On November 27, 2013, CMS released the Hospital Outpatient Prospective Payment and Ambulatory Surgical Center Payment Systems final rule with comment period for calendar year 2014 (the “Final Rule”).  Significantly, CMS finalized its proposal to establish comprehensive APCs for high-cost device-dependent services, but has delayed implementation of this provision until CY 2015.  CMS also finalized proposals to increase packaging of drugs and ancillary services and to eliminate the 5 coding levels for outpatient clinic visits.  A parallel proposal to create a single visit level code for Type A and Type B ED visits was not finalized. 

Most provisions of the Final Rule are effective on January 1, 2014, with limited exceptions that go into effect on January 26, 2014 (e.g., certain provisions pertaining to appeals under the VBP program, organ procurement organizations, QIOs, and the EHR incentive program).  CMS is accepting comments until January 27, 2014 on the payment classifications assigned to HCPCS codes identified with the “NI” comment indicator in Addenda B, AA, and BB of the Final Rule, available on the CMS website by clicking here and here.

Payment Rates Under the Hospital Outpatient Prospective Payment System (OPPS) and the Ambulatory Surgical Center (ASC) Payment System

CMS will increase OPPS payment rates for CY 2014 by an increase factor of 1.7 percent, down from 1.8 percent in the Proposed Rule (78 Fed. Reg. 43534 (July 19, 2013)).  This increase factor represents the final 2.5 percent market basket percentage increase for inpatient services paid under the hospital inpatient prospective payment system (IPPS), minus the multifactor productivity adjustment of 0.5 percentage points (up from 0.4 in the Proposed Rule), and minus a 0.3 percentage point adjustment required by the Affordable Care Act.  CMS estimates that total payments under the OPPS for CY 2014 will be approximately $50.4 billion (including beneficiary cost-sharing), an increase of approximately 9.5 percent or $4.372 billion compared to CY 2013 payments, or $600 million excluding estimated changes in enrollment, utilization, and case-mix.  CMS estimates that most classes of hospitals will receive an increase that is in line with the 1.7 percent overall increase after all budget neutrality adjustments are applied, though some will receive smaller but still generally positive overall increases.

ASC payment rates will increase by 1.2 percent (up from 0.9 percent in the Proposed Rule), based on a projected CPI-U update of 1.7 percent (up from 1.4 in the Proposed Rule) minus a multifactor productivity adjustment required by the Affordable Care Act that is projected to be 0.5 percent.  CMS estimates that total payments to ASCs for CY 2014 will be approximately $3.992 billion, an increase of approximately 5.3 percent or $143 million (up from $133 million in the Proposed Rule) compared to estimated CY 2013 payments.

Establishment of “Comprehensive APCs” Effective for CY 2015

CMS has finalized its proposal to establish 29 new comprehensive APCs to replace the 29 existing device-dependent APCs for the most costly device-dependent services, where the cost of the device is large compared to the other costs involved in furnishing the service, but CMS is delaying implementation of this policy until CY 2015 in order to give hospitals time to prepare for a comprehensive payment structure and allow more time for CMS to operationalize changes needed to process comprehensive payments.  Beginning in CY 2015, the comprehensive APCs will bundle payment for all individually reported codes that represent the provision of the primary service and all adjunctive services that are integral to or support the delivery of the primary service.  CMS will make a single payment for the comprehensive service based on all charges on the claim, excluding only charges for services that cannot be covered by Medicare Part B or that are not payable under the OPPS.  CMS has modified its proposal to make larger payments for certain complex and costly multiple device procedures, and is inviting comment on this section of the Final Rule.  (A detailed discussion of CMS’s proposed methodology for identifying complex cases with higher resource utilization and reassigning claims to higher-level APCs begins on page 199 of the advance print of the Final Rule.  The final policy is summarized beginning on page 207.)  The implementation of comprehensive APCs is expected to reduce beneficiary co-payments.

Changes to Packaged Items and Services

For CY 2014, CMS has finalized five new categories of ancillary or supportive “dependent” items and services for which payment will be packaged into payment for the primary diagnostic or therapeutic service:

  1. Drugs, biologicals, and radiopharmaceuticals that function as supplies when used in a diagnostic test or procedure, except when pass-through status applies (including, e.g., stress agents, contrast agents, and Cysview);
  2. Drugs and biologicals that function as supplies when used in a surgical procedure, unless pass-through status applies (including skin substitutes, which CMS has categorized into high-cost and low-cost groups in this Final Rule);
  3. Clinical diagnostic laboratory tests provided on the same date of service as the primary service and ordered by the same practitioner who ordered the primary service (excluding molecular pathology lab tests);
  4. Procedures described by add-on codes (with the exception of add-on codes for drug administration services and, for CY 2014, add-on codes assigned to device-dependent APCs); and
  5. Device removal procedures that are billed with other surgical procedures involving device repair or replacement.

CMS did not finalize its proposals to package ancillary services with status indicator “X” (except that CPT code 93017 will be conditionally packaged) or diagnostic tests on the bypass list.  CMS expects packaging laboratory services to “modestly reduce[] payment to rural and major teaching hospitals, as they will no longer receive separate payment for common laboratory tests.”

CMS did not finalize its proposals to package ancillary services with status indicator “X” (except that CPT code 93017 will be conditionally packaged) or diagnostic tests on the bypass list.  CMS expects packaging laboratory services to “modestly reduce[] payment to rural and major teaching hospitals, as they will no longer receive separate payment for common laboratory tests.”

Single Payment Level for Hospital Outpatient Clinic Visits

CMS has finalized its proposal to eliminate the existing 5 levels of visit codes for hospital outpatient clinic visits and replace them with a single, new alphanumeric Level II HCPCS code representing a single level of payment for clinic visits.  A new HCPCS G-code (G0463) will replace HCPCS codes 99201 – 99205 and 99211 – 99215 for all clinic visits for all patients, whether new or established.  The new code will be assigned to a newly created APC (0634) with payment rates for CY 2014 based upon the total mean costs of Level 1 through Level 5 clinic visit codes obtained from CY 2012 OPPS claims data.    Existing critical care services codes 99291 and 99292 are not affected.  CMS believes this change reduces hospitals’ administrative burden by eliminating the need for hospitals to develop and apply their own internal visit level guidelines and by eliminating the need to distinguish between new and established patients.

CMS did not finalize its proposal to replace the current 5 levels of visit codes for Type A and Type B ED visits with new alphanumeric Level II HCPCS codes.  In response to commenters concerns that a single payment level for all ED visits might underrepresent resources required to treat trauma patients, CMS stated that it has decided to delay any change in ED visit coding in order to enable full consideration of the effects that the proposed ED visits policy might have on payments for the most complex patients.

Outlier Payments

For CY 2014, CMS finalized a policy that hospital outlier payments will be triggered when the cost of furnishing a service or procedure by a hospital exceeds both the multiple threshold of 1.75 times the APC payment amount and the $2,900 fixed-dollar threshold over the APC payment rate (up from $2,700 in the Proposed Rule and up from $2,025 in CY 2013).  According to CMS, as a result of the updated OPPS packaging policies finalized in this Final Rule, the CY 2014 fixed-dollar threshold must account for “significant changes to both the APC payment and estimated cost portions of the OPPS outlier payment comparison.”  Under the Final Rule, outlier payments will continue to be equal to 50 percent of the amount by which the cost of furnishing the service exceeds 1.75 times the APC payment amount, when both the multiple threshold and the fixed-dollar threshold are met.  CMS estimates that outlier payments for CY 2014 would equal 1.0 percent of total OPPS payments, and CMS plans to consider whether this 1.0 percent OPPS outlier spending target remains appropriate.  CMS currently estimates that aggregate outlier payments for CY 2012 will be approximately 1.2 percent of total aggregated OPPS payments for CY 2012, and aggregate outlier payments for CY 2013 will be approximately 1.1 percent of the total CY 2013 OPPS payments.

Changes to the Hospital Outpatient Quality Reporting (OQR) and Ambulatory Surgical Center Quality Reporting (ASCQR) Programs

Hospitals and ASCs that fail to meet Hospital OQR Program and ASCQR Program reporting requirements will receive a 2.0 percentage point reduction to their OPPS and ASC payment system reimbursements for the applicable payment year.

CMS finalized its proposal to remove 2 measures from the Hospital OQR Program for the CY 2015 payment determination and subsequent years.  (The Proposed Rule had mistakenly indicated that the measures would be removed for the CY 2016 payment determination and subsequent years.)  Transition Record with Specified Elements Received by Discharged ED Patients (OP-19) was removed because CMS determined that it cannot be implemented with the requisite degree of specificity without being overly burdensome.  Cardiac Rehabilitation Measure: Patient Referral from an Outpatient Setting (OP-24) was removed due to continued difficulty applying the measure to the outpatient setting without creating undue burden on providers.  (These two measures are included among the 25 measures that have been previously adopted and retained for the CY 2014 and CY 2015 payment determinations.)

CMS has adopted 4 new measures for the CY 2016 payment determination and subsequent years, for which data collection will begin in CY 2014:

  • Influenza Vaccination Coverage among Healthcare Personnel (OP-27) (NQF #0431); Endoscopy/Polyp Surveillance: Appropriate Follow-up Interval for Normal Colonoscopy in Average Risk Patients (OP-29) (NQF #0658);
  • Endoscopy/Polyp Surveillance: Colonoscopy Interval for Patients with a History of Adenomatous Polyps – Avoidance of Inappropriate Use (OP-30) (NQF #0659); and
  • Cataracts: Improvement in Patient’s Visional Function within 90 Days Following Cataract Surgery (OP-31) (NQF #1536).

The last three measures are chart-abstracted measures that were adopted in order to encourage coordination of care across health care settings, providers, and suppliers.  CMS did not finalize its proposal to adopt another chart-abstracted measure, Complications within 30 Days Following Cataract Surgery Requiring Additional Surgical Procedures (OP-28) (NQF #0564), due to its conclusion that, in this instance, the burden of data collection for chart abstraction outweighs the benefit of measuring care coordination.  CMS is considering future measures for the Hospital OQR Program within the following measure domains: clinical quality of care; care coordination; patient safety; patient and caregiver experience of care; population/community health; and efficiency.

The first new measure listed above is a healthcare-associated infection measure for which data must be submitted annually through the website for the Centers for Disease Control and Prevention via the National Healthcare Safety Network.  The other three measures require hospitals to submit data annually through a CMS web-based tool via the QualityNet website.  Only aggregate-level data must be reported; not patient-level data.  CMS has finalized an exemption for providers that perform 20 or fewer relevant procedures per measure in any year, excluding them from having to submit any data on measures OP-29, OP-30, and OP-31.

The last three measures adopted under the Hospital OQR Program, listed above, were also adopted under the ASCQR program for the CY 2016 payment determination and subsequent years.  CMS plans to develop future quality measures under the ASCQR Program in the following areas: clinical quality of care, patient safety, care coordination, patient experience of care, surgical outcomes, surgical complications, complications of anesthesia, and patient reported outcomes of care.

Value-Based Purchasing (VBP) Program

CMS finalized its proposal to create an additional “independent review” process for hospitals that have completed the appeal process under 42 C.F.R. § 412.167(b) to challenge CMS’s determination of their VBP scores, but are dissatisfied with the result.  Section 412.167(b) enumerates the specific appealable elements of the VBP program, which are generally limited to technical errors, such as the failure to weight or sum the domains properly.  Many areas of appeal are expressly foreclosed by statute.  Under the independent review process adopted in this Final Rule, hospitals that have exhausted the appeal process under 412.167(b) may request an additional, independent review by CMS.  CMS will provide its independent review decision within 90 days of receiving a hospital’s proper request.  The new policy is codified at § 412.167(c).

CMS finalized its proposal to adopt CY 2014 as the performance period for the new VBP measures CLABSI, CAUTI, and SSI measures for the FY 2016 Hospital VBP Program, with CY 2012 as the baseline period.

Physician Supervision in CAHs and Small Rural Hospitals

Under a notice of nonenforcement in effect through the end of CY 2013, CAHs and small rural hospitals having 100 or fewer beds are, in effect, currently exempt from the requirement that all hospital outpatient therapeutic services must be furnished under direct supervision by a physician.  CMS has finalized its proposal to allow this period of nonenforcement to expire at the end of CY 2013.  Beginning January 1, 2014, all outpatient therapeutic services furnished in hospitals and CAHs require a minimum of direct supervision unless the service is on the list of services that may be furnished under general supervision or is designated as a nonsurgical extended duration therapeutic service.

Clarification Regarding General Supervision for Observation Services

CMS has finalized its proposed clarification that once the supervising physician or appropriate nonphysician practitioner has determined that a beneficiary may be transitioned to general supervision, there is no Medicare requirement for multiple evaluations of the beneficiary during the provision of observation services.  General supervision may be furnished for the duration of the observation services.

Provision of Outpatient Therapeutic “Incident to” Services by Qualified Personnel

CMS has finalized its proposal to make it an express condition of Medicare Part B payment that hospital or CAH outpatient “incident to” services must be personally provided by an individual who is qualified to furnish such services under the scope of practice laws of the State in which the services are provided.  New paragraph § 410.27(a)(1)(vi) provides that hospital or CAH “incident to” services must be furnished “in accordance with applicable State law.”  CMS intends this policy to “recognize the role of States in establishing the licensure and other qualifications of physicians and other health care professionals for the delivery of hospital (or CAH) outpatient therapeutic services.”

Collection of Data on Services Furnished in Off-Campus Provider-Based Departments (PBDs)

In response to a “growing trend toward hospital acquisition of physician offices and subsequent treatment of those locations as off-campus provider-based outpatient departments,” CMS solicited comments in the Proposed Rule regarding its proposal to consider collecting data that would allow the agency to analyze the frequency, type, and payment for services furnished in off-campus PBDs.  CMS notes that in its March 2012 Report to Congress, MedPAC questioned the appropriateness of increased Medicare payment and beneficiary cost-sharing for provider-based physician practices, and has recommended that Medicare pay selected hospital outpatient services at the Medicare Physician Fee Schedule (MPFS) rates.  CMS is considering, for example, creating a HCPCS modifier that could be reported with every code for services furnished in off-campus PBDs and/or requiring hospitals to itemize costs and charges for their PBDs as outpatient service cost centers on their Medicare cost reports.  In the Final Rule, CMS notes that most commenters supported the need to collect this sort of information, but expressed varying opinions regarding the best method for collecting the data.  CMS will continue to consider approaches to collecting data on services performed in off-campus PBDs.

''Predicate Facts” Not Subject to Reopening After the 3-Year Reopening Period

CMS largely adopted its proposal to cut off providers’ appeal and reopening rights with respect to so-called “predicate facts” that were first established or first used to determine a provider’s reimbursement prior to the three-year reopening window.  The agency amended its reopening regulation, 42 C.F.R. § 405.1885, to state that the regulation’s prohibition against reopening a final determination more than three years after the date of the determination also applies to issues involving “predicate facts.”  CMS expressly rejected the United States Court of Appeals for the D.C. Circuit’s March 5, 2013 holding in Kaiser Foundation Hospitals v. Sebelius, 708 F.3d 226, in which the court concluded that that this three-year reopening limitation did not bar the reopening of a determination made longer than 3 years ago, where the determination has a continuing effect on payment and the reopening is solely for the purpose of correcting payments going forward.  CMS’s new regulation is effective January 1, 2014 and will apply to all pending provider appeals, reopenings, and requests for reopening involving the dispute of predicate facts.

CMS defines “predicate facts” as “factual underpinnings” of a specific reimbursement determination that first arose in or were first used to determine a provider’s reimbursement in a cost reporting period different from the current period under review.  Predicate facts that first arose or were first used in cost reporting periods more than three years old may not be reopened and adjusted consistent with CMS’s reopening regulation.  In rejecting the D.C. Circuit’s holding in Kaiser, CMS said that its new regulatory change has nonetheless been the agency’s longstanding interpretation of its reopening regulation.

The Final Rule is due to be published in the December 10, 2013 Federal Register.  A copy of the Final Rule is available on the Office of the Federal Register Website, or by clicking here.  CMS’s Press Release on the Final Rule is available here, and the Fact Sheet is available here.  For a detailed summary of the Proposed Rule, please see our July 15, 2013 Health Headlines article, available here.  CMS’s Fact Sheet on the Proposed Rule is available here.