PROPOSED 2011 POLICY, PAYMENT CHANGES FOR HOSPITAL OUTPATIENT DEPARTMENTS

OVERVIEW

On, July 2, 2010, the Centers for Medicare & Medicaid Services (CMS) issued a proposed rule that would update payment policies and rates for both hospital outpatient departments (HOPDs) and ambulatory surgical centers (ASCs) for calendar year (CY) 2011. For ASCs, CY 2011 will be the first year of full payment rates under the revised ASC payment system methodology following a four-year transition.   The proposed rule proposes to implement several provisions of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (together, the Affordable Care Act), that are effective Jan. 1, 2011.  The proposed rule also seeks to promote higher quality, efficient services for Medicare beneficiaries by adopting improvements to the Hospital Outpatient Quality Data Reporting Program (HOP QDRP), which makes data about the quality of outpatient hospital services publicly available.

CMS projects that total payments for services furnished to people with Medicare in HOPDs during CY 2011 under the Outpatient Prospective Payment System (OPPS) will be approximately $40 billion, while total projected CY 2011 payments under the ASC payment system will be approximately $4 billion.

OUTPATIENT PROSPECTIVE PAYMENT SYSTEM

Background

Since August 2000, Medicare has paid hospitals for most services furnished in their outpatient departments under the OPPS. Medicare currently pays more than 4,000 hospitals -- including general acute care hospitals, inpatient rehabilitation facilities, inpatient psychiatric facilities, long-term acute care hospitals, children’s hospitals, and cancer hospitals -- for outpatient services under the OPPS. Medicare also pays community mental health centers (CMHCs) under the OPPS for partial hospitalization program (PHP) services. The OPPS payments cover facility resources including equipment, supplies, and hospital staff, but do not pay for the services of physicians and nonphysician practitioners who are paid separately under the Medicare Physician Fee Schedule (MPFS).

All services under the OPPS are classified into groups called Ambulatory Payment Classifications (APCs). Services in each APC are clinically similar and require the use of similar resources. A payment rate is established for each APC. The APC payment rates are adjusted for geographic cost differences, and payment rates and policies are updated annually through rulemaking. The final rule is generally issued by November 1 each year and, unless otherwise specified, becomes effective January 1 of the subsequent year.

Beneficiaries generally share in the cost of services under the OPPS by paying either a 20 percent coinsurance rate or, for certain services, a copayment required under the Medicare law not to exceed 40 percent of the total payment for the APC. The statutory copayment is gradually being replaced by the 20 percent coinsurance as the composition of APC groups is updated in response to policy changes or new cost data. CMS estimates that the overall beneficiary share of the total payments for Medicare covered outpatient services will be about 22.1 percent in CY 2011.

Significant Proposals for CY 2011

·       Implementing The Affordable Care Act:

o   Waiver of beneficiary cost-sharing for preventive services – The Affordable Care Act waives the deductible and copayment for certain preventive services that are paid under the OPPS, including the initial preventive physical examination (IPPE) and preventive services that have been recommended by the United States Preventive Services Task Force with a grade of A or B.

o   OPPS market basket update – The Affordable Care Act requires CMS to reduce the OPD fee schedule increase factor (commonly referred to as the hospital operating market basket increase factor) for CY 2011 OPPS payment by 0.25 percentage point.  Therefore, we have calculated the proposed CY 2011 OPPS payment rates to reflect a hospital operating market basket increase factor of 2.15 percent (that is, the estimated hospital operating market basket increase factor of 2.4 percent less the 0.25 percentage point reduction). 

o   Payment adjustment for certain cancer hospitals – The Affordable Care Act requires CMS to conduct a study to determine if outpatient costs incurred by cancer hospitals that meet the classification criteria set forth in the statute exceed outpatient costs incurred by other hospitals paid under the OPPS and to make an appropriate budget neutral payment adjustment if these cancer hospitals are found to be more costly.  Based on the results of this analysis, CMS is proposing to adjust each cancer hospital’s OPPS payment so that its payment-to-cost ratio (PCR) is equivalent to the average PCR of all other hospitals paid under the OPPS.  Because the Medicare law holds such cancer hospitals harmless to payments before the OPPS was implemented as set forth in the statute, a cancer hospital still may be able to receive a transitional outpatient payment.

o   Frontier state wage provisions – For services beginning in CY 2011, the wage adjustment factor applicable to any HOPD that is located in a state in which at least 50 percent of the counties have a population per square mile of less than 6 (excluding Alaska and Hawaii ) may not be less than 1.  For CY 2011, CMS is proposing to adjust the wage index for all OPPS hospitals located in a frontier state in a non-budget neutral manner as specified by the Affordable Care Act.

·       Strengthening Ties Between Payment And Quality:

o   Quality measures to be reported – To allow CMS and hospitals to more effectively plan for future measurement requirements, CMS is proposing measures for three subsequent payment determinations.  CMS is proposing to add six quality measures to the current list of 11 measures to be reported by HOPDs, bringing to the total number of measures to 17 that are to be reported in CY 2011 for purposes of the CY 2012 payment determination.  These new measures include one structural health information technology (HIT) measure, four claims-based imaging efficiency measures, and one chart-abstracted measure for the emergency department.

CMS is proposing to add seven measures to the list for reporting in CY 2012 for the CY 2013 payment determination (for a total of 24 measures).  Of the proposed new measures, one is a structural measure on use of electronic health records and six are chart-abstracted measures for the emergency department.   CMS is also proposing to add six chart-abstracted measures for reporting in 2013 for the 2014 payment determination, bringing the total number of measures for reporting in CY 2013 to 30.  These new measures include five chart-abstracted measures for diabetes mellitus and one chart-abstracted measure for exposure time for fluoroscopy procedures.  The complete list of existing and proposed measures for reporting in CYs 2011 through 2013 is attached as an appendix.

o   Validation of quality reporting – For the CY 2011 payment determination, CMS implemented a HOP QDRP validation requirement to ensure that hospitals are accurately reporting measures using chart-abstracted data (however, the results of the validation will not affect the CY 2011 payment determination for any hospital).  For the CY 2012 payment determination, CMS is proposing to validate data from 800 randomly selected hospitals.  For each hospital, CMS is proposing to randomly select up to 12 cases per quarter.  CMS is proposing to request the corresponding medical records for the cases, perform its own abstraction of the HOP QDRP chart-abstracted measures for the cases, and compares the results with the measures reported by the hospital.  CMS is proposing to require hospitals to achieve a minimum 75 percent validation score based on this validation process to receive the full OPPS update in CY 2012.

·       Proposing Updates To The OPPS Payments And Policies:

o   Supervision requirements for outpatient therapeutic services – CMS is proposing to require direct supervision for the initiation of a service followed by general supervision after the initiation period for a limited set of “non-surgical extended duration services,” including observation services.  Under current policy, direct supervision is required for the duration of all outpatient therapeutic services in both hospitals and critical access hospitals (CAHs), although CMS issued instructions to contractors to not enforce the direct supervision requirement in CAHs for CY 2010.  The proposal to require direct supervision followed by general supervision for certain non-surgical extended duration services would apply to both hospitals and CAHs for CY 2011.

o   Partial hospitalization services, including services provided by CMHCs – CMS is proposing to establish four separate PHP APC per diem payment rates, two for CMHC PHPs and two for hospital-based PHPs, which are based on each provider type’s data (see chart below for proposed per diem payment rates). In addition, section 1301 of the Health Care and Education Reconciliation Act of 2010 (HCERA 2010) enacted on March 30, 2010, revised the definition of CMHC by adding a requirement that the CMHC must provide at least 40 percent of its services to non-Medicare beneficiaries.   HCERA further revised the definition of a PHP (provided by either a CMHC or HOPD) to exclude services furnished in a beneficiary’s home or an inpatient or residential setting.  CMS is also proposing to continue the CMHC multiple outlier threshold at 3.4 times the APC payment amount for higher intensity partial hospitalization days for CY 2011.

• Drugs and pharmacy overhead – For CY 2011, CMS is proposing to pay for the acquisition and pharmacy overhead costs of separately payable drugs and biologicals without pass-through status at the average sales price (ASP) plus 6 percent.  The proposed payment rate of ASP plus 6 percent is based upon the cost of separately payable drugs and biologicals, calculated from hospital claims and cost reports, with an adjustment for pharmacy overhead cost that reflects the redistribution of $200 million of the pharmacy overhead cost currently attributed to packaged drugs and biologicals (both coded and uncoded) to separately payable drugs and biologicals without pass-through status.

AMBULATORY SURGICAL CENTERS

Background

There are approximately 5,000 Medicare-participating ASCs. Since January 1, 2008, ASCs have been paid under a revised ASC payment system that both aligns payment in ASCs and hospital outpatient settings by basing ASC payment rates on the APC relative weights for similar services and extends payment to more surgical services in ASCs than under the prior payment system.   The revised ASC payment rates were established to reflect the same relativity of resource use among procedures as under the OPPS, taking into consideration the lower costs of surgical procedures performed in ASCs and maintaining budget neutrality in the payment system.   To minimize the impact of the revised payment system, the ASC payment rates calculated under the new ratesetting methodology were phased in over four years. CY 2011 is the first year of the fully-implemented payment rates under the revised ASC payment system.  

In general, the revised ASC payment rate for a covered surgical procedure is based on the APC relative payment weights for the same procedure under the OPPS; however, there are a few exceptions. For example, for device-intensive procedures (assigned to a subset of the OPPS device-dependent APCs where device costs account for more than 50 percent of the total cost of the service), ASCs receive the same payment for the device cost as under the OPPS. For ASC procedures that are predominantly performed in physicians’ offices, the ASC payment is capped at the lesser of the amount paid under the Medicare physician fee schedule for practice expenses for providing the same procedure in an office or the payment amount under the standard ASC ratesetting methodology.

In the CY 2008 final rule that revised the ASC payment system, CMS added nearly 800 procedures to the list of ASC procedures for which payment could be made. Only those surgical procedures that would be expected to pose a significant safety risk to beneficiaries when performed in an ASC or that would be expected to require an overnight stay following the procedure are excluded from the ASC list. These changes in payment policies for ASCs give patients broader access to surgical services in settings that are clinically appropriate.

Significant Proposals for CY 2011

·       ASC Payment Rate Updates– CMS projects the percentage increase in the Consumer Price Index for All Urban Consumers that would update the ASC conversion factor for CY 2011 to be 1.6 percent.  However, beginning in CY 2011, the Affordable Care Act requires the annual update factor for the ASC payment system be reduced by a productivity adjustment, which is also estimated to be 1.6 percent for CY 2011.  As a result, CMS is proposing a 0 percent update to the ASC payment system for CY 2011.

·       Changes To ASC Covered Surgical Procedures And Covered Ancillary Services – CMS is proposing to add 5 surgical procedures to the list of procedures for which Medicare would pay when performed in an ASC. CMS is also proposing to newly designate six procedures as office-based procedures (subject to payment at the lesser of the national office practice expense payment to the physician or the national standard ASC rate) and to update the list of covered ancillary services to reflect the proposals in the OPPS update.

·       Waiver Of Beneficiary Cost-Sharing For Preventive Services– The Affordable Care Act waives the deductible and coinsurance for certain preventive services that are paid under the ASC payment system and have been recommended by the United States Preventive Services Task Force with a grade of A or B for any indication or population.

OTHER SIGNIFICANT PROPOSALS IN THE OPPS/ASC PROPOSED RULE

·       Affordable Care Act Provisions Affecting Physician-Owned Hospitals:  The physician self-referral law generally prohibits physicians from referring Medicare and Medicaid beneficiaries to entities with which they or an immediate family member have a financial  relationship for certain designated health services, including inpatient and outpatient hospital services.  However, the law allows physicians to refer patients to hospitals in which they have an ownership or investment interest if the ownership or investment is in the whole hospital, rather than in a particular department.  An exception to the prohibition is also allowed for some rural hospitals.

Section 6001 of the Affordable Care Act narrows access to the “rural provider” and “whole hospital” exceptions by prohibiting their use by new physician-owned hospitals, and limiting the ability of existing physician-owned hospitals to expand their capacity.   Under section 6001, physician-owned hospitals that were converted from ASCs cannot qualify for the revised rural provider and whole hospital exceptions.  Additional provisions in section 6001 are aimed at preventing conflicts of interest, ensuring that all ownership and investment interests are bona fide, and promoting patient safety.  The proposed rule incorporates these provisions into CMS regulations.

·       Implementing The Affordable Care Act’s Graduate Medical Education Provisions:  The Affordable Care Act included a number of changes to the way CMS pays for graduate medical education (GME) under the Inpatient Prospective Payment System (IPPS).  CMS is including its proposals to implement the GME provision in this OPPS/ASC proposed rule.  The changes would affect how CMS counts time spent by residents furnishing care in nonprovider settings, as well as resident time spent in didactic and scholarly activities, as well as other activities not directly relating to patient care.  The Affordable Care Act also provides for the redistribution of residency positions from hospitals training fewer residents than they may have under their caps and also redistributes the resident cap positions from closed hospitals.

CMS will accept comments on the proposed rule until Aug. 31, 2010, and will respond to comments in a final rule to be issued by Nov. 1, 2010.

For more information on the CY 2011 proposals for the OPPS and ASC payment system, please see http://www.ofr.gov/OFRUpload/OFRData/2010-16043_PI.pdf  or   www.federalregister.gov/inspection.aspx#special.

Additional information can be found on the CMS website at:

OPPS:  www.cms.gov/HospitalOutpatientPPS/  

ASC payment system:  www.cms.gov/ASCPayment/

APPENDIX

HOP QDRP PROGRAM CURRENT AND PROPOSED QUALITY MEASURES FOR REPORTING IN CY 2011 THROUGH CY 2013