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OUTPATIENT PROSPECTIVE PAYMENT SYSTEM (opps)

The Centers for Medicare and Medicaid Services (CMS) published the final Medicare Outpatient Prospective Payment System (OPPS) rule for calendar year (CY) 2012 on November 1, 2011. The final changes to the Medicare OPPS are effective January 1, 2012 unless otherwise noted.

The Medicare OPPS, originally implemented in August of 2000, applies to Medicare services furnished by all hospitals ― including hospitals excluded from IPPS. OPPS also applies to partial hospitalization services furnished by both hospitals and community mental health centers.

OPPS payments are based on groups of outpatient services called ambulatory payment classifications (APCs), which divide thousands of outpatient services into hundreds of groups. Services in each APC are similar in clinical respects and in terms of required resources. The APC payment rate for each group applies to all services in the group, and is wage-adjusted to account for geographic differences. Depending on the actual services provided, hospitals may be paid for more than one APC per encounter.

The APC structure does not apply to certain outpatient services that currently are reimbursed under existing fee schedules, including physical, occupational, and speech therapies, orthotic and prosthetic devices, durable medical equipment (DME), clinical diagnostic laboratory services, and ambulance services.

APC Group Changes

The final rule revises the APC groups to consider drugs and devices that no longer qualify for pass-through status, new and deleted Healthcare Common Procedure Coding System/ Current Procedural Terminology (HCPCS/ CPT) codes, changes in technologies, new services, and new cost data. The following table below shows the number of APCs per category finalized for CY 2012:

CMS retained two of the parallel sets of New Technology APCs, one set with a status indicator of “S” (Significant Procedures, Not Discounted when Multiple) and the other set with a status indicator of “T” (Significant Procedure, Multiple Reduction Applies). Under the current CMS system, there are 82 New Technology APC’s.

Recalibration of APC Weights

CMS is required to review and revise the APC relative payment weights annually. The APC relative weights are based on the median hospital costs for services in the APC groups.

The APC relative weights and Payments for CY 2012 were calculated using claims from CY 2010 that were processed before January 1, 2011, and continue to be based on the median hospital costs for services in the APC groups. Under the new methodology, CMS will select claims for services paid under the OPPS and match these claims to the most recent cost report filed by the individual hospitals represented in CMS’s claims data. CMS continues to believe that it is appropriate to use the most current full calendar year claims data and the most recently submitted cost reports to calculate median costs underpinning the APC relative payment weights and the CY 2012 payment rates.

Composite APCs

Composite APCs were developed to provide a single payment when a specified combination of HCPCS codes are reported on the same date of service, rather than paying for each service individually. For CY 2012, CMS continues its established composite APC policies for extended assessment and management, LDR prostate brachytherapy, cardiac electrophysiologic evaluation and ablation, mental health services, and multiple imaging services. CMS created composite APC 8009 for cardiac resynchronization therapy.

Conversion Factor Update

OPPS payment rates are calculated by multiplying a single national conversion factor (or base rate) by APC-specific relative weights based on median cost. To account for local area wage variances, the labor-related component of the APC amount is wage-adjusted utilizing inpatient full wage index values. 

The final market basket update factor is 1.66% for CY 2012, which reflects the market basket factor of 3.0% less the required reduction of 1.1% by the Affordable Care Act (ACA) the required wage index budget neutrality adjustment of 1.0005, the cancer hospital payment adjustment of 0.9978, less the adjustment of 0.07 percent of projected OPPS spending for the difference in the pass-through spending  resulted in final full market basket conversion factor in 2012 of $70.016.

The final conversion factor for those hospitals that fail to meet the HOP QDRP requirements would be $68.616.  

Wage Index Adjustment

To account for labor market differences, the labor portion of the conversion factor (60 percent) is adjusted by the hospital wage index. Currently, CMS applies to the OPPS, the wage index used under the Inpatient Prospective Payment System (IPPS) with all reclassifications, adjustments, and application of the rural floor. CMS is not required to use the IPPS wage index with all adjustments under the OPPS, but does so as the agency believes use of the IPPS wage index has been reasonable.

CMS is considering adopting a policy that would address situations where IPPS wage index adjustments, such as the rural floor, are resulting in significant fluctuations in the wage index. One option would be to not apply the rural floor wage index at all in the OPPS where the rural floor is set by a small number of hospitals and results in a rural floor that benefits all hospitals in the State. Alternatively, CMS says it could apply within State rural budget neutrality to the OPPS wage index.

Outlier Payments

OPPS outlier payments are provided for individual procedures/services with extraordinarily high costs compared to the payment rates for their APC group. These payments are added to the APC payment amount in order to mitigate hospital losses when treating high-cost cases. For 2012, CMS will continue setting the projected target for outlier payments at 1.0% of total OPPS payments. CMS adopted its proposal to establish a separate threshold for community mental health centers (CMHCs). As such, 0.14% of the 1.0% projected target will be allocated to CMHCs for partial hospitalization program services.

Similar to prior years, the final rule includes a fixed dollar outlier threshold as well as a percentage threshold. The CY 2012 final rule increases the fixed-dollar outlier threshold from $2,025 (CY 2011) to $2,100 to ensure that outlier spending does not exceed the reduced outlier target.

In order to be eligible for an outlier payment, the cost of a hospital outpatient service must exceed 1.75 times the APC payment amount (the percentage threshold) and it must be at least $2,100 greater than the APC payment amount. When the cost of a hospital outpatient service goes beyond these applicable thresholds, Medicare will make an outlier payment equivalent to 50% of the amount by which the cost of furnishing the service exceeds 1.75 times the APC payment rate.

Cost Outlier Reconciliation

In order for an OPPS claim to qualify for an outlier payment, the procedure’s cost must be significantly higher than the APC payment.  Provider-specific cost-to-charge ratios (“CCRs”) are used to estimate a hospital’s costs from billed charges, which are based on each facility’s most recent settled cost report.  CMS states that the time lag between CCRs developed from the latest settled cost report, versus the current charges, can create the potential for hospitals to set charges higher to render inappropriately high cost. 

In 2009, CMS implemented a reconciliation process to determine appropriate outlier payments. This process would include thresholds that measure an acceptable percent change in a hospital’s CCR and an amount of outlier payment involved. The appropriately determined outlier payment would subsequently be adjusted for the time value of money, resulting in a hospital payment to/ from CMS.

The final rule for CY 2012 includes an adjustment to the approach used for estimating the cost for drugs and biologicals. In order to address charge compression, CMS shifted a portion of the pharmacy overhead cost associated with packaged drugs and biologicals from those packaged drugs and biologicals to separately payable drugs and biologicals;  to pay for separately payable drugs and biological at average sale price (ASP) plus 4%; and to apply a proportional reduction in the total amount of pharmacy overhead cost associated with packaged drugs and biologicals prior to estimating the total resource costs of individual OPPS services.

The CY 2011 OPPS final rule provides that drugs, biological, and radiopharmaceuticals that are not packaged and paid separately will generally be paid at a rate of ASP plus 6%.

Rural Sole Community Hospital Adjustment

For CY 2012, CMS will apply a budget-neutral 0.98 payment factor for rural SCHs, including EACHs, for all services and procedures paid under the OPPS, excluding separately payable drugs and biologicals, devices paid under the pass-through payment policy, and items paid at charges reduced to costs.

Transitional Outpatient Payments

Transitional Outpatient Payments (TOPs) were established in conjunction with OPPS implementation as a way to provide relief to hospitals that would receive less in payments under the OPPS methodology than they would have received under the prior payment system.

CMS, as mandated by legislature extensions, maintained TOPs to rural hospitals and SCHs with less than 100 beds through December 31, 2011.  Cancer hospitals and children’s hospitals are permanently held harmless from the impact of OPPS.  According to the CY 2012 final rule, effective January 1, 2012, rural hospitals with 100 or fewer beds and SCHs/EACHs will no longer be eligible for TOPs.

Clinic Visits, Emergency Department Visits, and Critical Care Services

In CY 2011 CMS’ asserted that until national guidelines are established, hospitals should continue using their own internal guidelines to determine the appropriate reporting of different levels of clinic and emergency department visits.

CMS will continue to regularly reevaluate patterns of hospital outpatient visit reporting at varying levels of disaggregation below the national level to ensure the hospitals continue to bill appropriately and differentially for these services.

CMS also notes in the final rule that they will continue their commitment to provide hospitals with six to twelve months notice prior to any implementation of any new national guidelines. CMS makes no change as to how hospitals should report visits in CY 2012.

Partial Hospitalization

Partial Hospitalization is an intensive outpatient psychiatric program provided to patients in place of inpatient psychiatric care. CMS has established payment rates based on median costs, but has recognized that their methodology is impacted by charge manipulations made by CMHCs to increase outlier payments. As a result of these charge issues, there have been significant swings in the median cost per diems. To mitigate the reduction in payment for partial hospitalization program services, the CY 2009 final rule adopted several regulatory and payment changes, including a two-tiered approach for PHP services in which CMS would pay one amount for days with three units of service (APC 0172) and a slightly higher amount for days with four or more units of service (APC 0173). In CY 2011, CMS adopted a policy to calculate these rates for CMHCs based only on CMHC data and hospital based rate based only on hospital based data, providing a two year transition to the new methodology for CMHCs.  Also, CMS established four separate PHP APC per diem payment rates, two for CMHC PHPs (for Level I and Level II services) and two for hospital-based PHPs (Level I and Level II services). CMS’ proposal fully implements the two-year transition for calculating the relative payment weights for CMHCs adopted by the agency last year. As shown in the table below, the final PHP per diem payment rates for both CMHCs and hospitals are substantially lower than the rates currently provided for these services. To see the final CY 2011 and final CY 2012 PHP per diem rates and blended CMHCs per diem rates click here.

Transitional Pass-Through Payments

Pass-Through Spending

The Balanced Budget Refinement Act of 1999 (“BBRA”) provides transitional pass-through payments for certain drugs, biologicals, pharmaceuticals, and medical devices. The current cap on total amount of pass-through spending is 2.0% of total OPPS payments. Estimated pass-through spending that does not exceed the 2.0% cap is returned to the conversion factor.

CMS estimates that pass-through spending in CY 2012 will not amount to 2.0% of total projected OPPS program spending.

Payments for Pass-Through Devices

For 2012, CMS makes no change to its current policy. Devices are eligible for pass-through payments for two to three years. MMA requires pass-through drugs and biological to be paid at the average sales price plus 6% for 2005 and beyond.

Payment for Pass-Through Drugs, Biologicals, and Radiopharmaceuticals

For 2012, CMS Payment for drugs and biologicals with pass-through status is equal to the difference between ASP plus 6% and the applicable fee schedule portion associated with the drug or biological.

Payment for Radiopharmaceuticals

For CY 2012, CMS will continue to apply the existing policies for diagnostic radiopharmaceuticals.

Payment for radiopharmaceuticals with pass-through status would be paid at ASP plus 6%, while those without ASP information would be paid at wholesale acquisition cost (WAC) plus 6% or, if WAC is not available, based on 95% of the product’s most recently published average wholesale price (AWP).

Diagnostic radiopharmaceuticals without pass-through status are packaged into payment for nuclear medicine procedures; the pass-through payment is then reduced by an amount that reflects the diagnostic radiopharmaceutical portion of the APC payment amount for the associated nuclear medicine procedure (the “policy-packaged” drug APC offset) that CMS determines is associated with the cost of predecessor diagnostic radiopharmaceuticals. APC payment offset is said to be necessary in order to provide an appropriate transitional pass-through payment and to ensure there are no duplicate radiopharmaceutical payments.

CMS determines the actual APC offset amount for pass-through diagnostic radiopharmaceuticals by taking into consideration the otherwise applicable OPPS payment amount, and multiplying the “policy-packaged” drug offset fraction by the APC payment amount for the nuclear medicine procedure with which the pass-through diagnostic radiopharmaceutical is used and reducing the separate OPPS payment for the pass-through diagnostic radiopharmaceutical by this amount.

Payment for Blood

For 2012, CMS will pay for blood clotting factors at ASP + 4% percent. This remains consistent with the other final payment policies for other non pass-through separately payable drugs and biologicals. CMS will continue their policy for payment of the furnishing fee using an updated amount.

Packaging Policy for Low-Cost Drugs, Biologicals and Radiopharmaceuticals

For 2012, CMS will raise its packaging threshold for drugs, biological and radiopharmaceuticals, to $75 per day. Drugs costing less than $70 would have their cost packaged in the procedure with which they are billed, while drugs costing more than $75 would be paid separately through their own APC.

There are a few exceptions to this packaging policy. The costs of all contrast agents, diagnostic radiopharmaceuticals and non-pass-through implantable biologicals are packaged into the procedures with which they are billed. However, oral and injectible anti-emetic products are no longer exempt from CMS’ packaging policy.

Beneficiary Co-payments

The BBRA requires rules for determining co-payment amounts to be paid by beneficiaries for covered outpatient department services.  The national unadjusted co-payment amount for a covered outpatient department service provided in a year must be reduced so that the effective co-payment rate for that service does not exceed a specified percentage.

The national unadjusted copayment amount cannot be less than 20% of the OPD fee schedule amount. However, a 25% copayment is applied in certain instances.

Devices Replaced with No Cost or Hospital Receives Credit

Through the years, it has been the practice of manufacturers to offer replacement devices for malfunctioning devices without any cost to the providers.  In CY 2007, CMS implemented a policy that reduced the payment for select device-dependent APCs when the hospital receives certain replacement devises without cost or receives full credit for the device being replaced.  The policy did not apply to cases in which there was a partial credit toward the replacement of the device. For CY 2012, CMS makes no changes to the existing policy.

Inpatient-Only Procedures Payment

CMS has identified procedures that are typically provided only in an inpatient setting, and as a result, would not be paid under the OPPS.  These services would only be paid if the nature of the procedure and the need for at least 24 hours of postoperative recovery time, or monitoring, are deemed necessary. 

The CY 2012 final rule is to remove three procedures from the inpatient-only list, including CPT codes 21346, 35045, and 54650.

Physician Supervision Requirements

For CY 2012, CMS will revise and further define several current policies for the physician supervision of outpatient services.

Direct Supervision

In order to ensure that hospital outpatient services are appropriately supervised by qualified practitioners while not impeding beneficiary access to these services, and in response to concerns raised by the hospital community, CMS is revising or further defining several current policies for the supervision of outpatient services. First, in CY 2010, CMS allowed certain non-physician practitioners ─ specifically physician assistants, nurse practitioners, clinical nurse specialists, certified nurse-midwives, and licensed clinical social workers ─ to provide direct supervision for all hospital outpatient therapeutic services that they are authorized to personally perform according to their state’s scope of practice rules and hospital-granted privileges. 

In CY 2011, CMS adopted additional clarification for direct supervision. CMS adopted changes to the direct and general supervision requirements for outpatient therapeutic services and the direct supervision requirements for both outpatient therapeutic and diagnostic services.

CMS promulgated that therapeutic services are required to provide “direct supervision” for the beginning of a service to stabilize the patient, followed by “general supervision” for the remainder of the service for a limited set of “non-surgical extended duration services,” including observation services and intravenous hydration. However CMS will not enforce supervision requirements for outpatient therapeutic services in critical access hospitals and small rural hospitals for CY 2012.

In CY 2012, CMS will establish a Federal Advisory APC Panel as an independent review body that would evaluate individual outpatient therapeutic services for potential assignment by CMS of general (lower) or personal (higher) supervision. CMS is proposing to amend the APC Panel charter to render the Panel more appropriate for this task by expanding its scope to include the topic of supervision. CMS is also proposing to add two to four members to the Panel who would be representative of CAHs, so that there is broad representation of the types of hospitals that are subject to the supervision rules for payment.

CMS is proposing to charge the Panel with recommending a supervision level (general, direct, or personal) to ensure an appropriate level of quality and safety for delivery of a given service, as defined by a CPT code. CMS is also proposing that the Panel assess whether there is a significant likelihood that the supervisory practitioner would need to reassess the patient and modify treatment during or immediately following the therapeutic intervention, or provide guidance to the individual who provides the service.

Reporting of Hospital Quality Data and Other Quality Initiatives

As required by law, CMS will reduce the CY 2012 annual inflation update factor by two percentage points for most services furnished by hospitals that failed to meet the CY 2012 reporting requirements of the HOP QDRP.

The reduction will not apply to payments for separately payable pass-through drugs, biologicals and devices, separately payable non-pass-through drugs and non-implantable biologicals, separately payable therapeutic radiopharmaceuticals, and services assigned to New Technology APCs.

In addition to the 15 outpatient quality measures already established under the Hospital Outpatient Quality Data Reporting Program (HOP QDRP) in CY 2011, CMS states that hospitals report data on an additional eight measures in CY 2012. Outpatient providers that fail to successfully report the 23 measures in CY 2012 will receive a reduction of 2.0 percentage points to the market-basket update in CY 2013.

EHR Incentive Program and Establishment of a New Electronic Quality Reporting Pilot

Included as part of the OPPS rule is a change to the quality reporting requirements of the EHR Incentive Program. The program, authorized by the ARRA of 2009, provides incentive payments to hospitals and doctors that successfully adopt “meaningful use” EHR systems under rules established by CMS.

Since CMS does not yet have the capabilities of accepting the submission of quality data electronically, the agency acknowledges that eligible hospitals and CAHs seeking to achieve meaningful use status in payment year 2012 and subsequent years can continue to report quality measure results as calculated by certified EHR technology through attestation rather than electronic submission to CMS.

As an alternative, CMS is establishing a new Electronic Reporting Pilot program. For payment year 2012, CMS is acknowledges that eligible hospitals and CAHs participating in the Medicare EHR Incentive Program may meet the quality reporting requirements of the program by participating in the new Electronic Reporting Pilot.

CMS notes that participation in this Electronic Reporting Pilot will be voluntary and that eligible hospitals and CAHs may continue to attest to the quality measure results calculated by certified EHR technology.

Validation of Quality Reporting

Beginning with the CY 2011 payment determination, CMS implemented HOP QDRP validation requirement to ensure that hospitals are accurately reporting measures using chart-abstracted data.  For 2013 payment determination, CMS will use the same processes as for CY 2012, while reducing the number of randomly selected hospitals from 800 to 450. CMS will also select up to 50 additional hospitals based on the targeting criteria which indicate possible data quality concerns. For each selected hospital, CMS will randomly select up to 12 cases per quarter. CMS will request the corresponding medical records for the cases, perform its own abstraction of the HOP QDRP, and compare the results with the measures reported by the hospital. CMS asserts that hospitals must achieve a minimum 75 percent validation score.

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