MEDICARE ANNOUNCES PAYMENT RATES AND POLICY CHANGES FOR HOSPITAL OUTPATIENT SERVICES

Starting January 1, Medicare beneficiaries will have greater access to preventive benefits, quicker access to new technologies and lower copayments for hospital outpatient services under a final rule announced today by the Centers for Medicare & Medicaid Services (CMS).

For hospitals, the final rule provides for a 3.3 percent inflation update in payment rates for outpatient services. The inflation update, together with other policies contained in the final Outpatient Prospective Payment System (OPPS) rule, will increase projected Medicare payments to hospitals for outpatient services to $24.6 billion compared to projected payments of $23.1 billion in 2004.

“The new rule makes it possible for people with Medicare coverage to obtain quality preventive and treatment services in hospital outpatient departments,” said CMS Administrator Mark B. McClellan, M.D., Ph.D. “The rule also will make it easier and faster for beneficiaries to receive state of the art treatment.”

The final rule implements provisions required by the Medicare Modernization Act of 2003 (MMA) for preventive services in hospital outpatient departments. These include the “Welcome to Medicare Physical” for new beneficiaries, which will provide baseline information to the physician on the patient’s health status, allow for early detection and treatment of diseases, and provide an opportunity to refer the patient to other Medicare-covered services. When this examination is provided in an outpatient department, Medicare will pay the hospital about $78 for the use of the facility. The fee does not include payment for the physician’s professional services, which will be separately paid under the Medicare Physician Fee Schedule (MPFS).

The final rule also significantly increases payments for diagnostic mammograms by removing them from payment under the OPPS, as required by the MMA.  Like screening mammograms performed in hospital outpatient departments, diagnostic mammograms will be paid under the MPFS, resulting in increases of nearly 40 percent over current OPPS rates for traditional mammograms, and about 60 percent for digital diagnostic mammograms.

In addition to the new physical, the rule increases payment rates to hospitals for screening examinations that Medicare already covers.  The final payment increases are as follows:

• Pelvic and breast exams to detect cervical and breast cancer, 1.7 percent
• Barium enema to detect colorectal cancer, 2.1 percent
• Bone density studies, 4.5 percent
• Flexible sigmoidoscopy to detect colorectal cancer, 6.8 percent
• Screening colonoscopy, also for colorectal cancer, 8.3 percent
• Glaucoma screening, 9.9 percent

“The new modernized Medicare helps beneficiaries get access to benefits that help prevent illnesses. That additional access will help close the prevention gap for seniors,” McClellan said.

The final rule also implements provisions of the MMA designed to speed beneficiary access to state-of-the-art treatments and strengthens the financial viability of hospitals in rural areas.  For example, the rule makes it possible for hospitals to receive payment for new drugs and biologicals upon Food and Drug Administration Approval, rather than having to wait several months until a code and payment rate are assigned. In addition, the rule continues into 2005 the MMA provision that sets rates for brachytherapy sources on charges adjusted to cost, and establishes definitions for new codes for high activity brachytherapy sources.  Brachytherapy is an advanced cancer treatment that involves the placement of radioactive seeds near the tumor site, thus reducing the exposure of non-cancerous tissue to radiation.

"In this rule, we are also reducing beneficiary out-of-pocket payments for outpatient services, which until now have been as high as 50 percent of the charge,” Dr. McClellan said. The final rule reduces the maximum coinsurance rate for outpatient services to 45 percent of the total payment to the hospital in 2005, down from 50 percent this year.  Under the Medicare law, the cap on coinsurance rates is to be reduced gradually until all services have a coinsurance rate of 20 percent of the total payment.   Under the previous payment system, beneficiary coinsurance was set at 20 percent of the hospital’s charges, which were often significantly higher than the Medicare payment rate.

The rule improves the accuracy of payments for blood and blood products used in outpatient departments. For example, CMS will use a new method for calculating appropriate payment rates, and creating individual ambulatory payment classifications (APCs) for all blood products.  In response to comments about proposed reductions for low volume blood and blood products, the final rule increases payment by using a 50/50 blend of the median costs used for payment in 2004 and the medians developed for 2005.

The final rule also responds to concerns raised during the comment period about proposed reductions in payments for procedures that require expensive devices. For 21 device-dependent APCs, the 2005 payment will be based on 95 percent of the 2004 payment median.

The rule changes the criteria for hospitals to be eligible for additional payments, known as outlier payments, for services that have unexpectedly high costs. This will be achieved by applying a fixed dollar threshold in addition to the current threshold based on a percentage relationship between the cost of the service and the payment for the APC. To be eligible for an outlier payment in the outpatient setting, the cost of furnishing a service would have to exceed both thresholds. For 2005, these thresholds are 1.75 times the payment of the APC and $1,175 over the APC payment rate. 

The final rule also:

• Continues the current drug packaging policy, as required by the MMA, that provides for separate payment for most drugs that cost more than $50 per day, rather than packaging them into the associated APCs. CMS adopted this policy on a temporary basis in 2004.
• Extends for another year the “hold harmless” payments for small rural hospitals having 100 or fewer beds, as well as for sole community hospitals in rural areas, as required by the MMA.  These payments, which were set to expire at the end of 2003, are intended to ensure that small rural hospitals are paid at least as much under the outpatient prospective payment system as they would have received under the cost-based payment methodology in effect before August 2000.
• Simplifies payment for observation services for patients with asthma, congestive heart failure, or chest pain by eliminating current requirements specifying the diagnostic tests which must be used in connection with each diagnosis, and modifying the rules for reporting the times for the observation period to be more compatible with customary hospital practice.

The rule will be published in the November 15 Federal Register.  Comments will be accepted regarding new codes and their APC assignment during the 60-day period following publication. For more information, visit the CMS website at: http://www.cms.hhs.gov/providers/hopps/2005fc/1427fc.asp.