As the leaves and the temperatures fall each year, we are certain of at least two things: 1) winter is coming; and 2) CMS is about to release its annual changes to the Medicare Physician Fee Schedule (“MPFS”) and Medicare Outpatient Prospective Payment System (“OPPS”) and Ambulatory Surgery Center (“ASC”) payment system. We have all learned to dread, but ultimately cope with, each of them.

On November 1st, 2011, CMS published final rules for both the 2012 MPFS and 2012 OPPS/ASC. The rules are effective January 1, 2012. This client alert highlights the major issues and changes raised in the 2012 final rules. Since many of the issues deal heavily with payment rates and processes, the rules will likely have their biggest impact in your billing and coding departments. However, CMS would never want to ignore the health care bar; therefore, hidden in the 2800 pages of rules and commentary are a few legal/compliance issues as well.

Highlights of 2012 MPFS Final Rule

  • Threat of a 27.4 Percent Payment Cut for Physicians

As it has in the past nine years, the final MPFS assumes a steep across-the-board payment reduction for physicians (this year estimated at 27.4 percent). Because CMS is required to issue its final rule to reflect current law, it must base the payment changes on a formula known as the sustainable growth rate (“SGR”). However, in each of the past nine years, Congress has pre-empted these large proposed payment reductions through annual federal legislation postponing the cuts (known as the “doc fix”).

As CMS released the 2012 final rule, Secretary for Health & Human Services Kathleen Sebelius issued a statement indicating the Obama Administration is once again committed to passing legislation ensuring these payment cuts do not take effect. However, CMS continued its call to Congress to provide a permanent fix to avoid what has become an annual game of “propose and postpone.”

  • Expansion of the Multiple Procedure Payment Reduction (“MPPR”) Policy to the Professional Component of Advanced Imaging Services

CMS is expanding its MPPR policy to the professional interpretation of advance imaging services (namely, CT, MRI and ultrasound) to recognize the overlapping activities that go into valuing these services. Under the 2012 final rule, full payment will be made for the professional and technical component of the highest-paid procedure, and payment would be reduced by 50 percent for the professional and technical component  of each additional procedure furnished to the same patient in the same session.

CMS explained that the new policy better recognizes efficiencies that are expected when multiple imaging services are furnished to the same patient, by the same physician or group practice, and in the same session on the same day.

  • Expansion of the Potentially Misvalued Code Initiative

In recent years CMS has taken increasingly significant steps to address potentially “misvalued” codes. The 2012 final rule again expands the misvalued code initiative in an effort to ensure Medicare is paying accurately for physician services and more closely managing the payment system. However, as it did in the 2011 final rule, CMS again declined to establish a formal process to identify potentially misvalued codes. Because the Affordable Care Act (“ACA”) requires CMS to establish such a process, CMS indicated that it anticipates proposing a formal review process in a future rule. Going forward, CMS will continue to conduct code reviews using methods such as surveys, data collection, studies, and other analyses it determines to be appropriate.

  • Expansion of Telehealth Coverage to Include Smoking Cessation Treatment

The 2012 final rule adds smoking cessation treatments to the list of services eligible for telehealth coverage and adjusts the way additional services are added to the list of telehealth-eligible services. Smoking cessation services are defined as face-to-face behavior change interventions.

The rule also revised the annual process for adding to — or deleting services from — the list of telehealth services. The criteria for adding telehealth services now includes considering shortages of health professionals to provide in-person services, the speed of access to in-person services, and other barriers to care for beneficiaries. This change will affect services proposed for the telehealth list beginning in CY 2013.

  • Signature on Requisition

The 2012 final rule retracts the policy requiring a physician's or other practitioner's signature on a requisition for clinical diagnostic laboratory tests paid under the Clinical Laboratory Fee Schedule (“CLFS”), which was finalized in the CY 2011 physician fee schedule final rule.

  • Addition of Criteria for Health Risk Assessments

The 2012 final rule adopts criteria for health risk assessments (“HRAs”) to be used in conjunction with Annual Wellness Visits (“AWVs”). In general, an HRA is an evaluation tool designed to provide a systematic approach to obtaining accurate information about a patient’s health status, injury risks, modifiable risk factors, and other urgent health needs. CMS is also increasing AWV payment to reflect the additional staff time required to administer an HRA to the Medicare population.

  • Quality Improvement Initiatives

The final rule makes minor modifications to the Physician Quality Reporting System (“PQRS”), the ePrescribing Incentive Program, and the EHR Incentive Program, all of which are ongoing quality improvement initiatives. Notably, the term “group practice,” which previously included groups with at least two eligible professionals, now only includes groups with 25 or more eligible professionals. “Eligible professional” is defined by CMS, but generally includes physicians and certain other practitioners.

Additionally, certain incentive payments under these quality improvement programs will be replaced by penalties to punish eligible professionals who do not participate instead of rewarding those who do participate. Beginning in 2012, the electronic prescribing payment adjustments become punitive. That is, if an eligible professional is not a successful electronic prescriber for the reporting period for the years 2012, 2013 and 2014, the physician fee schedule amount for the covered service furnished by the professional during the year is reduced by 1 percent, 1.5 percent and 2 percent, respectively. Similarly, covered eligible professionals who do not participate in the PQRS will incur a payment reduction of 1.5 percent in 2015 and 2 percent in 2016 and subsequent years. CMS proposes to use the 2013 calendar year as the reporting period for purposes of the 2015 payment adjustment; eligible professionals wishing to avoid a payment reduction must participate in the PQRS by 2013.

  • Physician Compare Website

CMS plans to publically report group practices’ measure performance results in 2013 based on group practices’ 2012 PQRS performance results. Group practices participating in the 2012 PQRS group practice reporting option must agree in advance to have their reporting performance results publically reported as part of their self-nomination to participate.

  • Bundling of Payments

CMS announced in its final rule that beginning January 1, 2012, when a physician furnishes services to a Medicare beneficiary in a hospital’s wholly owned or wholly operated physician practice and the beneficiary is admitted as an inpatient within 3 days, the 3-day payment window will apply to all diagnostic services furnished and to any nondiagnostic services that are clinically related to the reason for the patient’s impatient admission regardless of whether the reported inpatient and outpatient diagnosis codes are the same.

  • Extension of Payments for Technical Component of Certain Physician Pathology Services

The 2012 final rule announces that for services furnished after December 31, 2011, an independent laboratory may not bill a Medicare contractor for the technical component (“TC”) of physician pathology services for fee-for-service Medicare beneficiaries who are inpatients or outpatients of a covered hospital. The TC of physician pathology services refers to the preparation of the slide involving tissue or cells that a pathologist interprets. Alternatively, the professional component (“PC”) of physician pathology services refers to the pathologist’s interpretation of the slide. This is to prevent Medicare from paying twice for the TC service: (1) to the hospital, through the inpatient prospective payment rate when the patient is an inpatient; and (2) to the independent laboratory that bills the Medicare contractor instead of the hospital, for the TC service.

  • Therapy Cap

CMS raised the therapy cap for occupational therapy and physical therapy/speech-language pathology combined by $10 as compared to CY 2011. The CY 2012 cap for each is $1,880.

Highlights of 2012 OPPS/ASC Final Rule

  • ASC and OPPS Changes

First let’s look at the numbers. The final rule increases CY 2012 payment rates under the OPPS by 1.9 percent and by 1.6 percent for ASCs. It also provides a payment adjustment for designated cancer hospitals, which is expected to increase payments by 11.3 percent. The final rule also provides coverage for the acquisition and pharmacy overhead costs of separately payable drugs and biologics, other than new drugs and biologics that have pass-through status, at the average sales price plus 4 percent.

As happens every year, the final rule adjusts rates, payment groups, payment weights and conversion factors under the OPPS to implement applicable statutory requirements and changes arising from CMS’s continuing experience with the system. Similarly, the 2012 final rule makes changes to ASC payment rates, conversion factors and the ASC list of covered surgical procedures (including those designated as office-based or device-intensive) and also recognizes new HCPCS codes. ASC payment indicators are also revised as necessary to maintain consistency between the OPPS and ASC payment system regarding the packaged or separately payable status of ancillary services.

  • Supervision of Outpatient Services in Hospitals and CAHs

While since 2000 CMS has required “direct supervision” for all hospital outpatient therapeutic services, there has been frequent debate and modification as to what that means. As most recently clarified in OPPS 2010 and 2011, “direct supervision” requires the supervisory practitioner to be immediately available to furnish assistance and direction throughout the service or procedure. Critical access hospitals (“CAHs”) and rural hospitals with small staffs raised their concerns about this standard and its possible ill effects on access to care. In response, CMS issued a 2010 Notice of Nonenforcement providing that while CAHs remain subject to the requirements of direct supervision of outpatient therapeutic services the standards would not be evaluated or enforced against CAHs until CMS further studied the issue.

Under the 2012 final rule, CMS establishes an independent advisory review panel to study the supervision levels and consider requests that specific outpatient services be subject to a level of supervision other than direct supervision (i.e., general or personal supervision). For this task, CMS has named the APC Panel, as modified to include two critical access hospital and two small rural hospital representatives. Review will begin in 2012. Because this review will not be completed for some time, CMS extended the Notice of Nonenforcement for CAHs and small rural hospitals with 100 or fewer beds.

  • Hospital and ASC Outpatient Quality Reporting Programs/Payment Reduction

The final rule adds three measures to the CY 2014 Hospital Outpatient Quality Reporting (“Hospital OQR”) Program. Please note that data collection for CY 2014 payments begins in CY 2012. The new measures include: (i) a measure relating to cardiac rehabilitation patient referrals; (ii) a measure relating to the use of a safe surgery checklist; and (iii) a measure relating to hospital outpatient department volume for selected surgical procedures.

CMS also announced in the final rule that it will continue its established policy of reducing payments to hospitals that fail to meet the Hospital OQR Program requirements.

The final rule also establishes a quality reporting program for ASCs and adopts five quality measures, including four outcome measures and one surgical infection control measure — beginning in CY 2012 for the CY 2014 payment determination.  The final rule adds two measures (safe surgery checklist use and ASC facility volume data) for reporting beginning in CY 2013 for the CY 2015 and CY 2016 payment determinations.

  • Medicare Electronic Health Record Incentive Program

CMS is allowing eligible hospitals and CAHs to meet the clinical quality measure (“CQM”) reporting requirement of the EHR Incentive Program for payment year 2012 by participating in the 2012 Medicare EHR Incentive Program Electronic Reporting Pilot. The program is voluntary and lasts for one year. Successful electronic submission of the15 CQMs will be sufficient to meet the core objective of reporting hospital under the Medicare EHR Incentive Program for the 2012 payment year.

  • Stark Regulatory Changes to Whole Hospital and Rural Provider Exceptions

In order to conform the Stark regulations to the amendments made to the rural provider and whole hospital exceptions by the Affordable Care Act (“ACA”), the final rule adds Stark physician self-referral regulations addressing the process by which a physician-owned hospital may request an exception to the prohibition on expansion.

As you may recall, the ACA narrowed the Stark exceptions that permit physician ownership in “whole” hospitals and rural hospitals, by limiting the ability of those hospitals to increase the number of operating rooms, procedure rooms, and beds beyond that for which the hospital was licensed on March 23, 2010 (or, in the case of a hospital that did not have a provider agreement in effect as of this date, but did have a provider agreement in effect on December 31, 2010, the date of effect of such agreement). The ACA directed CMS to promulgate regulations to create a process for a physician-owned hospital to request an exception to the prohibition on expansion of facility capacity.

Under the 2012 final rule, CMS promulgated the exception process at 42 CFR §411.362(c)(2)-(4), which outlines the necessary information that must be submitted to apply for the exception, including a statement of whether the hospital is seeking an exception as an applicable hospital or high Medicaid facility, an explanation of how the hospital satisfies the criteria, the submission of the calculations used to support the application, and a certification statement that the hospital does not discriminate against beneficiaries of federal health programs.

The final rule also discusses each of the statutory criteria that a hospital must satisfy to qualify as an “applicable” hospital and clarifies that a permitted increase may not result in the number of operating rooms, procedure rooms, and beds for which the hospital is licensed exceeding 200 percent of the hospital’s baseline number of operating rooms, procedure rooms, and beds. CMS also added two definitions (“baseline number of operating rooms, procedure rooms, and beds” and “main campus of the hospital”) at 42 CFR § 411.362(a).

  • Patient Notification Requirements For Lack of 24/7 Doctor Presence

As one of the Medicare provider agreement requirements, hospitals must adhere to revised patient notification requirements when a doctor of medicine or osteopathy is not on site 24 hours a day, 7 days a week. The changes are as follows:

  • Only those outpatients who receive observation services, surgery, or services involving anesthesia must receive the notice.
  • A hospital that is a main provider (has one or more remote locations of the hospital or satellites) must make the determination of whether notice is required separately at each location providing inpatient services.
  • A hospital must receive a signed acknowledgement from the patient who has received a notice that the patient understands that a doctor of medicine or osteopathy may not be present during all hours in which services are furnished to the patient; before providing an outpatient service to an outpatient for whom notice is required, the hospital must receive the signed acknowledgement.
  • Every hospital that has a dedicated emergency department in which a doctor of medicine or osteopathy is not present 24 hours a day, 7 days a week must post a notice conspicuously in a place or places likely to be noticed by all individuals entering the dedicated emergency room and sets forth the required statements for the notice.


  • Additional Hospital Value-Based Purchasing Program Policies

CMS made several additions and subtractions from the Hospital Value-Based Purchasing (“Hospital VBP”) program that is scheduled to go into effect October 1, 2012.