July 21, 2022

CMS Releases CY 2023 Outpatient and ASC Payment System Proposed Rule

Holland & Knight Alert
Miranda A. Franco


  • The Centers for Medicare & Medicaid Services (CMS) has released the calendar year (CY) 2023 Hospital Outpatient Prospective Payment System (OPPS) and Ambulatory Surgical Center (ASC) Payment System Proposed Rule.
  • The Proposed Rule addresses issues such as transparency, competition, 340B drug pricing, rural health and behavioral health, among other items.
  • This Holland & Knight alert summarizes a number of key provisions in the Proposed Rule, which is open for a 60-day comment period that will close on Sept. 13, 2022.

The Centers for Medicare & Medicaid Services (CMS) has released the calendar year (CY) 2023 Hospital Outpatient Prospective Payment System (OPPS) and Ambulatory Surgical Center (ASC) Payment System Proposed Rule (CMS-1772-P), which includes proposals to update payment rates, policies and regulations affecting Medicare services furnished in hospital outpatient and ambulatory surgical center (ASC) settings beginning in CY 2023.

The Proposed Rule, released on July 15, 2022, addresses issues such as transparency, competition, 340B drug pricing, rural health and behavioral health. The Proposed Rule is open for a 60-day comment period that will close on Sept. 13, 2022. The Final Rule with comment is expected to be issued in early November 2022.

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

Key Proposals of Note

  • Increase payment rates under OPPS and the ASC payment system by 2.7 percent for CY 2023
  • Continue access to mental health services via telehealth following the conclusion of the COVID-19 public health emergency (PHE)
  • Eliminate 10 services from the Inpatient Only (IPO) List
  • Maintain the 340B payment rate of the average sales price (ASP) minus 22.5 percent for separately payable drugs, though CMS notes that it expects to apply a rate of ASP plus 6 percent in the CY 2023 final rule
  • Maintain the agency's site neutrality process, but exempt Rural Sole Community (RSC) Hospitals from the existing policy
  • Consider eight applications for pass-through device payment
  • Expand the categories of services subject to the prior authorization process
  • Continue non-opioid pain management drug and biological policy with modifications
  • Advance payment policies for rural emergency hospitals, the new hospital type authorized by legislation enacted in 2020

OPPS Payment Update

CMS proposes an increase of 2.7 percent for OPPS payment rates in CY 2023, which is based on a market basket update of 3.1 percent reduced by a productivity adjustment of 0.4 percentage points. The agency estimates this will result in a total of approximately $86.2 billion in payments to OPPS providers ($1.79 billion more than CY 2022).

ASC Payment Update

CMS proposes an increase of 2.7 percent for ASC payment rates in CY 2023, which is consistent with the agency's policy for CYs 2019 through 2023 to update the ASC payment system using the hospital market basket update. CMS estimates this will result in a total of approximately $5.4 billion in payments to ASC providers ($130 million more than CY 2022).

Inpatient Only List

CMS established the IPO list in 2000 to designate procedures that, because of their invasive nature, expected recovery time and/or underlying patient condition, would not be paid if performed in an outpatient facility. The agency believed that performing certain procedures on an outpatient basis would not be safe or appropriate and, therefore, not reasonable and necessary under Medicare rules.

For CY 2021, CMS reversed this longstanding policy and decided to eliminate the IPO list over three years. However, in the CY 2022 OPPS/ASC Final Rule, based on a clinical review by its internal physicians, CMS reversed its decision to eliminate the IPO list.

Additionally, in the CY 2022 OPPS/ASC Final Rule, CMS finalized a proposal to codify five longstanding criteria for determining whether a service or procedure should be removed from the IPO list.

For CY 2023, CMS proposes to remove 10 services from the IPO list. CMS also proposes adding eight services to the IPO list recently created by the American Medical Association (AMA) CPT® Editorial Panel for CY 2023. If finalized, these services would be effective Jan. 1, 2023.

OPPS 340B Payment: Changes Expected in Final Rule

In the CYs 2018 and 2019 OPPS/ASC Final Rules, CMS finalized a policy that Medicare would reimburse hospital outpatient drugs purchased with a 340B discount at average sales price (ASP) minus 22.5 percent for physician-administered drugs, a departure from previous payment policy of ASP plus 6 percent. That policy prompted litigation, which was the subject of a recent U.S. Supreme Court decision.

On June 15, 2022, the Supreme Court held, among other things, that absent a survey of hospitals' drug acquisition costs, the U.S. Department of Health and Human Services (HHS) may not vary the reimbursement rates only for 340B hospitals. Therefore, the Court determined that CMS' 2018 and 2019 reimbursement rates for 340B hospitals were unlawful because CMS did not conduct a survey for more than a decade after statutory provisions went into effect in 2006.

While the focus of this decision was on the 2018 and 2019 payment rates, the decision impacts CY 2023 rates. CMS was unable to adjust the proposed payment rates in response to the Supreme Court's decision prior to issuing the proposed rule. Therefore, although CMS formally proposes a payment rate of ASP minus 22.5 percent for drugs and biologics acquired through the 340B program for CY 2023, as in CYs 2019-2022, the agency intends to apply a rate of ASP plus 6 percent to 340B drugs and biologics in the CY 2023 Final OPPS rule in consideration of the Supreme Court's ruling. CMS notes, however, that the OPPS conversion factor would need to be decreased to account for any 340B drug payment increases to maintain budget neutrality. The agency continues to evaluate how to apply the Supreme Court's ruling to address remedies for CYs 2018-2022, and seeks public input on how to do so.

Transparency and Competition RFI

Following a July 2021 Executive Order stating that hospital consolidation has resulted in a lack of "convenient and affordable" healthcare services, CMS is requesting information on ways in which to further transparency and competition in the healthcare system.

In April 2022, CMS first released data on hospital and skilled nursing facility mergers, acquisitions, consolidations and changes in ownership dating back to 2016. CMS will update this data quarterly moving forward. This request for information (RFI) seeks to identify what if any, additional data should be released to the public and whether there are additional provider types for which the data should be made public.

Remote Behavioral Health

Currently, patients can receive remote behavioral health services from hospital outpatient department clinical staff because of certain emergency waivers resulting from the COVID-19 PHE. CMS proposes considering these remote behavioral health services as covered outpatient services, paid under the OPPS, even after the PHE expires. These services would be performed by the clinical staff of a hospital using telecommunication technology originating from the hospital location to beneficiaries in their homes. To accommodate this, CMS proposes OPPS-specific coding to describe such services.

To qualify, patients would need to receive an in-person service six months or less before the first remote visit and every 12 months after the remote visit. CMS also proposes to permit providing these services via audio-only technology in order to improve health equity.

Continuation of Cardiac and Pulmonary Rehabilitation Services Via Interactive Communications Technology

In the CY 2022 Physician Fee Schedule (PFS) Rule, codes for cardiac rehabilitation (CR) and pulmonary rehabilitation (PR) via interactive communications technology (ICT) were added to the Medicare Telehealth Services List on a Category 3 basis, meaning that these services will not be furnished to beneficiaries in their homes post-PHE. CMS seeks comment on whether the agency should continue to allow direct physician supervision for cardiac and pulmonary rehabilitation services to encompass two-way audio/video communication technology through the end of CY 2023. Specifically, CMS requests comments on potential safety and quality of care concerns that this policy adoption could incur post-PHE.

Supervision Requirements for Outpatient Diagnostic Services at Hospitals and Critical Access Hospitals (CAHs)

CMS proposes to clarify that nonphysician practitioners (NPPs) – nurse practitioners, clinical nurse specialists, physician assistants, certified registered nurse anesthetists and certified nurse midwives – can provide general, direct and personal supervision of outpatient diagnostic services to the extent that they are authorized to do so under their scope of practice and applicable state law.

Payment Update for Investigational Device Exemption for Clinical Studies

Medicare can pay for routine items and services provided in a U.S. Food and Drug Administration (FDA) approved Category A (Experimental) study if CMS determines that the Medicare coverage investigational device exemption (IDE) study criteria are fulfilled. A Category A (Experimental) device is one for which the "absolute risk" of the device type has not been definitively established. This means that initial questions surrounding safety and effectiveness have not been resolved, and the FDA is not entirely sure the device is safe and effective.

Medicare can pay for a Category B (Nonexperimental/Investigational) IDE study if CMS determines that the Medicare coverage IDE study criteria are fulfilled. A Category B device is one in which the incremental risk is the primary risk under question (this means that initial questions surrounding safety and effectiveness have been resolved), or one in which it is known that the device can be safe because other manufacturers have received FDA premarket approval or clearance for that particular device type.

For CY 2023, CMS proposes to create a single blended payment and establish a new HCPCS code or update an existing HCPCS code for devices and services in Category B IDE studies when Medicare coverage IDE study criteria are met and where CMS establishes that a new or revised payment rate is needed to preserve scientific validity of the study.

Hospital OQR and ASCQR Programs

The Hospital Outpatient Quality Reporting Program (OQR) and the Ambulatory Surgical Center Quality Reporting (ASCQR) Programs are pay-for-reporting quality programs for hospital outpatient department and ASC settings, respectively, that require hospitals and ASCs to meet program requirements or receive a reduction of 2.0 percentage points in their annual payment updates.

For the Hospital OQR Program for CY 2023, CMS proposes to update the Cataracts: Improvement in Patient's Visual Function within 90 Days Following Cataract Surgery (OP-31) measure to be voluntary due to the ongoing COVID-19 PHE. CMS proposes the same for the related ASCQR measure, the Cataracts: Improvement in Patient's Visual Function within 90 Days Following Cataract Surgery (ASC-11).

CMS also seeks feedback on the future reimplementation of the Hospital Outpatient Volume on Selected Outpatient Surgical Procedures (OP–26) measure or the future adoption of another volume indicator as a quality measure under the Hospital OQR Program. Similarly, CMS seeks comment on the reimplementation of the ASC Volume on Selected ASC Surgical Procedures (ASC–7) measure or adoption of another volume indicator as a quality measure in the ASCQR Program.

Rural Emergency Hospitals (REHs)

Updated Payment Model: CMS proposes to provide a 5 percent payment for each covered outpatient department service furnished by an REH in addition to the standard OPPS payment rate. The agency noted that beneficiaries receiving such services would not be charged coinsurance on the additional 5 percent payment. If finalized, the payment amount would increase beginning in CYs 2024 and beyond based on the hospital market basket percentage increase. Additionally, the proposed rule would allow REHs to provide additional outpatient services outside of those paid under the OPPS. These services would be eligible for payment under the OPPS following the applicable fee schedule for such services without the additional 5 percent payment proposed for covered services.

REH Provider Enrollment: CMS proposes that to convert from a Critical Access Hospital (CAH) to an REH, the CAH need only submit a Form 855A change of information application, rather than a full initial enrollment application, which would include a waiver of the initial application fee.

Updates to Self-Referral Exceptions: If finalized, the proposed rule would provide updates to the "Stark Law" to incorporate the new REH provider type in its scope. Specifically, the agency is seeking to: 1) add a new exception for ownership or investment interests in an REH and 2) revise certain existing exceptions in an attempt to ensure applicability to compensation arrangements where an REH holds a stake.

RFI on REH Conditions of Participation: CMS is seeking public comment on proposed REH standards contained within the "Conditions of Participation (CoPs) for Rural Emergency Hospitals and Critical Access Hospital CoP Updates" proposed rule. Specifically, the agency requests feedback from the rural community on: 1) an REH's ability to provide low-risk childbirth-related labor and delivery services, and whether CMS should implement a requirement that REHs also provide outpatient surgical services if surgical labor and delivery intervention is necessary, and 2) the appropriateness of an REH to allow certain provider types with training or experience in emergency medicine to be on call and immediately available either by audio communication device or on site under certain circumstances.

Prior Authorization Process for Certain Services

CMS proposes to add Facet Joint Interventions as a new service category subject to the Hospital Outpatient Prior Authorization Process on or after March 1, 2023. For CY 2020, CMS finalized a policy whereby hospitals must seek provisional affirmation of coverage before select outpatient services are furnished to beneficiaries and before a claim can be submitted for processing. This prior authorization requirement applied initially to only five categories of services: blepharoplasty, botulinum toxin injections, panniculectomy, rhinoplasty and vein ablation.

In the CY 2021 rulemaking cycle, CMS expanded the services subject to prior authorization, adding two new categories of services (cervical fusion with disc removal and implanted spinal neurostimulators) for dates of service on or after July 1, 2021. CMS did not change the list of services subject to prior authorization in CY 2022. For CY 2023, CMS proposes to add a new service category (facet joint interventions) to the prior authorization process for dates of service on or after March 1, 2023. The proposed service category would consist of facet joint injections, medial branch blocks and facet joint nerve destruction. CMS is likely to include additional types of services in future rulemaking.

OPPS Payment for Software as a Service RFI

CMS proposes changes to the OPPS payment for software as a service.

Those proposals include:

  • Relocating certain technology from the New Technology Ambulatory Payment Classification (APC) to appropriate APC designations
  • Changing package payment for specific add-on codes according to existing packaging policies
  • Revising CPT add-on codes to HCPCS C-codes to describe add-ons that are standalone services

CMS is soliciting comments on new payment approaches for specific technologies and how to identify services that should be analyzed as distinct, how to identify the related costs and how the services might be paid for in other settings. CMS also seeks comments on the best payment approach as these technologies become more common outside imaging services.

Payment Adjustments for Domestically Produced N95s

To incentivize the purchase of domestic National Institute for Occupational Safety & Health (NIOSH)-approved surgical N95s, CMS proposes to provide a payment adjustment in both the hospital inpatient and outpatient settings. Specifically, CMS proposes to offset the "additional marginal resource costs that hospitals face in procuring domestically made NIOSH-approved surgical N95 respirators" by making biweekly lump-sum payments to hospitals that are then reconciled at cost report settlement.

Rural Sole Community Hospital Site Neutral Payment Exemption

Over the past several years, CMS has implemented a site-neutral payment policy for off-campus provider-based departments establishing a clinic visit fee equivalent to the PFS rate. However, due to concerns about patient access, CMS proposes to exempt RSC Hospitals from the site-neutral changes by paying for clinic visits furnished at an RSC Hospital's excepted off-campus provider-based departments at the full OPPS rate (approximately 60 percent more than the PFS rate).

Non-Opioid Pain Management Drug and Biological Policy

In the CY 2022 OPPS and ASC Final Rule, CMS finalized its proposal that beginning Jan. 1, 2022, CMS would provide for separate payment for non-opioid pain management drugs and biologicals that function as supplies in the ASC setting when those products are FDA approved, have an FDA-approved indication for pain management or as an analgesic, and have a per-day cost above the OPPS drug packaging threshold, as determined by CMS.

For CY 2023, CMS proposes maintaining the current separate payment policy in the ASC for these products meeting the criteria. However, the agency also proposes clarifying to add two additional criteria for separate payment:

  • The drug or biological does not have transitional pass-through payment status. In the case where a drug or biological otherwise meets this non-opioid pain management drug policy requirements and has transitional pass-through payment status that will expire during the calendar year, the drug or biological would qualify for separate payment during such calendar year on the first day of the next calendar year quarter after its pass-through status expires.
  • The drug or biological must not already be separately payable in the OPPS or ASC payment system under a policy other than the one specified in this non-opioid pain management drug policy.

Using these criteria, CMS reevaluated the products that receive separate payments under the policy for CY 2022 and proposed that three would continue to receive separate payments under this policy for CY 2023. CMS is soliciting comments on additional drugs and biologicals that may meet the criteria in addition to the following:

  • potential policy modifications and additional criteria that may help further align the ASC payment system policy for non-opioid pain management drugs and biologicals that function as surgical supplies
  • non-drug or non-biological products that should qualify for separate or modified payment under this authority and any data regarding any such products
  • barriers to access to non-opioid pain management products that may exist and how payment policies could be modified to address these barriers
  • comments and data regarding the need to expand the current ASC payment system policy for non-opioid pain management drugs and biologicals that function as surgical supplies to the OPPS

Discarded Single-Dose/Single-Use Packaged Drugs

Section 90004 of the Infrastructure Investment and Jobs Act amended Section 1847A of the Act, adding provisions that require manufacturers to provide a refund to CMS for certain discarded amounts from a refundable single-dose container or single-use package drug. The refund amount is equal to the amount of discarded drug that exceeds an applicable percentage, which is required to be at least 10 percent, of total charges for the drug in a given calendar quarter. The CY 2023 Medicare Physician Fee Schedule (MPFS) Proposed Rule outlines a method to operationalize this statutory requirement, and the CY 2023 OPPS Proposed Rule reiterates the single-dose policy.

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

For CY 2023, CMS received eight applications for device pass-through payments. One of these applications (an intervertebral fusion device) received preliminary approval for pass-through payment status through the agency's quarterly review process. CMS is soliciting public comment on all eight of the devices, and final determinations on whether the devices qualify (or continue to qualify) for transitional device pass-through status will be made in the CY 2023 OPPS/ASC Final Rule.

In addition, for CY 2023, CMS is proposing to resume its usual process of using claims data from two years prior to the year to set rates for the calendar year; specifically, CY 2021 claims data for the CY 2023 OPPS rate setting. Therefore, CMS is not proposing to provide any additional quarters of separate payment for any device category whose pass-through payment status will expire between Dec. 31, 2022, and Sept. 30, 2023.

Finally, CMS is proposing to publicly post the completed OPPS device pass-through application forms and related materials it receives from applicants online, excluding certain copyright or other materials that cannot otherwise be released to the public, beginning with applications received on or after Jan. 1, 2023.

Skin Substitutes

In packaging the skin substitutes, CMS established a policy that divides the skin substitutes into a high-cost group and a low-cost group in order to meet the agency's stated goal of ensuring "adequate resource homogeneity among APC assignments for the skin substitute application procedures." For CY 2023, CMS proposes to continue its current policy with skin substitutes assigned to a high- or low-cost group based on the product's geometric mean unit (GMU) cost or per-day cost (PDC) relative to the GMU or PDC threshold.

In the OPPS Proposed Rule, CMS highlights the policy proposal put forth in the CY 2023 MPFS Proposed Rule relative to skin substitutes, whereby the agency would treat all skin substitute products consistently across healthcare settings as incident-to supplies. Although the proposal in the PFS would not apply to the hospital outpatient setting, CMS seeks to take a similar approach in the hospital outpatient setting.

Organ Acquisition Costs

In the fiscal year (FY) 2022 Inpatient Prospective Payment System (IPPS) Proposed Rule, CMS proposed significant changes to how Medicare useable organs are defined and counted in the Medicare cost report under the pretense that these changes will ensure the Medicare program is paying only its share of organ acquisition costs. However, CMS did not finalize the policies as proposed, although it indicated that the agency would address the issue in future rulemaking.

Accordingly, in this rule, CMS proposes requiring that transplant hospitals (THs) and organ procurement organizations (OPOs) exclude organs used for research from the numerator (Medicare usable organs) and the denominator (total usable organs) when determining Medicare's share of organ acquisition costs on the Medicare cost report. CMS defines a "research organ" as an organ used for research (with the exception of certain pancreata), regardless of whether the organ was intended for research or transplant and subsequently used for research. Under this proposal, THs and OPOs would also be required to deduct the cost incurred in procuring an organ for research from their total organ acquisition costs.

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, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.

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