CMS Issues Outpatient Prospective Payment System Proposed Rule for CY 2023 | King & Spalding


[co-author: Sophie Munroe]

On July 15, 2022, the Centers for Medicare & Medicaid Services (CMS) published a proposed rule to update the payment policies, payment rates, and other provisions for services furnished under the Medicare Outpatient Prospective Payment System (OPPS) and the Ambulatory Surgery Center (ASC) Payment System in calendar year (CY) 2023 (the Proposed Rule). Highlights of CMS’s proposals include discussion of a new provider type, the Rural Emergency Hospital; continued use of pre-Public Health Emergency (PHE) cost report data to set payment rates; and first-time released data on hospital and skilled nursing facility mergers, acquisitions, consolidations, and changes in ownership reported to Medicare dating back to 2016. CMS is also soliciting comments on how it should apply the Supreme Court’s decision in AHA v. Becerra to CYs 2018-2022. Comments to the Proposed Rule are due by September 13, 2022.

Payment Rate Updates

CMS proposes to update the OPPS conversion factor for hospitals and ASCs by 2.7 percent, which includes a market basket increase of 3.1 percent and a negative 0.4 productivity adjustment. CMS further proposes to adjust the OPPS payment rates by a 1.0010 wage index budget neutrality factor, and an additional budget neutrality factor of 0.9995 to account for the proposed policy to cap wage index reductions for hospitals at 5 percent. After all adjustments, the OPPS conversion factor for CY 2023 would be $86.449 (the CY 2022 conversion factor was $84.177). Hospitals that fail to meet quality reporting requirements would be subject to an additional 2 percent reduction to the OPPS conversion factor.

OPPS Payment for Drugs Acquired Through the 340B Program

In the CY 2018 OPPS/ASC final rule, CMS introduced the policy of paying 340B-acquired drugs at an average sales price (ASP) minus 22.5 percent. This policy was challenged in federal litigation culminating in the June 15, 2022 Supreme Court decision of American Hospital Association v. Becerra in which a unanimous Court held that under the Medicare statute, HHS could not vary rates between different groups of hospitals using its recent methodology. Given the timing of the decision, CMS explained that for the CY 2023 OPPS/ASC proposed rule it will continue to apply its ASP minus 22.5 percent policy, but that for the final rule for CY 2023, CMS anticipates applying a rate of ASP plus 6 percent. In the final rule, CMS will also make a corresponding decrease to the conversion factor to meet the requirements of budget neutrality. CMS has not yet decided how it will apply the Supreme Court’s decision in AHA v. Becerra to previous years since the court did not address remedies. CMS invites comments on the best way to develop remedies for CYs 2018-2022 when 340B hospitals received different rates.

Rural Emergency Hospitals: Payment Policies, Provider Enrollment & Physician Self-Referral Update

Section 125 of the Consolidated Appropriations Act (CAA) created Rural Emergency Hospitals (REHs). These REHs are a new provider type that will be eligible to participate in the Medicare program starting January 1, 2023. REHs are facilities that convert from either a CAH or a rural hospital (or one treated as such through active reclassification from urban to rural status) with fewer than 50 beds, and that do not provide acute inpatient services except for skilled nursing facility services furnished in a distinct unit. In a proposed rule issued on July 6, 2022, CMS established the conditions of participation for REHs.

As required by the CAA, CMS is proposing to pay REHs at a rate of 105 percent of the OPPS rate for covered outpatient services, including the application of any copayment amount. CMS is also proposing that REHs may provide outpatient services that are not otherwise paid under the OPPS (such as services paid under the clinical lab fee schedule) and skilled nursing facility services furnished in a distinct unit. CMS notes, however, that these services will not be considered REH services, and therefore will not receive the five-percent payment increase that would otherwise be applied.

REHs will also receive a monthly facility payment. This payment is determined by calculating the amount CMS paid to all CAHs in 2019, minus the estimated total that would have been paid to CAHs in 2019 if payment were made for inpatient hospital, outpatient hospital, or skilled nursing facility services under the applicable PPS. The difference is then divided by the number of CAHs enrolled in Medicare in 2019 to calculate the annual amount of this additional facility payment per REH for 2023. CMS notes that when determining the total amount paid to CAHs and estimated total that would have been paid to CAHs on a prospective basis, it proposes to include both amounts paid to CAHs from Medicare and from beneficiary co-payments.

Providers and suppliers must enroll in Medicare to receive these payments for services furnished to Medicare beneficiaries. The proposed rule updates the existing Medicare provider enrollment regulations found at 42 CFR § 424 subpart P, to address provider enrollment requirements for REHs. In the requirements, CMS proposes that for a facility to convert from a CAH to a REH, it may submit a change in information form rather than an initial enrollment application.

CMS also proposes updates to the physician self-referral law (Stark Law) for the new REH provider type. Once an entity is enrolled as a REH, the physician self-referral law would prohibit a physician from making a referral for designated health services to the REH if the physician (or an immediate family member of the physician) has a financial relationship with the REH, unless an exception to the referral prohibitions applies and all of the exception’s requirements are satisfied. CMS proposes to establish a new exception for ownership or investment interests in a REH to allow for non-abusive referrals between REHs and physicians. CMS notes that it is not proposing any new exceptions for specific designated health services or compensation arrangements between REHs and physicians. CMS further proposes revisions to certain existing exceptions to make them applicable to compensation agreements that involve REHs.

Proposed Use of June 2020 Cost Report and CY 2021 Claims Data for CY 2023 OPPS and ASC Payment System Rate Setting Due to the PHE

Typically, CMS uses the claims data from the two years prior to the year for which it sets OPPS and ASC rates. However, in this case that would mean using parts of CY 2020 that include data from the start of the PHE, which CMS believes would not provide the best overall approximation of expected outpatient hospital services. As a result, CMS proposes to use cost report data from the June 2020 Healthcare Cost Report Information System (HCRIS) with cost report data through CY 2019 (prior to the PHE) to calculate the CY 2023 OPPS and ASC payment system rates. This would be the same cost report information used to set OPPS rates for CY 2022.

Changes to the Inpatient Only List

The OPPS has maintained a list of services for which Medicare will only pay when they are performed in an inpatient setting—the Inpatient Only (IPO) list. Services on the IPO list include those which, as a result of their medical complexity and invasive nature, would not be safe or appropriate to perform as an outpatient service because they may result in major blood loss, temporary deficits of organ systems, or otherwise intensive or extensive post-op care. CMS has a five-factor analysis for removing procedures from the IPO list based on the ability of outpatient departments to safely perform the procedures.

For CY 2023, CMS proposes to remove ten services from the IPO list: (1) escharotomy, (2) arthrodesis, (3) reconstruction midface (single piece), (4) reconstruction midface (two pieces), (5) reconstruction midface (three or more pieces), (6) reconstruction of mandibular rami, (7) reconstruction of mandibular rami and/or body, (8) open treatment of nasomaxillary complex fracture, (9) open treatment of complicated fracture(s) of malar area, and (10) open treatment of palatal or maxillary fracture.

CMS also proposes to add eight services to the IPO list for CY 2023: (1) implantation of absorbable mesh or other prosthesis for delayed closure of defect due to soft tissue infection or trauma, (2) total disc arthroplasty, (3) repair of anterior abdominal hernia, any approach, initial, including placement of mesh or other prosthesis when performed, total length of defect; greater than 10 cm, incarcerated or strangulated, (4) repair of anterior abdominal hernia, any approach, recurrent, including placement of mesh or other prosthesis when performed, total length of defect; 3 cm to 10 cm, incarcerated or strangulated, (5) repair of anterior abdominal hernia, any approach, recurrent, including placement of mesh or other prosthesis when performed, total length of defect greater than 10 cm, reducible, (6) repair of anterior abdominal hernia, any approach, recurrent, including placement of mesh or other prosthesis when performed, total length of defect; greater than 10 cm, incarcerated or strangulated, (7) repair of parastomal hernia, any approach, initial or recurrent, including placement of mesh or other prosthesis, when performed; reducible, and (8) repair of parastomal hernia, any approach, initial or recurrent, including placement of mesh or other prosthesis, when performed; incarcerated or strangulated.

Changes to the ASC Covered Procedures

Using existing criteria, CMS evaluated the ASC Covered Procedures List (CPL) from the prior year. CMS proposes to add one procedure, a lymph node biopsy, to the ASC CPL.

Promoting Competition and Transparency Regarding the Effects of Provider Mergers, Acquisitions, Consolidations, and Changes in Ownership

In the Proposed Rule, CMS for the first time released data on hospital and skilled nursing facility mergers, acquisitions, consolidations, and changes in ownership reported to the Medicare Provider Enrollment, Chain, and Ownership System (PECOS) dating back to 2016. HHS also analyzed this data to examine trends in changes of ownership over the six years. The report identified several findings, including that changes in ownership have been much more common in nursing homes than hospitals over the six-year period, there is a wide variation in ownership changes by state, and that a majority of skilled nursing facilities that were purchased have a single organizational owner. CMS states that it will update the data quarterly going forward and seeks comment on if there is additional data that should be released to further promote transparency and competition.

Rural Sole Community Hospital Exemption to the Clinic Visit Payment Policy

Under existing policy, CMS uses the Physician Fee Schedule (PFS) to determine rates for clinic visit services that are provided at off-campus provider-based departments that are paid under the OPPS. For CY 2023, the PFS-equivalent rate is 40 percent of the OPPS payment rate (that is, 60 percent less than the proposed OPPS rate). CMS proposes to exempt rural Sole Community Hospitals (SCHs) from this policy and pay SCHs the full OPPS rate for clinic visits furnished in excepted off-campus provider-based departments.

In CY 2023, for a Medicare beneficiary who receives a clinic visit service in a non-excepted off campus provider-based department of a SCH, the standard unadjusted Medicare OPPS proposed payment would be approximately $131, with an approximate average copayment of $26. The proposed PFS equivalent rate for a clinic visit would be approximately $52, with an approximate average copayment of $10. This would cost beneficiaries an average of an additional $16 per visit. CMS is soliciting comments on whether it would be appropriate to exempt other rural hospitals, such as those with under 100 beds, from being paid at the PFS-equivalent rate for clinic visit services.

Supporting Organ Procurement and Research

CMS proposes to exclude research organs from the calculation of Medicare’s share of organ acquisition costs and require a cost offset. This policy aims to help ensure that Medicare does not share in the cost of research and would lower the cost of procuring and providing research organs to the research community. CMS requests information on alternative methods of counting organs for the goal of determining Medicare’s share of organ acquisition costs.

CMS also proposes to cover as organ acquisition costs certain hospital costs that are typically incurred when a donor dies from cardiac death with the goal that this policy will increase organ procurement and increase equity in the transplant ecosystem.

OPPS Transitional Pass-through Payment for Drugs, Biologicals, and Devices

CMS provides for temporary additional payments or “transitional pass-through payments” for certain drugs, biologicals, and devices. CMS received eight pass-through device applications: aprevo™ Intervertebral Body Fusion Device, MicroTransponder® ViviStim® Paired Vagus Nerve Stimulation (VNS) System (Vivistim® System), The BrainScope TBI, NavSlim™ and NavPencil, SmartClip™, Evoke® Spinal Cord Stimulation (SCS) System, Pathfinder® Endoscope Overtube, and the Uretero1.

CMS requests comments on whether these devices meet the device pass-through payment criteria, including the cost criterion; determinations on their status will be made in the CY 2023 final rule.

CMS proposes to post future applications for OPPS pass-through device payments publicly online starting with applications submitted on or after January 1, 2023 and invites comments on this proposal.

OPPS Payment for Software as a Service

Providers have increasing access to new algorithm-driven clinical software, including clinical decision support software, clinical risk modeling, and computer aided detection (CAD). CMS refers to this technology as software as a service (SaaS). In 2018, CMS made its first separate payment under the OPPS to a SaaS—HeartFlow, a noninvasive diagnostic service that allows physicians to measure coronary artery disease in a patient through the use of coronary CT scans. Since then, several more CPT codes have been established to describe other SaaS procedures.

The novel and evolving nature of these new technologies has made it difficult to compare some SaaS procedures to existing medical services for the purpose of determining resource similarity. CMS requests public comments on developing a payment approach that could apply broadly to SaaS procedures. CMS also seeks comments on how to encourage software developers and other vendors to prevent and reduce bias in their algorithms and predictive modeling.

Quality Reporting Measures

CMS is proposing to update one existing Hospital Outpatient Quality Reporting (OQR) Program measure. More specifically, CMS is proposing to make the Cataracts “Improvement in Patient’s Visual Function within 90 Days Following Cataract Surgery” measure voluntary due to the ongoing Covid-19 public health emergency. Similarly, CMS is proposing to make the measure voluntary for the Ambulatory Surgical Center Quality Reporting (ASCQR) Program. For both the OQR and ASCQR Programs, CMS is seeking comments on the future implementation of the Volume on Outpatient and ASC Surgical Procedures measures.

CMS is also soliciting comments on several measures under consideration for the Rural Emergency Hospital Quality Reporting (REHQR) Program. Specifically, CMS is seeking to implement quality reporting program measures that reflect the types of services and care delivered most frequently in that setting. Some measures under consideration are the Median Time to Transfer to Another Facility for Acute Coronary Intervention, Aspirin on Arrival, and Door to Diagnostic Evaluation by a Qualified Medical Professional measures. CMS is also proposing that for REHs to participate in the REHQR Program, they must have an account with the Hospital Quality Reporting (HQR) secure portal and a designated Security Officer.

The Proposed Rule is expected to be published in the Federal Register on July 26, 2022, but the display copy is available here. CMS’s fact sheet is available here.


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