and practitioners in 2017.

Unanswered Questions about 340B Implications

Stakeholders also have questioned whether the Bipartisan Budget Act would affect the ability of off-campus PBDs to participate in the 340B Drug Pricing Program. The 340B Program requires participating manufacturers to provide covered outpatient drugs to certain safety net providers (referred to as covered entities), including certain hospital types, at a statutorily defined ceiling price. 340B Program guidance provides that an offsite outpatient facility may participate in the program only if it is included in the most recently filed Medicare cost report of a hospital covered entity. The Medicare cost report instructions in the Provider Reimbursement Manual allow a department's costs for outpatient services to be included in the hospital's cost report only if they are reimbursed under the OPPS. Thus, it is not clear whether a PBD that is no longer reimbursed under the OPPS for some or all of its services would be included in the hospital’s cost report, which would affect the PBD’s eligibility to participate in the 340B Program.

CMS does not clearly respond to these questions in the Proposed Rule, although the agency does say that the PBD would continue to be considered part of the hospital. CMS solicits comments on how costs for non-excepted services should appear on the cost report.


As of January 1, 2017:

  • Reimbursement to off-campus PBDs first billing Medicare after the Enactment Date will generally decrease as payment for items and services under the OPPS will be discontinued and instead will be made to physicians and practitioners under the MPFS at non-facility rates;
  • CMS will need to develop a new mechanism for off-campus PBDs to bill and receive payment directly for non-excepted services under the MPFS.
  • The ability of excepted off-campus PBDs to relocate, change ownership, or expand services will be constrained by the potential loss of excepted status – with respect to either all or some items and services – and thus loss of continued payment under the OPPS; and
  • Excepted off-campus PBDs providing both excepted and non-excepted items and services will be required to submit claims under multiple payment systems to receive full reimbursement.
  • It is not clear whether off-campus PBDs that are no longer reimbursed under the OPPS would be included in the hospital’s cost report, which would affect the PBD’s eligibility to participate in the 340B Program.

If you have any questions about the Proposed Rule or would like assistance in commenting on it, please contact one of the Hogan Lovells lawyers listed in the “Contacts” section.

1. Medicare Program: Hospital Outpatient Prospective Payment and Ambulatory Surgical Center Payment Systems and Quality Reporting Programs; Organ Procurement Organization Reporting and Communication; Transplant Outcome Measures and Documentation Requirements; Electronic Health Record (EHR) Incentive Programs; Payment to Certain Off-Campus Outpatient Departments of a Provider; Hospital Value-Based Purchasing (VBP) Program.
2. CMS proposes that the physical address include a unit number and that expansion to new units within the same building would terminate excepted status.