Non-excepted hospital off-campus provider-based departments (PBDs) may once again face cuts to reimbursement during calendar year 2018 (CY 2018) if the Centers for Medicare & Medicaid Services (CMS) finalizes proposed changes to the Medicare Physician Fee Schedule (MPFS). To prepare non-excepted PBDs for potential changes ahead, this legal alert details the proposed payment-rate amendments under the MPFS.

As discussed in a Jan. 18 McGuireWoods legal alert, “Reimbursement Changes for Hospital Off-Campus Provider-Based Departments,” for calendar year 2017, CMS implemented Section 603 of the Bipartisan Budget Act of 2015’s “site-neutral” payment policies for newly acquired, developed or relocated PBDs (CY 2017 rule). As a result, only excepted off-campus PBDs—which include but are not limited to off-campus departments that operated and billed as PBDs before Nov. 2, 2015—continue to be paid under the hospital outpatient prospective payment system (OPPS).

On the other hand, non-excepted PBDs, effectively those that opened after Nov. 2, 2015 (with some exceptions), are now reimbursed under the MPFS (unless another payment system applies, such as the payment system for ambulatory surgery centers). As established in the CY 2017 rule, the MPFS reimburses non-excepted PBDs based on a “relativity adjuster” to the OPPS rate. Currently, non-excepted PBDs that are reimbursed under the MPFS receive approximately 50 percent of the OPPS rates for non-excepted items and services; however, this reimbursement rate may change for CY 2018 if CMS implements its proposed rule.

In the proposed rule, CMS explains that in order to reach the 50 percent relativity adjuster in 2017, it essentially reviewed the technical-component portion of the MPFS rates and compared that number to the OPPS payments for 22 of the most commonly billed PBD codes (but, notably, not the most common code). This comparison averaged a 45 percent difference between the two payment systems.

Based on this and a few other data comparisons, CMS then decided to use a 50 percent downward relativity adjuster from the OPPS rate for establishing site-specific rates under the MPFS for the technical component of a broad range of non-excepted items and services furnished by non-excepted PBDs. CMS believed this 50 percent relativity adjuster struck an appropriate balance that avoided underestimating the resources involved in providing services at non-excepted PBDs, as compared to services furnished in other provider settings that are paid under the MPFS. CMS did, however, acknowledge that this relativity adjuster did not account for the most frequently billed E/M codes furnished in non-excepted PBDs, reasoning that it intended for this 2017 relativity adjuster to be a “transitional policy,” in effect only until it had more precise data to correctly identify and value all non-excepted items and services furnished by non-excepted PBDs.

Nevertheless, despite explicitly stating in comments published in the July 21, 2017 Federal Register that it does “not [currently] have more precise data than were available when [it] established the ... Relativity Adjuster” in the OPPS rule, CMS now intends to slash the 50 percent relativity adjuster in half, to 25 percent of the OPPS rate. In other words, for CY 2018, the technical component rates for non-excepted services would be reduced from 50 percent of the OPPS rate, to 25 percent of that rate, meaning non-excepted PBDs would receive 75 percent less than the OPPS rate pays for excepted PBDs.

To determine this 2018 relativity adjuster, CMS made a code-level comparison for the service most commonly billed in off-campus PBDs under the OPPS: an outpatient clinic visit—the service CMS left out of the average for 22 codes in its 2017 analysis described above. CMS admits it “recognize[s] that the comparison between the OPPS and [M]PFS rates for other services varies greatly.” Nevertheless, CMS is focused on ensuring that it does not overestimate the appropriate overall payments for non-excepted services in CY 2018. Therefore, CMS believes the comparison between MPFS and OPPS payment rates for the most common services furnished in off-campus PBDs is a “better proxy than [its] previous approach.”

Given the gravity of this proposed change in reimbursement rates for non-excepted PBDs, CMS welcomes comments and suggestions for a more appropriate way to calculate a 2018 relativity adjuster. CMS will accept such comments through Sept. 11, 2017. CMS expressly states in the preamble accompanying the proposed rule that commentators should discuss whether a “different PFS relativity adjuster, such as 40%, that represents a relative middle ground between,” would be more appropriate. With the anticipated pushback from the hospital industry, CMS may be foreshadowing a compromise payment rate for such off-campus PBDs.

That said, CMS remains concerned that if the relativity adjuster is too small, hospitals could acquire physician offices that provide certain services where payment differentials still lead hospital PBDs to receive more compensation. Therefore, CMS intends to review the relativity adjuster when additional data becomes available to ensure reimbursement is truly site-neutral and to ensure Medicare payment to hospitals billing for non-excepted items and services furnished by non-excepted PBDs under the MPFS accurately reflects the resources involved in furnishing those services relative to other MPFS services.

Non-excepted PBDs should thus expect even more changes to reimbursement in the future.

The proposed rule sets forth multiple changes and revisions to provider-based billing that could greatly impact reimbursement for non-excepted PBDs in the future. Although the explanation above details the major proposed reimbursement change under the MPFS to non-excepted PBDs, the proposed rule also contains proposed changes and policies related to the establishment of relative value units for the MPFS, potentially misvalued codes, and telehealth services, among others. Accordingly, hospitals and non-hospital providers should closely examine and review the proposal and monitor CMS’s actions in the coming months to see if the changes proposed are finalized and implemented as currently drafted.