On July 29, 2019, the Centers for Medicare and Medicaid Services (CMS) published a proposed rule setting forth potential revisions to the Medicare Hospital Outpatient Prospective Payment System (OPPS), most of which, if finalized, would become effective on January 1, 2020.

This On the Subject addresses four key components of the proposed rule:

  1. New proposed regulations that would require hospitals to disclose negotiated rates with third-party payers
  2. The proposed extension of reimbursement cuts for 340B drugs through 2020
  3. Reducing the supervision requirement for outpatient hospital therapeutic services from direct supervision to general supervision
  4. Establishing a prior authorization requirement for five categories of procedures. CMS is accepting public comments on both of these proposals

Comments must be submitted by 5 pm EDT on September 27, 2019.

Hospital Pricing Transparency

The proposed rule’s hospital price transparency proposals follow a June 24, 2019, Executive Order that directed the US Secretary of Health and Human Services (HHS) to issue a proposed rule requiring hospitals to publicly post charges and information based on negotiated rates and for common “shoppable” healthcare items and services. For a discussion of that Executive Order and other key developments that led to the transparency provisions in the proposed rule, please see our On the Subject: Executive Order on Hospital Price Transparency May Prompt Disclosure of Negotiated Prices.

As noted in that On the Subject, the Patient Protection and Affordable Care Act (ACA) included a provision requiring hospitals to make public a list of their “standard charges for items and services provided by the hospital.” Aspects of the ACA requirements were previously implemented. This proposed rule would utilize this same statutory authority to promulgate an array of new regulations that expand hospital disclosure obligations. The proposed regulations would define “standard charges” as including both “gross charges” (i.e., chargemaster charges, absent any discount) as well as “payer-specific negotiated charges,” and would broadly define a “third-party payer” as any entity that is, by statute, contract, or agreement, legally responsible for payment of a claim for a healthcare item or service. The major hospital lobbies immediately objected to the proposed changes, and are expected to lobby intensely against the rule and possibly challenge the rule in federal court, if finalized.

Notably, CMS recognized in the proposed rule that, “the impact resulting from the release of negotiated rates is largely unknown,” and that some stakeholders have expressed concerns that requiring disclosure of negotiated prices could increase healthcare costs or result in anticompetitive behaviors. Given concerns raised by stakeholders related to the release of identifiable negotiated charges, CMS is seeking public comment “on whether and how the release of such specific charge information could result in unintended consequences.”

We have provided below brief overviews of certain technical proposals relating to implementing the requirements:

Applicability. The requirements would apply to all “hospitals,” which would be defined as institutions that are either licensed as a hospital pursuant to state law, or which are approved by the hospital licensing agency as meeting the standard for such licensing. “Hospitals” would not include Ambulatory Surgery Centers, but they would include hospitals in rural areas, Critical Access Hospitals and hospitals that treat special populations (such as children’s hospitals and State psychiatric hospitals).

Items and Services. Hospitals must make public a list of their standard charges for “items and services” provided by the hospital, which would include individual items and services as well as “service packages,” which are defined as “an aggregation of individual items and services into a single service with a single charge.”

Non-Employed Professionals. Items and services provided by physicians and non-physician practitioners who are not employed by the hospital would not be considered “provided by the hospital,” and their charges would not need to be disclosed.

Requirements for Disclosure. Hospitals would be required to disclose their standard charges in two ways: (1) a single machine-readable file of charges for all hospital items and services; and (2) a consumer-friendly “display” of common “shoppable” services derived from the machine-readable file.

Requirements for Shoppable Display. The shoppable services display must show payer-specific negotiated charges for the primary shoppable service side-by-side with payer-specific negotiated charges for all ancillary items and services the hospital “customarily” provides as part of or in conjunction with the primary shoppable service (e.g., laboratory, radiology, anesthesia, drugs, services of employed professionals, etc.). The proposed OPPS rule would require hospitals to provide standard charges for at least 300 shoppable services, but the proposed rule identifies 70 specific shoppable services that a hospital would need to include among their 300 shoppable services (if the services are furnished by a hospital).

Location Requirements. CMS would require both the machine-readable file and consumer-friendly display to be displayed prominently on the internet, and they must be easily accessible, without barriers. “Displayed prominently” would mean that the value and purpose of the webpage and its content is clearly communicated and there is no reliance on breadcrumbs to help with navigation. “Easily accessible” would mean the file is posted on a website that can be accessed with the fewest number of clicks, and “without barriers” would mean the data can be accessed free of charge and without inputting information or registering for access.

Penalties and Appeals. Hospitals found to be noncompliant with the new regulations’ requirements and that fail to submit or comply with a Corrective Action Plan would be subject to a Civil Monetary Penalty (CMP) of up to $300 per day, with hospitals subject to such CMPs identified on the CMS website.

340B Reimbursement

The proposed OPPS rule was published in the midst of ongoing litigation relating to OPPS reimbursement for drugs purchased through the “340B Program.” In December 2018, the US District Court for the District of Columbia concluded that CMS exceeded its authority when it dramatically lowered reimbursement rates for drugs payable under Medicare Part B and purchased through the 340B Program in calendar year 2018. In May 2019, the Court determined that a 2019 rule that extended the rate reduction to non-excepted (i.e., non-grandfathered) off-campus provider-based departments of a hospital also exceeded CMS’s authority and remanded the two rules to CMS to determine an appropriate remedy. In July 2019—prior to CMS proposing a remedy—the Court entered final judgment, allowing the government to cleanly appeal the Court’s decision to the US Court of Appeals for the District of Columbia Circuit. The government filed an appeal on the same day.

Despite the District Court’s finding, CMS proposes to continue the 2018-2019 payment reductions through 2020 for 340B-acquired drugs. However, in what may be a veiled political “settlement” offer, CMS suggested that it is considering as an alternative a payment rate of Average Sales Price plus 3%, and solicited comments. In support of this suggested payment rate, CMS noted the District Court’s suggestion that adjusting the ASP plus 6% rate downward by up to 2.9% may not be significant enough to fall outside of CMS’s authority. Reducing ASP plus 6% by 2.9% would result in a reimbursement rate of 103%, after rounding.

Hospital Outpatient Supervision

CMS has also proposed lowering the generally applicable minimum level of supervision for hospital outpatient therapeutic services from direct supervision to general supervision for services furnished by all hospitals. “Direct supervision” generally means that a physician or non-physician practitioner is immediately available to furnish assistance and direction throughout the performance of a procedure, although it does not require that the physician or non-physician practitioner be present in the room when the procedure is performed.

While the direct supervision standard currently applies to all hospitals, CMS and Congress have, at different times, implemented an enforcement moratorium on the requirement for Critical Access Hospitals (CAHs) since 2010 and small rural hospitals since 2011. In the 2020 proposed OPPS rule, CMS observed that the moratorium has “created a two-tiered system of supervision requirements … with direct supervision required for most hospital outpatient therapeutic services in most hospital providers, but only general supervision required for most hospital therapeutic services in CAHs and small rural hospitals…”

CMS noted in the proposed rule that it has not learned of any data or information from CAHs and small rural hospitals indicating that the quality of outpatient therapeutic services has been affected by the direct supervision enforcement moratorium. As a result, CMS proposed in the 2020 OPPS rule to end the “two-tiered system” and establish a general supervision requirement for all hospital outpatient therapeutic services. General supervision generally means that the procedure is furnished under the physician’s overall direction and control.

Prior Authorization for Certain Hospital Outpatient Services

The proposed rule would also establish prior authorization requirements as a condition of Medicare payment for five categories of services: blepharoplasty, botulinum toxin injections, panniculectomy, rhinoplasty and vein ablation. CMS selected these particular procedures because they have both therapeutic and cosmetic indications, and utilization of these services has increased rapidly in recent years. CMS questioned whether some procedures submitted as therapeutic may be truly cosmetic, and therefore not covered. CMS noted that its proposed outpatient hospital prior authorization requirements are patterned after the existing prior authorization program for durable medical equipment, prosthetics and supplies (DMEPOS).

Under the proposed prior authorization program, hospital outpatient departments would be required to submit documentation to show that a service meets applicable Medicare coverage, coding and payment rules, prior to furnishing a service and submitting a claim. Claims that had not received a provisional affirmation would be denied. If a prior-authorization request were to receive a non-affirmation decision, providers could resubmit the prior authorization request with additional documentation. Non-affirmation decisions could not be appealed, but a claim denial resulting from a claim submitted without an affirmation decision could be appealed.

Notably, CMS is proposing that providers could be exempt from the prior authorization requirement if they were to achieve a prior authorization provisional affirmation threshold of at least 90% during a semiannual assessment. Exempt providers could lose exemption if their rate of non-payable claims becomes higher than 10% during a biannual assessment. The proposed rule and regulations do not clarify the process by which CMS would biannually identify the percentage of non-payable claims for exempt providers that are not submitting prior authorization requests.

When combined with the prior authorization already in place for DMEPOS, plus the Appropriate Use Criteria program CMS is rolling out in 2020 for certain imaging services, some believe prior authorization-like programs will become increasingly common in fee-for-service Medicare.