November 10, 2017

Top Takeaways for Medicare Physician and Hospital Payments in 2018

Holland & Knight Alert
Miranda A. Franco

The Centers for Medicare & Medicaid Services (CMS) on Nov. 1, 2017, released the Medicare Hospital Outpatient Prospective Payment System (OPPS) and the Medicare Ambulatory Surgical Center (ASC) Payment System Final Rule for Calendar Year (CY) 2018. A day later, CMS released the CY 2018 Medicare Physician Fee Schedule (MPFS) Final Rule as well as the CY 2018 Quality Payment Program Final Rule.

These Final Rules contain a number of important provisions. Below are a few of the key highlights as well as additional analysis in Holland & Knight memos linked in this alert.

Highlights of the OPPS and ASC Final Rule

The OPPS and ASC Payment System Final Rule sets hospital and ASC policy changes and payment rates that are effective as of Jan. 1, 2018.

  • Decrease in payment for drugs and biologicals purchased with a 340B Program Discount. CMS implemented a significant Medicare Part B payment reduction for separately payable, non-pass-through drugs provided in the hospital outpatient setting. In 2018, CMS will cut Part B reimbursement for certain 340B drugs from ASP plus 6 percent to ASP minus 22.5 percent – the reduction applies to separately payable, non-pass-through drugs with status indicator "K." Select facilities including Rural Sole Community Hospitals, Children's Hospitals and PPS-exempt Cancer Hospitals are excluded from the modified 340B reimbursement rates for CY 2018.
  • Revisions to the laboratory date of service policy to allow laboratories to bill Medicare directly. In response to concerns that the current date of service (DOS) policy – also known as the "14-Day Rule" – creates operational burden for hospitals and laboratories, CMS finalized its proposal to allow laboratories to bill Medicare directly for molecular pathology tests and advanced diagnostic laboratory tests (ADLTs). 
  • Removal of total knee arthroplasty from inpatient-only list as well as five other procedures. This year, CMS finalized a policy to remove total knee arthroplasty (TKA) from the Medicare inpatient-only list (IPO) for procedures reimbursed only under IPPS. This move will allow Medicare to reimburse TKAs performed on an outpatient basis, likely resulting in a shift of thousands of procedures from inpatient to outpatient.

For a complete analysis of the OPPS and ASC Final Rule, see this Holland & Knight memorandum.

Highlights of the MPFS Final Rule

The Physician Fee Schedule sets Medicare physician payment rates and policies that are effective as of Jan. 1, 2018.

  • Changes the Physician Fee Schedule (PFS) payment rates for nonexcepted off-campus provider-based hospital departments (PBDs) from 50 percent of the OPPS payment rate to 40 percent of the OPPS rate. For off-campus sites that were not mid-build, CMS paid half of hospital outpatient rates in 2017. The agency initially proposed to further cut those rates and pay 25 percent of hospital rates in 2018. The Final Rule, however, backed away from that proposal and instead CMS finalized a 20 percent reduction in payment rates for certain items and services to foster greater payment alignment between nonexcepted off-campus PBDs and physician practices. Specifically, the final policy will change the MPFS payment rates for these services from 50 percent of the OPPS payment rate to 40 percent of the OPPS rate.
  • Adds several codes to the list of telehealth services. Additional codes include health risk assessment, care planning for chronic care management and interactive complexity. CMS also finalized separate payment for code 99091, which describes certain remote patient monitoring services. CMS will consider stakeholder input received on how to expand access to telehealth services in future rulemaking.
  • Changes biosimilar payment policies. Based on comments received from stakeholders, CMS will change how biosimilars are coded. Effective Jan. 1, 2018, newly approved biosimilar biological products with a common reference product will no longer be grouped into the same billing code. This policy reverses a past decision to give multiple biosimilars of the same reference product one reimbursement code and effectively pay for all the products at the same rate.

The Holland & Knight Public Policy & Regulation (PP&R) Group led the effort to secure the biosimilars change noted above for firm client the Biosimilars Forum.

For a complete analysis of the MPFS Final Rule, see this Holland & Knight memorandum.

Highlights of the Quality Payment Program Year 2

This Final Rule makes changes to the Quality Payment Program created by the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA), which dictates how physicians are paid for Medicare services.

  • Weighs the Merit-Based Incentive Payments System (MIPS) Cost performance category to 10 percent of a provider's total MIPS final score and the Quality performance category to 50 percent. Note that the proposed rule had weighed Cost at zero percent. In 2018, CMS will begin to measure cost performance, but it will have a low impact on physicians' overall performance score. CMS also is allocating bonus points that will increase physicians' performance scores for things such as demonstrating year-to-year improvement in quality or cost performance, treating complex patients and reporting data as a solo practitioner or part of a small practice.
  • Allows the use of 2014 Edition and/or 2015 Edition Certified Electronic Health Record Technology (CEHRT) in Year 2 for the Advancing Care Information performance category; bonus for using only 2015 CEHRT. CMS will not require physicians to migrate to 2015 Edition certified EHRs, but instead will allow them to use the 2014 Edition or a combination of the 2014 and 2015 Editions to satisfy the advancing care information category requirements. Those who use the 2015 Edition exclusively in 2018 can earn a bonus of 10 percentage points toward their performance scores.
  • Adds Virtual Groups as a participation options for MIPS. Under this option, individual physicians and those practicing in groups of 10 or fewer physicians may voluntarily form a virtual group, regardless of specialty or practice location. This means that their combined performance will be assessed on quality and cost metrics, and the virtual group will be scored together in those categories.
  • Excludes individual MIPS-eligible clinicians or groups with less than/equal to $90,000 in Part B allowed charges or less than/equal to 200 Medicare Part B beneficiaries. MACRA exempts from MIPS those physicians who provide a low volume of Medicare services. In 2017, physicians were exempt if they billed $30,000 or less in Part B allowed charges, or provided care to 100 or fewer Part B patients.

For a complete analysis of the Quality Payment Program Final Rule, see this Holland & Knight memorandum.   


Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.

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