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Lawrence W. Vernaglia, Partner, Foley & Lardner LLP Cheryl Storey, Partner, Health Care Consulting Group, Moss Adams LLP

OPPS Final Rule Finalizes Limits for Off Campus Departments


By Lawrence W. Vernaglia
Partner, Foley & Lardner LLP
By Cheryl Storey
Partner, Health Care Consulting Group, Moss Adams LLP

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Original Publish Date: November 8, 2016

On November 1, 2016, the Centers for Medicare and Medicaid Services (CMS) issued the long-awaited implementation of the “site-neutrality” provisions of the H.R. 1314 Bipartisan Budget Act of 2015 (BiBA Section 603). The Final Rule will cause new (non-grandfathered, post 11/2/2015) hospital off-campus outpatient departments to no longer be reimbursed under the Medicare Outpatient Prospective Payment System (OPPS). Rather, those locations are deemed “nonexcepted” clinics and will receive something less than 50% of the old OPPS rate (at least initially) to approximate Medicare Physician Fee Schedule (MPFS) payment. In other words, the former financial advantage to locations holding provider-based status will largely disappear for new outpatient projects, with total payment (physician and technical component) approximating what would be paid for the service if performed in a free-standing physician office.

While the Rule is final, and will be going into effect on January 1, 2017, there are two provisions on which CMS is seeking comment by December 31:

  1. The potential limitation on clinical service line expansion or volume of services by non-excepted off-campus provider-based departments (PBDs); and
  2. The Medicare Physician Fee Schedule (MPFS) payment rates for non-excepted items (i.e., those subject to site neutrality) and services furnished and billed by non-excepted off-campus provider-based departments of hospitals (i.e., those subject to site neutrality).

Expansion of Clinical Family of Services at an Off-Campus PBD Excepted

Probably the most welcomed change of position from the Proposed Rule is that, as finalized, CMS is no longer seeking to limit excepted departments to the same service lines as were being billed prior to November 2, 2015. Therefore, an excepted off-campus PBD will continue to receive payments under the OPPS for all billed items and services, regardless of whether it furnished such items and services prior to the date of enactment of BiBA Section 603 as long as the excepted off-campus PBD remains excepted; that is, it meets the relocation and change of ownership requirements summarized below.

How to Bill After January 1, 2017 for a Non-Exempt PBD

Probably the second most important development in the Final Rule is how to bill for non-excepted services. The problem CMS struggled with in the Proposed Rule is how to allow a hospital to bill under MPFS when all the hospital information and claims billing systems generate institutional bills (CMS-1450 “UB 04s”), not physician claims (CMS-1500s). CMS initially proposed a transitional method that required only the physicians to bill and hospitals to negotiate with the physicians to transfer some portion of the physician fee to the hospital to cover the facility costs. That would have been an operational nightmare. CMS in the Final Rule came up with a much more workable system: hospitals can keep billing under the OPPS system, add a modifier (-PN), and get paid 50% of the old OPPS rates.

Medicare beneficiaries’ co-pays for services billed with the PN modifier will be 20% of the payment amount. As these services are billed on the UB-04 claim form, the services will be included on the Medicare PS&R report and we hope the services will be included on the cost report for future rate setting. If so, these services would be reported in the Medicare cost report, thus allowing any uncollected coinsurance and deductibles would continue to be allowed for Medicare bad debt reimbursement purposes, under the current criteria. If CMS indicates these services are not to be reported in the cost report, then any uncollected coinsurance and deductibles would not be eligible for Medicare bad debt reimbursement.

Protection for 340B Drug Pricing

The Final Rule contained a number of valuable statements strongly suggesting that CMS is attempting to not disrupt the ability of non-excepted PBDs to continue accessing 340B discounted drug pricing. Under current Health Resources and Services Administration (HRSA) policy, off-campus departments of a 340B participating hospital are considered an integral part of the hospital, and therefore eligible to participate in the 340B program, if their costs are included as a reimbursable cost center on the most recently filed Medicare cost report. CMS indicated that, notwithstanding the reimbursement changes, the costs of a non-excepted off-campus provider-based department will continue to be reported on the hospital’s cost report. CMS said: "We believe implementation of this policy will obviate the commenters' concerns with the possibility that facility costs for non-excepted items and services would not be billed and reflected as reimbursable costs on the Medicare hospital cost report.” CMS noted that the role of HRSA remains important to this effort.

Dedicated Emergency Departments Exempted

CMS finalized its plan to exempt all items and services at a qualified dedicated emergency department (DED), even non-emergency services. Under existing EMTALA requirements, a DED must be licensed under state law as an emergency room or emergency department; be held out to the public as a place that provides care for emergency medical conditions on an urgent basis, without appointment; and/or provide at least one-third of all outpatient visits for treatment of emergency medical conditions. Under the Final Rule, if a hospital creates a new off-campus PBD that qualifies as a DED and meets the EMTALA (patient anti-dumping law) standards of a DED, then any items and services it bills at that department will be reimbursable under OPPS, free of the site neutrality penalties of Section 603.

No New Clarity of “On-campus” Definition

CMS offered no new clarity on what “on-campus” means. CMS will leave these determinations to the judgment of the Regional Offices and local, sometimes conflicting, contractor discretion. We note with some interest that CMS also finalized the policy that a hospital may measure 250 yards from “any point” of the “physical facility” that serves as the site of service of the remote location (inpatient unit) of a hospital to “any point” in the PBD. CMS went out of its way to distinguish this principle from the general main provider “on campus" rule. We see this as an ongoing open question and one that hospitals will need to navigate locally.

Relocation of Grandfathered PBDs is Prohibited, Except for “Extraordinary Circumstances”

CMS implemented its planned inflexibility on relocation of exempt departments. If a department relocates, CMS will likely end its excepted status. CMS opened the door for a limited review and approval process in special circumstances that may justify retaining exempt status. This would be limited to “extraordinary circumstances outside [the hospital’s] control, such as natural disasters, significant seismic building codes, or significant public health and public safety issues.” Exceptions to the relocation policy will be evaluated on a case-by-case basis by the appropriate CMS Regional Office. CMS did not provide any technical detail on this process, but noted that they will issue sub-regulatory guidance on the extraordinary circumstances process.

Indian Health Services, Tribal Facilities Exempted

CMS commented that hospitals operated by Indian Health Services, tribes, or tribal organizations are not paid under the provisions of the Medicare Act impacted by Section 603. Consequently, they are exempt from the site neutrality provisions of BiBA.

No Protection for “Mid-build” or Under Development OCODPs

CMS declined to protect facilities that were under development as of November 2, 2015. CMS noted some proposed legislation that has been introduced in Congress (H.R. 5273 Helping Hospitals Improve Patient Care Act of 2016), and suggested that this was the appropriate path for such relief. CMS offered very limited protection for PBDs that provided services but did not bill prior to November 2, 2015, so long as they billed timely thereafter.

Limited Grandfathering for CHOW Transactions

CMS noted that grandfathering remains after a change of ownership (“CHOW”), but the parties must sell the whole hospital and accept the old provider agreement. A hospital cannot sell or transfer a single exempt PBD and have the acquirer assume its grandfathered exempt status. And the parties cannot try to limit liability by allowing the existing provider agreement to terminate if they hope to retain exemption under BiBA 603.

The authors wish to thank their colleagues at a Foley & Lardner LLP, Torrey Young, Judy Waltz, Michael Blau, Anil Shankar and Adria Warren for their contributions to this article. All errors or omissions, however, are the authors' alone.

Visit Moss Adams LLP at www.mossadams.com. Visit Foley & Lardner LLP at www.foley.com.