December 9, 2020

CMS Releases 2021 OPPS and ASC Payment System Final Rule

Holland & Knight Alert
Miranda A. Franco


  • The Centers for Medicare & Medicaid Services (CMS) has published the Calendar Year (CY) 2021 Hospital Outpatient Prospective Payment System (OPPS) and Ambulatory Surgical Center (ASC) Payment System Final Rule.
  • Among notable changes, CMS abandoned a proposal to pay Average Sales Price (ASP) minus 28.7 percent for 340B drugs, changed the expansion exception process for a subset of physician-owned hospitals, expanded the prior authorization process to include two new categories of services reimbursed under the OPPS and eliminated the Inpatient Only (IPO) list.
  • This Holland & Knight alert summarizes a number of key provisions in the Final Rule, which will go into effect on Jan. 1, 2021.

The Centers for Medicare & Medicaid Services (CMS) has published the Calendar Year (CY) 2021 Hospital Outpatient Prospective Payment System (OPPS) and Ambulatory Surgical Center (ASC) Payment System Final Rule. Note that the incoming Biden Administration may wish to revise or reverse course on some provisions.

Among notable changes, CMS abandoned a proposal to pay Average Sales Price (ASP) minus 28.7 percent for 340B drugs, changed the expansion exception process for a subset of physician-owned hospitals, expanded the prior authorization process to include two new categories of services reimbursed under the OPPS and eliminated the Inpatient Only (IPO) list.

CMS also delayed the Radiation Oncology (RO) Model due to the public health emergency (PHE) caused by the COVID-19 pandemic. Accordingly, the RO Model performance period is now set to start on July 1, 2021, giving RO participants six additional months to prepare for the model. Notably, quality measure requirements will be delayed until performance year (PY) Two; this will certify the model as an Advanced Alternative Payment Model beginning in PY Two.

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

Provisions of the Final Rule will go into effect on Jan. 1, 2021.

Below is a summary of highlights of the Final Rule.

HOPD and ASC Payment Updates

CMS updated OPPS payment rates for hospitals that meet applicable quality reporting requirements by 2.4 percent. The update was based solely on the hospital market basket increase of 2.4 percent, as there was no adjustment for multi-factor productivity (MFP).

Based on the CY 2019 final rule, CMS continued to apply the hospital market basket update to ASC payment rates through CY 2023. Using the hospital market basket, CMS updated the ASC rates for CY 2021 by 2.4 percent. The final update applies to ASCs meeting relevant quality reporting requirements. This change is based on the 2.4 percent projected hospital market basket increase with no MFP adjustment.

Elimination of the Inpatient Only List

The IPO list was created to identify services that require inpatient care because of the invasive nature of the procedure, the need for postoperative recovery time or the underlying physical condition of the patient. CMS concluded that the list is not necessary to identify services that require inpatient care because of changes in medical practice, including new technologies and innovations.

CMS finalized its proposal to eliminate the IPO list over three calendar years, beginning with the removal of approximately 300 musculoskeletal-related services. The list will be completely phased out by CY 2024. One key difference in the Final Rule was a shift from a guaranteed two-year exemption from certain medical review activities for procedures newly removed from the IPO list to an "indefinite" exemption period. All procedures that came off the IPO List prior to CY 2021 will maintain that two-year exemption, as finalized in prior rules.

However, for all code removals in the future, the exemption will be "indefinite" from Medicare Part A site-of-service claim denials (i.e., the two-midnight rule). This exemption will last until Medicare claims data indicates that the procedure is more commonly performed (50 percent of volumes for a given procedure) in the outpatient setting than the inpatient setting. CMS will then revisit, in rulemaking, whether and when an exemption for a procedure should end. This modification will allow providers more time to adjust billing Medicare for newly allowed services in the outpatient setting.

Payment for 340B Drugs and Biologics

CMS adopted a policy to pay ASP minus 22.5 percent for 340B-acquired drugs, including when furnished in nonexcepted off-campus provider-based departments (PBDs) paid under the Physician Fee Schedule (PFS). In last year's rule, CMS acknowledged the ongoing litigation relating to the lower payment amount, including a district court ruling that the agency exceeded statutory authority in adjusting the payment rate for 340B drugs.

CMS conducted a survey to gather data on hospital acquisition costs for 340B drugs following the court ruling that found that CMS acted beyond its statutory authority but also acknowledged that CMS might base the payment amount on average acquisition cost when survey data are available.

In early August 2020, the U.S. Court of Appeals for the District of Columbia Circuit reversed the district court's ruling and held that CMS in fact, reasonably interpreted the Medicare statute as authorizing the rate reductions under a "general adjustment authority" with the purpose "to reimburse hospitals for their acquisition costs accurately."

Based on the results of this survey of hospital acquisition costs for 340B drugs, CMS proposed to pay for 340B drugs for CY 2021 and subsequent years at ASP minus 34.7 percent, plus an add-on of 6 percent of the ASP. This results in a net payment rate of ASP minus 28.7 percent for 340B drugs. For biosimilars, CMS proposed to set net reimbursement at ASP minus 28.7 percent of the biosimilar's ASP, not minus 28.7 percent of the reference product's ASP.

Similar to the previous policy, rural sole community hospitals, PPS-exempt cancer hospitals and children's hospitals are exempt from this lower 340B reimbursement. Wholesale Acquisition Cost (WAC) will be used for products without an ASP available.

In the Final Rule, CMS abandoned its proposal and finalized plans to continue the current methodology of ASP minus 22.5 percent for 340B-acquired drugs. Additionally, the 340B payment policy continues to exempt rural sole community hospitals, children's hospitals and PPS-exempt cancer hospitals. These hospitals would continue to report informational modifier "TB" for 340B-acquired drugs and continue to be paid ASP+6 percent.

Although CMS is continuing the current 340B payment policy, the agency acknowledged it would continue to consider the appropriateness of using 340B hospital survey data to set future payment rates for 340B drugs.

Hospital Star Ratings

CMS updated the methodology to calculate the Overall Hospital Quality Star Rating utilizing data collected on hospital inpatient and outpatient measures that are publicly reported on a CMS website. CMS also finalized its proposal to update and simplify how the ratings are calculated, reduce the total number of measure groups and stratify the readmission measure group based on the proportion of dual-eligible patients.

Prior Authorization

Last year, CMS finalized a proposal to establish a process through which hospitals must submit a prior authorization request for a provisional affirmation of coverage before a covered outpatient service is furnished to the beneficiary and before the claim is submitted for processing. The change applied to five categories of services: blepharoplasty, botulinum toxin injections, panniculectomy, rhinoplasty and vein ablation.

This year, the agency finalized its proposal to expanded prior authorization requirements for two additional services: cervical fusion with disc removal and implanted spinal neurostimulators to curb unnecessary utilization. With the addition of these new service categories, a total of seven service categories will require prior authorization effective for dates of service on or after July 1, 2021.

This policy will likely expand in future rulemakings.

Site-Neutral Payment Policy for Clinic Visits

As finalized in the CY 2019 OPPS/ASC final rule, CMS completed the implementation of the two-year phase-in of applying the Medicare Physician Fee Schedule (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.

In September 2019, a federal district court sided with hospital plaintiffs, ruling that CMS lacked statutory authority to implement the change. However, on July 17, 2020, the U.S. Court of Appeals for the District of Columbia Circuit ruled in favor of CMS, holding that the agency's regulation was a reasonable interpretation of the statutory authority to adopt a method to control unnecessary increases in the volume of the relevant service. In light of the recent court ruling, CMS will continue the site-neutral policy in 2021. CMS has not released information on how or whether it will address reprocessing 2019 claims that were previously reprocessed at the higher OPPS rate.

Physician-Owned Hospitals

Generally, physician-owned hospitals (POHs) may not increase the number of operating rooms, procedure rooms and beds beyond those that were licensed on March 23, 2010 (the Affordable Care Act enactment date). In the original statutory language, an exception process to this prohibition was included for POHs that qualify as an "applicable hospital." Later, an additional exception was created for POHs that qualified as a "high Medicaid facility." The requirements and statutory direction for these two exceptions were different, but CMS implemented a single process to address both.

In this rule, CMS proposed to remove certain expansion limits for "high Medicaid facilities" as part of its Patients over Paperwork initiative. CMS estimates that only one physician-owned hospital per year will request an expansion exception on the grounds that it is a high Medicaid facility.

CMS finalized the following flexibilities applicable only to qualifying Medicaid facilities:

  • Hospitals can request an exception to the prohibition of expansion at any time, provided that the facility has not submitted another exception request that is pending a CMS decision. This eliminates the restriction that exceptions can be submitted only every two years for Medicaid hospitals.
  • If CMS approves a hospital's request for expansion, the hospital can exceed its baseline number of beds, operating rooms and procedure rooms.
  • Requests for expansion may include facilities that are not located on the hospital's main campus.
  • A bed counts toward a hospital's baseline number if the bed is considered licensed for purposes of state licensure.

A hospital qualifies as a "high Medicaid facility" when a hospital:

  • is not the only hospital in a county
  • has an annual percentage of total inpatient admissions under Medicaid that is estimated to be greater than any other hospital located in the county in which the hospital is located for the three most recent 12-month periods, and
  • does not discriminate against beneficiaries of federal healthcare programs, and does not permit physicians practicing at the hospital to discriminate against such beneficiaries.

Comprehensive Ambulatory Payment Classifications

CMS created two new Comprehensive Ambulatory Payment Classifications (APCs), including C-APC 5378 (Level 8 Urology and Related Services) and C-APC 5465 (Level 5 Neurostimulator and Related Procedures).

Clinical Laboratory Date of Service Policy

CMS finalized its policy to exclude cancer-related protein-based Multianalyte Assays with Algorithmic Analysis (MAAAs), which are not generally performed in the hospital outpatient setting, from the Hospital OPPS packaging policy, adding them to laboratory date-of-service (DOS) provisions. This means that Medicare would pay for cancer-related protein-based MAAAs under the Clinical Laboratory Fee Schedule (CLFS) instead of the Hospital OPPS. The performing laboratory would bill Medicare directly for the test if the test meets all the laboratory DOS requirements.

Usage Data for Acute Respiratory Illness Reporting Requirements for Hospitals and Critical Access Hospitals (CAH) During the PHE

CMS revised the current COVID-19 PHE hospital and CAH Conditions of Participation (CoP) that require hospitals and CAHs to report: 1) the hospital's current inventory supplies of any COVID-19-related therapeutics distributed by the Secretary of Health and Human Services (HHS) and 2) the hospital's current usage rate for any COVID-19-related therapeutics distributed by the Secretary. Additionally, CAHs must report other acute respiratory conditions, such as the flu, as required sources for treatment of these illness are likely to overlap with COVID-19 treatment.

DISCLAIMER: Please note that the situation surrounding COVID-19 is evolving and that the subject matter discussed in these publications may change on a daily basis. Please contact your responsible Holland & Knight lawyer or the author of this alert for timely advice.

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