Medicare Outpatient Prospective Payment System for Calendar Year 2014

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1 Proposed Rule Summary Medicare Outpatient Prospective Payment System for Calendar Year 2014 August P age

2 Table of Contents Overview and Resources and Comment Submission...1 OPPS Payment Rate for CY Adjustments to the Outpatient Rate and Payments for CY Wage Index and Labor-Related Share...2 Outlier Payments...2 Payment Increase for Rural SCHs and EACHs...2 Hold-Harmless TOPs Payments to Small Rural Hospitals and SCHs...3 Cancer Hospital Payment Adjustment and Budget Neutrality Effect...3 Updates to the APC Groups and Weights for CY Coding and Payment for Clinic and ED Visits...4 Expansion of the Payment Packaging Policies...5 New Comprehensive APCs for Device-Dependent Procedures...6 Updates to the Composite APCs...7 Payment for Drugs, Biologicals, and Radiopharmaceuticals...7 Payment for Medical Devices...8 Other OPPS Policies for CY New Data Collection for Services Provided in Provider-Based Outpatient Clinics...9 Updates to the Physician Supervision Policies...9 Updates to the Inpatient List...9 Payment for PHP Services Beneficiary Copayments Updates to the Hospital OQR Program If you have any questions about this summary, contact Kathy Reep, FHA vice president of financial services, by at or by phone at (407)

3 OVERVIEW, RESOURCES, AND COMMENT SUBMISSION On July 19, 2013, the Centers for Medicare & Medicaid Services (CMS) published the calendar year (CY) 2014 proposed payment rule for the Medicare outpatient prospective payment system (OPPS). The proposed rule reflects the annual update to the Medicare fee-for-service (FFS) outpatient payment rates and policies based on regulatory changes put forward by CMS and legislative changes previously adopted by Congress. Among other regular updates and policy changes, the rule includes proposals that would update payment rules and policies for ambulatory surgical centers, update policies related the Electronic Health Record (EHR) Incentive program, propose slight policy updates to the inpatient hospital value-based purchasing program and propose revisions to the Quality Improvement Organization regulations. A copy of the proposed rule Federal Register and other resources related to the OPPS are available on the CMS Web site at Payment/HospitalOutpatientPPS/Hospital-Outpatient-Regulations-and-Notices-Items/CMS P.html. An online version of the proposed rule is available at Comments on the proposed rule are due to CMS by Friday, September 6, 2013, and can be submitted electronically at by using the Web site s search feature to search for file code 1601-P. A brief summary of the major OPPS sections of the proposed rule is provided below along with Federal Register page references for additional details. Program changes adopted by CMS would be effective for services provided on or after January 1, 2014, unless otherwise noted. OPPS Payment Rate for CY2014 Federal Register pages Incorporating the proposed updates with the effect of budget neutrality adjustments, the table below lists the conversion factor for CY2014 compared to the rate currently in effect: Final CY2013 Proposed CY2014 Percent Change OPPS Conversion Factor $ $ The table below provides details of the proposed updates to the outpatient conversion factor for CY2014: Proposed CY2014 OPPS Conversion Factor Updates (Percent) Market Basket (MB) Update +2.5 Patient Protection and Affordable Care Act (PPACA)-Mandated Productivity MB Reduction PPACA-Mandated Pre-Determined MB Reduction P age

4 Overall Proposed Rate Update (EXCLUDING BUDGET NEUTRALITY) Proposed CY2014 OPPS Conversion Factor Updates (Percent) +1.8 While the proposed rule does not specifically address the 2.0 percent sequester reductions to all lines of Medicare payments authorized by the Budget Control Act (BCA) of 2011 and currently in effect through federal fiscal year (FY) 2021, sequester will continue unless Congress intervenes. Sequester is not applied to the payment rate; instead, it is applied to Medicare claims after determining co-insurance, any applicable deductibles, and any applicable Medicare secondary payment adjustments. Other Medicare payment lines such as graduate medical education (GME), bad debt, and EHR incentives are also affected by the sequester reductions. ADJUSTMENTS TO THE OUTPATIENT RATE AND PAYMENTS FOR CY2014 Wage Index and Labor-Related Share Federal Register pages CMS is not proposing any major changes to the calculation of Medicare hospital wage indexes for CY2014. In concert with prior years, CMS would use the most recent federal FY2014 inpatient prospective payment system (IPPS) wage indexes including all reclassifications and add-ons, application of the rural floor, and adjustments for budget neutrality under the OPPS. CMS would continue to apply the wage index to a labor-related share of 60 percent. CMS states in the proposed rule that it does plan to pursue Core-Based Statistical Area (CBSA) definition changes next year based on newly available census data. Tables that include the proposed wage indexes for payment in CY2014 are available on the CMS Web site at Payment/HospitalOutpatientPPS/Hospital-Outpatient-Regulations-and-Notices-Items/CMS P.html. These values will be updated for the final rule. Outlier Payments Federal Register pages To maintain total outlier payments at 1.0 percent of total OPPS payments, CMS is proposing an outlier fixed-dollar threshold of $2,775 for CY2014. The new threshold amount represents a 37 percent increase compared to the current threshold of $2,025. Outlier payments would continue to be paid at 50 percent of the amount by which the cost of furnishing the service exceeds 1.75 times the APC payment amount when both the 1.75 multiple threshold and the proposed fixeddollar threshold are met. Payment Increase for Rural SCHs and EACHs Federal Register pages CMS is proposing to continue the 7.1 percent payment increase provided rural sole community hospitals (SCHs) and essential access community hospitals (EACHs). Since 2006, CMS has provided this adjustment to these hospitals for almost all services and procedures paid under the 2 P age

5 OPPS. This payment increase is a result of a provision of the Medicare Modernization Act (MMA) of 2003 that gave the Health and Human Services (HHS) Secretary authority to make an adjustment to OPPS payments for rural hospitals if justified by a study of the difference in costs between hospitals in rural areas and hospitals in urban areas. Hold-Harmless TOPs Payments to Small Rural Hospitals and SCHs Federal Register page reference not available Hold-harmless transitional outpatient payments (TOPs) were established when the OPPS was implemented to provide relief to hospitals that would receive less in payments under the OPPS methodology than they would have received under the former payment system. Access to these payments, made available by Congress to small rural hospitals and SCHs, expired in December CMS does not have the authority to extend these payments in future years without authorizing legislation. Cancer hospitals and children s hospitals continue to be permanently held harmless from the impact of OPPS. Cancer Hospital Payment Adjustment and Budget Neutrality Effect Federal Register pages CMS is proposing to continue the policy that provides hospital-specific payment increases to the 11 hospitals identified as cancer hospitals exempt from the IPPS. This policy would continue to be applied in a budget neutral manner. Because CMS applied a budget neutrality reduction in CY2012 when this adjustment was first implemented, there is no significant year-to-year change in the conversion factor as a result of continuing this policy. Under the proposal, the minus 0.22 percent budget neutrality factor originally applied would be lessened to minus 0.21 percent for CY2014. A reduction of this level would remain in the conversion factor until CMS makes a substantial change to this policy. This payment policy is the result of a provision of the Patient Protection and Affordable Care Act (PPACA) of 2010 that gave the HHS Secretary authority to make an adjustment to OPPS payments for exempt cancer hospitals if their outpatient costs were determined to be greater than the costs of other hospitals paid under OPPS. A list of exempt cancer hospitals and the estimated CY2014 payment adjustments are available on Federal Register page Updates to the APC Groups and Weights for CY2014 Federal Register pages and As required by law, CMS must revise the ambulatory payment classification (APC) groups each year to take into account drugs and medical devices that no longer qualify for pass-through status, new and deleted Healthcare Common Procedure Coding System/Current Procedural Terminology (HCPCS/CPT) codes, advances in technology, new services, and new cost data. CMS must also review and revise the APC relative payment weights annually. For CY2014, in addition to these standard updates, CMS is proposing policy changes that would significantly change how hospitals would code and be paid for evaluation and management (E/M) clinic and emergency department (ED) visits, expand the categories of items/services under the OPPS that are packaged into APCs for payment as opposed to separately paid, and 3 P age

6 create comprehensive APCs for certain device-dependent procedures. These and other proposed policies would not only shift the APC groups and weights for CY2014, but also impact the availability of separate payment for items and services currently available through fee schedules outside of the OPPS. Details on the major proposed APC policy changes are provided below. The table below shows the proposed shift in the number of APCs per category from CY2013 to CY2014. APC Category Status Current Proposed Indicator CY2013 CY2014 Clinic or Emergency Department Visit V 17 7 Significant Procedures, Multiple Reduction Applies T Significant Procedures, No Multiple Reduction S Ancillary Services X 38 - Pass-Through Devices Categories H 3 - Non-Pass-Through Drugs/Biologicals K Comprehensive APCs for Device-Dependent Services J1-29 Partial Hospitalization P 4 4 Blood and Blood Products R Brachytherapy Sources U Pass-Through Drugs and Biologicals G New Technology S/T Total Coding and Payment for Clinic and ED Visits Federal Register pages Currently, CMS recognizes five distinct levels of severity and payment for each type of E/M clinic visit, Type A ED visit, and Type B ED visit. Since the inception of the OPPS, CMS has instructed hospitals to report facility resources for E/M clinic and ED visits using CPT E/M codes and to develop internal hospital guidelines to determine what level of visit to report for each patient. Due to CMS-noted challenges in developing national guidelines for determining appropriate visit levels, CMS is proposing to discontinue the use of five APC levels for each type of E/M clinic visit and ED visit. As proposed, CMS would use one new APC category for E/M clinic visits and two new APC categories for ED visits (one for Type A visits and one for Type B visits). The payment rate for each of the three new APC categories would be based on the total mean costs for the associated service levels being proposed for consolidation. If implemented, hospitals with patients currently coded to the higher visit levels would see a payment reduction while hospitals with patients coded to the lower levels would see a payment increase. The following table describes the proposed CY2014 changes to coding and payment for E/M clinic and ED services under the OPPS. E/M Clinic Visit Current CY2013 Proposed CY2014 Change HCPCS APC Payment Payment in Rate HCPCS APC Rate Rate (Percent) $ $73.68 GXXXC 0634 $ $ P age

7 Type A ED Visit Type B ED Visit Current CY2013 Proposed CY2014 Change $ $ $ $ $ $ $ $ $ $ GXXXA 0635 $ $ $ G $ G $ G $89.89 GXXXB 0636 $ G $ G $ Expansion of the Payment Packaging Policies Federal Register pages The OPPS was designed to package payment for multiple interrelated items/services into a single payment to create incentives for hospitals to furnish outpatient care efficiently. When first implemented in 2000, 12 categories of items/services defined by law were packaged for payment under the OPPS. In CY2008, CMS used its regulatory authority to expand its packaging policy to items/services in another seven categories. For CY2014, CMS is using its regulatory authority once again to package payment for a series of items/services in seven new categories. Because the OPPS is budget neutral, the monies currently paid for the items/services proposed for packaging would be redistributed to all other services for CY2014. However, the impact of these proposed changes would vary by hospital and hospital type. Of most significance, CMS is proposing to package payment under the OPPS for nearly 1,100 outpatient laboratory services (accounting for about 60 percent of the items/services proposed for packaging) currently paid separately under the Clinical Lab Fee Schedule (CLFS). On average, CMS estimates that this change would decrease outpatient payments to rural hospitals by -1.3 percent and increase payments to urban hospitals by +0.2 percent. The following details the items/services CMS would package for CY2014: o Laboratory tests 1,096 items/services: 1,093 of which are currently paid separately under CLFS, three of which are currently paid separately under the OPPS; o Ancillary services 425 items/services currently paid separately under the OPPS and proposed for packaging or separate payment based on certain conditions; o Procedures described by add-on codes 272 items/services: 95 of which are already packaged, 176 of which are currently paid separately under the OPPS, one currently packaged or paid separately under the OPPS based on certain conditions; 5 P age

8 o Diagnostic tests on the bypass list 103 items/services currently paid separately under the OPPS and proposed for packaging or separate payment based on certain conditions; o Device removal procedures 71 items/services currently paid separately under the OPPS and proposed for packaging or separate payment based on certain conditions; o Drugs that function as supplies or devices when used in a surgical procedure 30 items/services: three of which are already packaged, 27 of which are currently paid separately under the OPPS; and o Drugs that function as supplies when used in a diagnostic test or procedure four items/services: two of which are already packaged, two of which are currently paid separately under the OPPS. CMS is also proposing to package payment for 147 items/services currently paid separately under the Durable Medical Equipment, Prosthetics/Orthotics, and Supplies Fee Schedule (DMEPOS) fee schedule. The complete list of items/services proposed for packaging by category is available in Addendum P on the CMS Web site at Payment/HospitalOutpatientPPS/Hospital-Outpatient-Regulations-and-Notices-Items/CMS P.html. New Comprehensive APCs for Device-Dependent Procedures Federal Register pages Further pursuing its desire to create larger payment bundles under the OPPS, CMS is using its regulatory authority to propose the creation of 29 new comprehensive APCs. CMS is proposing to define a comprehensive APC as a classification for the provision of a primary service and all adjunctive services provided to support the delivery of the primary service. The new APCs would replace 29 existing device-dependent APCs where CMS has defined the device cost as high when compared to the other costs associated with delivering the service. As proposed, CMS would make a single all-inclusive prospective payment for the service and would package into the comprehensive APC payment all other services and supplies, including the diagnostic procedures, tests and treatments that assist in the delivery of the primary procedure, visits and evaluations performed in association with the procedure, un-coded services and supplies used during the service, outpatient department services delivered by therapists as part of the comprehensive service, durable medical equipment as well as the supplies to support that equipment, and any other components reported by HCPCS codes that are provided during the comprehensive service. CMS would not pay for services that cannot be covered by Medicare Part B or that are not payable under the OPPS. CMS states that the proposed change would be budget neutral for CY2014, noting that the comprehensive APCs are entirely derived from existing services currently reported in Medicare claims. The device-dependent services that CMS is proposing to group to the 29 comprehensive APCs are listed with a status indicator of J1 in Addendum B of the proposed rule on the CMS Web site at 6 P age

9 Payment/HospitalOutpatientPPS/Hospital-Outpatient-Regulations-and-Notices-Items/CMS P.html. Updates to the Composite APCs Federal Register pages CMS is proposing changes to the composite APCs for CY2014 to align the composites with the proposed changes to create comprehensive APCs and consolidate the coding and payment levels for E/M clinic and ED visits (described above). CMS uses composite APCs to provide a single payment, rather than paying for each service individually, when specified combinations of procedures are performed during a single encounter. CMS would no longer identify Cardiac Resynchronization Therapy as a composite APC (composite APC 0108). Instead, this service would be identified as a new comprehensive APC under CMS proposal to create comprehensive APCs for certain device-dependent procedures. As proposed, payment for this service would increase slightly under the new classification. CMS would modify the extended assessment and management (EAM) composite to accommodate the new coding scheme proposed for E/M clinic and ED visits. As proposed, CMS would replace the current EAM composite APCs 8002 and 8003 with new composite APC Payment for these services would increase from $ (APC 8002) and $ (APC 8003) in CY2013 to $1, (APC 8009) in CY2014. Under these proposals, CMS would use the composite APC payment methodology for five service areas across nine APCs (currently six service areas across 11 APCs). The list of proposed HCPCS codes for assignment to the composite APCs for CY2014 is available in Addendum M of the proposed rule on the CMS Web site at Service-Payment/HospitalOutpatientPPS/Hospital-Outpatient-Regulations-and-Notices- Items/CMS-1601-P.html. Payment for Drugs, Biologicals, and Radiopharmaceuticals Federal Register pages CMS pays for drugs, biologicals, and radiopharmaceuticals that do not have pass-through status in one of two ways: packaged payment into the APC for the associated service, or separate payment (individual APCs). Generally, for items not specified for packaging by CMS, packaging status is based on a comparison of CMS-calculated per-day cost of the item to a packaging threshold. For CY2014, CMS is proposing to increase the packaging threshold to $90, a 12.5 percent increase compared to the current threshold of $80. Drugs, biologicals, and radiopharmaceuticals that are above the $90 threshold and paid separately using individual APCs would generally be paid at a rate of average sales price (ASP) +6 percent in CY2014 (no change from the current rate). A complete discussion of payment for drugs, biologicals, and radiopharmaceuticals can be found on the Federal Register pages referenced above. Payment for Medical Devices 7 P age

10 Federal Register pages CMS pays for most medical devices by packaging payment into the APC for the associated service. Devices that meet certain criteria receive pass-through payment. The pass-through payment equals the amount by which the hospital s charges, adjusted to cost, exceed the OPPS payment rate associated with the device. CMS deducts from the pass-through payment amount the portion of the APC payment that the agency determines to be the cost associated with the device. There are currently three device categories eligible for pass-through payment: C1830: Powered bone marrow biopsy needle; C1840: Lens, intraocular (telescopic); and C1886: Catheter, extravascular tissue ablation, any modality (insertable). In prior rulemaking, CMS adopted a pass-through payment expiration date of December 31, 2013, for the devices identified by HCPCS codes C1830, C1840, and C1886. There are currently no newly eligible devices for pass-through payment in CY2014. CMS can establish a new device category for pass-through payment in any quarter. CMS is proposing to update the list of APCs (29) and devices (32) that would apply to the no cost/full credit and partial credit device payment policy in CY2014. The lists are available in Tables 17 and 18 on Federal Register pages Under this policy, CMS reduces APC payment by 100 percent of the device offset amount (the device cost) when a hospital furnishes a specified device with no cost or with a full credit from the manufacturer and 50 percent when a hospital receives partial credit of 50 percent or more. CMS is also proposing to update the policy for CY2014 to require hospitals to report the amount of the credit received. Complete details of the APC group and weight changes proposed for CY2014 can be found on the Federal Register pages and The proposed APC relative weights and payment rates for CY2014 are available in Addenda A and B of the proposed rule on the CMS Web site at Payment/HospitalOutpatientPPS/Hospital-Outpatient-Regulations-and-Notices-Items/CMS P.html. A comparison of the current APC payment rates to the newly proposed rates, including all proposed changes for CY2014, shows that the rates for 58 percent of the 403 APCs with corresponding payment weights in each year would change by plus 10 percent or more. The payment rates for eight percent of the APCs with payment weights would change by minus 10 percent or more. The remaining 34 percent have payment rates that change by less than +/-10 percent when compared to the current rates. OTHER OPPS POLICIES FOR CY2014 New Data Collection for Services Provided in Provider-Based Outpatient Clinics 8 P age

11 Federal Register pages CMS is considering and is seeking industry comment on its desire to collect new data from hospitals that would differentiate between outpatient services provided directly in a hospital and services provided in off-campus provider-based outpatient clinics. CMS cites the growing trend toward hospital acquisition of physician offices and subsequent treatment of those locations as off-campus provider-based outpatient departments along with the current reimbursement differentials between the two settings as the basis and need for data collection. CMS notes an interest in data that would allow for the analysis of the frequency, type, and payment for services provided in these off-campus provided-based clinics. CMS believes that claims and/or the Medicare cost report could be utilized to collect this data. Updates to the Physician Supervision Policies Federal Register pages CMS is proposing to begin applying the direct supervision requirements related to outpatient therapeutic services for Critical Access Hospitals (CAHs) and small rural hospitals. A nonenforcement policy for these supervision requirements has been in place since CY2011 when CMS adopted proposals that revised and further defined several policies related to the physician supervision of outpatient services. As proposed, all outpatient therapeutic services furnished in hospitals and CAHs would 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. A list defining these exempt services is available on the CMS Web site at Payment/HospitalOutpatientPPS/Downloads/CY2013-OPPS-General-Supervision.pdf. CMS also used the proposed rule to clarify the general supervision requirements for observation care to address industry questions related to the need to further assess patients in observation once the supervising physician or appropriate non-physician practitioner transitions the beneficiary to general supervision and documents the transition in the medical record. CMS is clarifying that if the supervising physician or appropriate non-physician practitioner determines and documents in the medical record that the beneficiary is stable and may be transitioned to general supervision, general supervision may be furnished for the duration of the service and additional initiation period(s) of direct supervision during the service are not required. Updates to the Inpatient List Federal Register page For CY2014, CMS is not proposing to remove any procedures from the current inpatient list. The inpatient list specifies services that are only paid when provided in an inpatient setting because of the nature of the procedure and the need for at least 24 hours of post-operative recovery time and/or monitoring before the patient can be safely discharged. Each year, CMS, with input from the APC Panel, reviews the inpatient list using specific criteria to determine whether any procedures should be moved from the list and paid under OPPS. The list of procedures that would be paid as only inpatient procedures for CY2014 is available in Addendum E of the proposed rule on the CMS Web site at 9 P age

12 for-service-payment/hospitaloutpatientpps/hospital-outpatient-regulations-and-notices- Items/CMS-1601-P.html. Payment for PHP Services Federal Register pages Each year, CMS updates the payment rates for partial hospitalization program (PHP) services. The intensive outpatient psychiatric program of services may be provided to patients in place of inpatient psychiatric care may be provided in either a hospital outpatient setting or by a freestanding community mental health center (CMHC). Under the OPPS, providers are paid on a per diem basis for PHP services and the payment rates for these services are calculated for CMHCs based only on CMHC data and hospital-based rates based only on hospital-based data. The table below compares the newly proposed payment rates for PHP services to the rates currently in effect. APC Group Title Hospital-Based PHPs-Level I PHP (three services) Hospital-Based PHPs-Level II PHP (four or more) Current CY2013 Payment Rate Proposed CY2014 Payment Rate Percent Change $ $ $ $ CMHCs-Level I PHP (three services) $84.96 $ CMHCs-Level II PHP (four or more) $ $ For CMHCs, CMS would continue to make outlier payments at 50 percent of the amount by which the cost for the PHP services exceed 3.40 times the payment rate for APC CMS is seeking comment on potential future changes to payment for PHP services to ensure the sustainability of PHP benefit. The full discussion and comment areas are available on Federal Register pages Beneficiary Copayments Federal Register pages The national unadjusted copayment amount for Medicare beneficiaries cannot be less than 20 percent of the outpatient fee schedule amount and is limited to the amount of the inpatient deductible. Beginning January 1, 2011, provisions of PPACA eliminated the copayment for preventive services that meet certain requirements, including screening flexible sigmoidoscopies and screening colonoscopies, and waived the Part B deductible for screening colonoscopies that become diagnostic during the procedure. The proposed national unadjusted copayment amounts for CY2014 are available in Addenda A and B of the proposed rule on the CMS Web site at Payment/HospitalOutpatientPPS/Hospital-Outpatient-Regulations-and-Notices-Items/CMS P.html. Updates to the Hospital OQR Program 10 P age

13 Federal Register pages As previously adopted, for CY2014 payment determinations under the Outpatient Quality Reporting (OQR) program, hospitals were required to report on a total of 25 quality measures. Hospitals that do not successfully participate in the OQR program are subject to a 2.0 percentage point reduction to the OPPS market basket update for the applicable year the reduction factor has not changed. For CY2015 payment determinations, hospitals are required to report on the same 25 quality measures reported on for CY2014 payment determinations. A table that lists the 25 measures CMS will collect for CY2015 payment determinations is available on Federal Register page For CY2016 payment determinations, CMS is proposing to remove two chart-abstracted measures from the program and add one healthcare-associated infection (HAI) measure and four chart-abstracted measures for a total of 28 measures. A table that lists the measures CMS would collect for CY2016 payment determinations is available on Federal Register pages (a table that lists the two measures CMS is proposing to remove from the OQR program for CY2016 payment determinations is available on Federal Register page 43647). As it does each year, CMS is using the proposed rule to update the OQR program data submission deadlines and procedures, chart validation requirements and methods, and other OQR-related procedures and processes. Complete detail on these updates, including a new reporting extension or waiver process to account for extraordinary circumstances, is available on Federal Register pages P age