November 13, 2019

CMS Issues 2020 Hospital OPPS and ASC Payment System Final Rule

Holland & Knight Alert
Miranda A. Franco


  • The Centers for Medicare & Medicaid Services (CMS) on Nov. 1, 2019, released the Calendar Year (CY) 2020 Hospital Outpatient Prospective Payment System (OPPS) and Ambulatory Surgical Center (ASC) Payment System Final Rule.
  • Among notable changes, CMS will continue payment reductions to hospitals purchasing 340B drugs and reduce payment for visits in excepted off-campus, provider-based departments (PBDs). There are also significant changes to the physician supervision requirement for hospital outpatient therapeutic services. Also of note, CMS has opted to publish a separate final rule on price transparency.
  • Provisions of the Final Rule will go into effect on Jan. 1, 2020.

The Centers for Medicare & Medicaid Services (CMS) on Nov. 1, 2019, released the Calendar Year (CY) 2020 Hospital Outpatient Prospective Payment System (OPPS) and Ambulatory Surgical Center (ASC) Payment System Final Rule.

Among notable changes, CMS will continue payment reductions to hospitals purchasing 340B drugs and reduce payment for visits in excepted off-campus, provider-based departments (PBDs). There are also significant changes to the physician supervision requirement for hospital outpatient therapeutic services.

Also of note, CMS has opted to publish a separate final rule on price transparency. The rule appears to have been received by the White House Office of Management and Budget (OMB) on Oct. 29, 2019, and is pending review. According to The Wall Street Journal, the Trump Administration is delaying the price transparency rule because officials said they are working on expanding the plan to include insurers.

To learn more about the Hospital OPPS and ASC Payment System Final Rule, review the following resources:

Provisions of the Final Rule will go into effect on Jan. 1, 2020.

Below is a summary of highlights of the Final Rule.

HOPD and ASC Payment Updates

CMS is finalizing a 2.6 percent increase in the OPPS and ASC payment systems. Hospital outpatient departments (HOPDs) and ASCs failing to meet quality-reporting requirements will continue to receive a 2.0 percent reduction in payments for services. CMS estimates that total payments to OPPS and ASC providers (including beneficiary cost-sharing and estimated changes in enrollment, utilization and case-mix) for CY 2020 will be approximately $79 billion and $4.96 billion, respectively. This represents an increase of approximately $6.3 billion and $230 million, respectively, from CY 2019 payment levels.

Rural Adjustment

CMS will continue the 7.1 percent adjustment for OPPS payments to certain rural sole community hospitals (SCHs), including essential access community hospitals (EACHs). The adjustment would apply to all services paid under the OPPS, excluding separately payable drugs and biologicals, brachytherapy sources, items paid at charges reduced to costs, and devices paid under the pass-through payment policy.

Payment Adjustment for Certain Cancer Hospitals

CMS will continue to provide additional payments to cancer hospitals so that the cancer hospital's payment-to-cost ratio (PCR) after the additional payments is equal to the weighted average PCR for other OPPS hospitals using the most recently submitted or settled cost report data. Beginning in CY 2018, Section 16002(b) of the 21st Century Cures Act requires that the weighted average PCR be reduced by 1.0 percentage point.

In the proposed rule, CMS set a target of 0.89 to determine the CY 2020 cancer hospital payment adjustment to be paid at cost report settlement. The payment adjustment would be the additional payments needed to result in a PCR equal to 0.89 for each cancer hospital.

CMS noted that it did not receive any public comments on the proposal. Therefore, it finalized the cancer hospital payment adjustment methodology without modification. CMS is using the most recent cost report data through June 30, 2019, to update the adjustment. The estimated 2020 hospital-specific payment adjustment for cancer hospitals may be found in Table 7 of the Final Rule.

Partial Hospitalization Program (PHP) Rate Setting

CMS will update Medicare payment rates for the Partial Hospitalization Program (PHP) services furnished in hospital outpatient departments and Community Mental Health Centers (CMHCs). The PHPs are structured intensive outpatient programs consisting of a group of mental health services paid on a per diem basis under the OPPS, based on PHP per diem costs.

Increasing Price Transparency of Hospital Standard Charges

In July, CMS proposed to implement the Executive Order on Improving Price and Quality Transparency and further implement Section 2718(e) of the Public Health Service Act requiring that U.S. hospitals annually make public a list of standard charges for items and services, via:

  • defining "hospital," "standard charges," and "items and services"
  • requirements for making public a machine-readable file online that includes all standard charges for all hospital items and services
  • requirements for making public payer-specific negotiated charges for a limited set of "shoppable" services that are displayed and packaged in a consumer-friendly manner
  • monitoring for hospital noncompliance and actions to address hospital noncompliance (including issuing a warning notice, requesting a corrective action plan and imposing civil monetary penalties), and a process for hospitals to appeal these penalties

CMS did not address this proposal in the Final Rule and instead plans to summarize and respond to the more than 1,500 public comments on the proposed policies in a separate forthcoming Final Rule. The rule reportedly is pending review by the White House OMB.

Payment for 340B Drugs and Biologics

For CY 2020, CMS will continue to pay ASP-22.5 percent for 340B-acquired drugs, including when furnished in nonexcepted off-campus PBDs paid under the Medicare Physician Fee Schedule (MPFS). Critical access hospitals, rural sole community hospitals, children's hospitals and PPS-exempt cancer hospitals remain excepted from the payment reduction. Hospitals subject to the payment reduction must continue to use claim-level modifiers "JG" and "TB" to signify when 340B and non-340B drugs are used, respectively.

The policy is currently subject to a lawsuit, which CMS is currently appealing to the U.S. Court of Appeals for the District of Columbia Circuit. The agency plans to survey hospitals on actual acquisition costs for 340B drugs shortly; a Paperwork Reduction Act (PRA) notice on the survey was released in September.

Thus, CMS will continue to apply the ASP-22.5 percent reduction until the D.C. Circuit's decision. The D.C. Circuit heard oral arguments in the ongoing litigation concerning the payment reductions for 340B drugs on Nov. 8, 2019. If affirmed, CMS will rely on pending 340B acquisition cost survey activity to establish an alternative to ASP-22.5 percent or use another option such as ASP+3 percent, which was discussed in the proposed rule.

Site-Neutral Payments for Hospital Clinic Visits

As finalized in the CY 2019 OPPS/ASC final rule, CMS will complete implementation of the two-year phase-in of applying the MPFS rate for the clinic visit service (G0463: Hospital Outpatient Clinic Visit for Assessment and Management of a Patient) when provided at an off-campus PBD and reimbursed under OPPS. This clinic visit is the most common service billed under OPPS and typically occurs in the physician's office. CMS instituted the proposal based on its authority to restrict unnecessary increases in the volume of covered services.

Notably, the U.S. District Court for the District of Columbia on Sept. 17, 2019, issued a decision against the CMS "site-neutral" payment policy that was included in the CY 2019 OPPS rule. In this Final Rule, CMS acknowledged the District Court's decision and said that it is still evaluating the rulings and considering whether to appeal the final judgment.

Proposed Prior Authorization Process and Requirements for Certain HOPD Services

CMS finalized its proposal to require prior authorization for the following five services to ensure they are billed only when medically necessary: 1) blepharoplasty, 2) botulinum toxin injections, 3) panniculectomy, 4) rhinoplasty and 5) vein ablation. CMS reviewed claims data and identified these services as demonstrating an unnecessary increase in volume.

CMS may elect to exempt a provider from the prior authorization process upon a provider's demonstration of compliance with Medicare coverage, coding and payment rules. The exemption would remain in effect until CMS elects to withdraw it. CMS will exempt providers that achieve a prior authorization provisional affirmation threshold of at least 90 percent during a semiannual assessment

Wage Index Policy

CMS will continue its policy to use the wage index policies and adjustments proposed in the Inpatient Prospective Payment System (IPPS) for non-IPPS facilities paid under the OPPS. This update will result in an estimated payment increase of 0.7 percent for rural hospitals and no changes in payment for urban hospitals.

For the Fiscal Year (FY) 2020 IPPS wage index, CMS finalized adjustments to address what it sees as the disparity between urban and rural hospitals. Hospitals in the bottom 25th percentile of the wage index will receive a boost of 50 percent of the difference between current applicable wage index value for the hospital and the 25th percentile wage index value for all hospitals. The agency initially proposed to offset this higher spending by decreasing the wage index for hospitals in the 75th percentile or higher. However, responding to concerns of commenters, CMS instead finalized a budget neutrality adjustment by reducing payment across the board. Cuts will be capped at a maximum of 5 percent decrease from a hospital's FY 2019 wage index. In addition, the removal of urban to rural hospital reclassifications from the calculation of the rural floor wage index that was finalized in the FY 2020 IPPS rule is also reflected in this Final Rule.

Changes to the Inpatient-Only List

CMS will remove total hip arthroplasty from the Inpatient-Only (IPO) list, making it eligible to be paid by Medicare in both the hospital inpatient and outpatient settings. Additionally, six spinal procedure codes and five anesthesia codes are removed from the IPO list for CY 2020.

To comply with the two-midnight rule and to avoid unnecessary Recovery Audit Contractor (RAC) audits for procedures that are removed from the IPO list for CY 2020 and subsequent years, CMS finalized a two-year exemption from medical review activities pertaining to patient status. CMS had initially proposed only a one-year exemption.

Under the current two-midnight policy for evaluating short hospital inpatient stays, when the procedure performed appears on CMS' IPO list, the entire claim is exempt from medical review under the two-midnight benchmark regardless of the actual or expected length of stay. But when a procedure is removed from the IPO list, the two-midnight benchmark applies, and the claims historically have been subject to initial medical reviews by Beneficiary and Family Centered Care-Quality Improvement Organizations (BFCC-QIOs), who can also refer providers to RACs.

Hospital Outpatient and ASC Quality Reporting Programs

For the CY 2020 Hospital Outpatient Quality Reporting (OQR) Program, CMS will remove OP-33: External Beam Radiotherapy for Bone Metastases for the CY 2022 payment determination and subsequent years with modification.

For the ASC Quality Reporting (ASCQR) Program, CMS will adopt one new measure, ASC-19: Facility-Level 7-Day Hospital Visits after General Surgery Procedures Performed at Ambulatory Surgical Centers, beginning with the CY 2024 payment determination and for subsequent years.

Comprehensive Ambulatory Payment Classifications (APCs)

CMS created two new comprehensive APCs (C-APCs): C-APC 5182 (Level 2 Vascular Procedures) and C-APC 5461 (Level 1 Neurostimulator and Related Procedures). This increases the total number of C-APCs to 67.

Additional Drugs Receive Pass-Through in 2020 and New Breakthrough Device Pathway

A total of 80 drugs and biologics will have pass-through status in 2020. Of these, three are new injectables effective on Jan. 1, 2020: lefamulin, brexanolone, polatuzumab.

Seven applications for device pass-through payment were received. Also, there will be a new additional pathway for devices to qualify for pass-through status; devices would not need to meet the substantial clinical improvement criterion, but would still need to meet the other criteria. Two applications were approved for pass-through status under the breakthrough device alternative pathway. They are the Optimizer(r) Smart System and the CustomFlex(r) Artificial Iris.

Changes to the Level of Supervision of Outpatient Therapeutic Services in Hospitals and Critical Access Hospitals

For CY 2020, CMS will change the minimum required level of supervision from direct supervision to general supervision for all hospital outpatient therapeutic services. This change applies to all hospitals, including critical access hospitals (CAHs) and small rural hospitals, for which CMS reinstated the non-enforcement policy for direct supervision of outpatient therapeutic services for CY 2018 and 2019 in the 2018 Hospital OPPS final rule.

Two-Year Transition of CT and MRI Cost-to-Charge Ratios (CCRs)

CMS is finalizing a two-year phased-in approach that will apply 50 percent of the payment impact from ending the transition in CY 2020 and 100 percent of the payment impact from ending the transition in CY 2021. For CY 2020, CMS will calculate the imaging payment rates using both the transition methodology (excluding providers that use a "square feet" cost allocation method) and the standard methodology (including all providers, regardless of cost allocation method), and will assign the imaging APCs a payment rate that includes data representing 50 percent of the transition methodology payment rate and includes data representing 50 percent of the standard methodology payment rate.

Table 4 in the Final Rule illustrates the estimated impact on geometric mean costs for CT and MRI APCs under the blended approach of utilizing 50 percent of the transitional payment methodology and 50 percent of the standard payment methodology for CY 2020.

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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