Hospital Outpatient Prospective Payment System (OPPS)

CMS generally makes payment for hospital outpatient department services through the Hospital Outpatient Prospective Payment System (OPPS). This section discusses different payment policies for hospital outpatient department services. For more information, please see this MLN page.

Ambulatory Payment Classifications (APCs)

All items and services paid under the OPPS are assigned to payment groups called Ambulatory Payment Classifications (APCs), which group together items and services that are similar clinically and in terms of resource use. Under the OPPS, APC payments are made for items and services furnished by hospital outpatient departments.

Under its comprehensive APC (C-APC) policy, CMS makes payment for certain costly primary services and all other items and services reported on the hospital outpatient department claim, which CMS considers integral, ancillary, supportive, dependent, and adjunctive to the primary service and representing components of a complete comprehensive service.

Items, services, procedures, and supplies paid under the OPPS are reported on claims with HCPCS codes, including HCPCS Level I (CPT®) codes and HCPCS Level II codes (PDF). For more information about APCs, refer to:

• Pass Through Payment Status & New Technology Ambulatory Payment Classification (APC)
• OPPS Final Rule

CMS pays separately for certain items and services in this setting.

Outlier Payments

In addition to the APC payment, the OPPS provides outlier payments to hospitals to help mitigate the financial risk associated with high cost and complex procedures, where a very costly service could present a hospital with significant financial loss. Outlier payments are provided on a service basis when the cost of a service exceeds the APC payment amount multiplier threshold (the APC payment amount multiplied by a certain amount) as well as the APC payment amount plus a fixed-dollar amount threshold (the APC payment plus a certain dollar amount). Please see annual rulemaking for further details.

New Technology APCs

The OPPS utilizes new technology APCs to pay for certain new services until CMS gathers sufficient claims data to enable it to assign the service to an appropriate clinical APC.

To be assigned to a New Technology APC, the service must meet certain criteria, including, but not limited to the following:

• The service must be truly new, meaning it cannot be appropriately reported by an existing HCPCS code assigned to a clinical APC and does not appropriately fit within an existing clinical APC.
• The service must not be eligible for transitional pass-through payment (however, a truly new, comprehensive service could qualify for assignment to a new technology APC even if it involves a device or drug that could, on its own, qualify for pass-through payment); and
• The service falls within the scope of Medicare benefits under section 1832(a) of the Act and is reasonable and necessary in accordance with section 1862(a)(1)(A) of the Act.

Once assigned, a service is paid under a New Technology APC until sufficient claims data have been collected (generally two to three years) to allow CMS to assign the procedure to a clinical APC group that is appropriate in clinical and resource terms.

CMS assigns the new service to a New Technology APC whose cost band includes the estimated cost of the new service.

Applications for a New Technology APC assignment can be submitted at any point in the year via MEARIS^TM. Determinations are made on a quarterly cycle.

For more information and application requirements refer to:

• Process and Information Required for a New Technology Ambulatory Payment Classification (APC) Assignment Under the Hospital Outpatient Prospective Payment System (OPPS) (PDF)
• Pass Through Payment Status & New Technology Ambulatory Payment Classification (APC)

Transitional Pass-Through Payments

Transitional pass-through payments provide additional payment for new devices, drugs, and biologicals that met eligibility criteria for a period of at least two years but not more than three years while CMS gathers additional data on the cost of those items. The intent of pass-through payments is to help facilitate patient access to technologies that are too new to be well represented in the data that CMS uses to set OPPS payment rates. While new technology APCs are payments for complete services, pass-through payments are for specific drugs, biologicals, and devices that providers use in the delivery of services.

Pass-through applications are evaluated on a quarterly basis. Applications that are not preliminarily approved during the quarterly process are included in the next annual notice-and-comment rulemaking. Applications approved during the quarterly ‘fast-track’ process will receive a pass-through effective date at the start of the next quarter following approval, and these applications are also included in the next applicable rulemaking cycle.

For more specific information about eligibility, refer to Process and Information Required to Apply for Additional Device Categories for Transitional Pass Through Payment Status Under the HOPPS (PDF).

Transitional Pass-Through Payments: Devices

Section 1833(t)(6) of the Social Security Act provides for temporary additional payments for medical devices that meet certain criteria under the OPPS Device Pass-Through payment policy. The amount of pass-through payment for a qualifying device is the amount by which the cost of the device exceeds the amount included in the applicable APC for the device.

Devices must meet the criteria in the regulation at 42 CFR 419.66 in order to qualify for transitional pass-through payment. Devices approved for pass-through payments are eligible for such payments for a period of at least two but not more than three years. Once the pass-through payment period expires, payment for the device is packaged into the OPPS payment rate for the associated procedure(s).

Transitional Pass-Through Payments: Drugs and Biologicals

Section 1833(t)(6) of the Social Security Act provides for temporary additional payments or “transitional pass-through payments” for certain drugs and biologicals. Transitional pass-through payments are provided for certain “new” drugs and biologicals that were not being paid for as a hospital outpatient department (HOPD) service as of December 31, 1996, and whose cost is “not insignificant” in relation to the OPPS payments for the procedures or services associated with the new drug or biological. CMS considers the average cost of a new drug or biological to be “not insignificant” if it meets the following conditions:

1. The estimated average reasonable cost of the drug or biological in the category exceeds 10 percent of the applicable APC payment amount for the service related to the drug or biological.
2. The estimated average reasonable cost of the drug or biological exceeds the cost of the drug or biological portion of the APC payment amount for the related service by at least 25 percent.
3. The difference between the estimated reasonable cost of the drug or biological and the estimated portion of the APC payment amount for the drug or biological exceeds 10 percent of the APC payment amount for the related service.

As noted above, applications are reviewed on a quarterly basis.

The methodology for determining the pass-through payment amount is set forth in the regulation at 42 CFR 419.64(d). Under current policy, the applicable payment rate for products receiving drug pass-through payment is generally average sales price (ASP) plus 6 percent minus the portion of the APC payment amount that CMS determines is associated with the drug or biological. Transitional pass-through payments for a drug or biological are made for a period of at least 2 years, but not more than 3 years.