November 15, 2022

CMS Releases 2023 Hospital OPPS and ASC Payment System Final Rule

Holland & Knight Alert
Miranda A. Franco


  • The Centers for Medicare & Medicaid Services (CMS) on Nov. 1, 2022, released the calendar year 2023 Hospital Outpatient Prospective Payment System (OPPS) and Ambulatory Surgical Center (ASC) Payment System Final Rule.
  • The Final Rule includes proposals to update payment rates, policies and regulations affecting Medicare services furnished in hospital outpatient and ASC settings beginning on Jan. 1, 2023.

The Centers for Medicare & Medicaid Services (CMS) on Nov. 1, 2022, released the calendar year (CY) 2023 Hospital Outpatient Prospective Payment System (OPPS) and Ambulatory Surgical Center (ASC) Payment System Final Rule with comment period (CMS-1772-FC), which includes proposals to update payment rates, policies and regulations affecting Medicare services furnished in hospital outpatient and ASC settings beginning on Jan. 1, 2023.

To be assured consideration, comments must be received by 60 days after date of filing for public inspecting at the Federal Register.

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 3.8 percent for CY 2023; however, that update was downwardly adjusted by changes to the 340B payment policy.
  • Revert 340B hospital reimbursement from average sales price (ASP) minus 22.5 percent to ASP plus 6 percent, following the U.S. Supreme Court's June 15 decision, and consistent with the proposed rule. To maintain budget neutrality, all nondrug services for CY 2023 will receive a minus 3.09 percent payment reduction.
  • CMS noted that it will implement the Inflation Reduction Act through future rulemaking.
  • Expand the categories of services subject to the prior authorization process to include facet joint interventions. To provide participants additional time to prepare for the addition of facet joint interventions to the prior authorization process, CMS has finalized July 1, 2023, implementation date, rather than the proposed implementation date of March 1, 2023.
  • Requests for information (RFIs) were issued on new quality measures for rural telehealth, behavioral health and maternal health for the Rural Emergency Hospital (REH) Quality Reporting Program, and other requests to address health equity in quality programs. CMS has received and responded to comments across each of these areas and will consider input for future proposals as part of a commitment to assess healthcare quality disparities in hospital-based outpatient department (HOPDs) and ASCs.
  • Continue access to remote behavioral health services following the conclusion of the COVID-19 public health emergency (PHE).
  • Eliminate 11 services from the Inpatient-Only (IPO) list.
  • Maintain the agency's site neutrality process, but exempt Rural Sole Community (RSC) Hospitals from the existing policy.
  • Advance payment policies for REHs, the new hospital type authorized by legislation enacted in 2020.
  • Extend recent flexibilities allowing certain nonphysician practitioners to supervise select diagnostic services.

OPPS Payment Update

CMS finalized an increase of 3.8 percent for OPPS payment rates in CY 2023, which is based on a market basket update of 4.1 percent reduced by a productivity adjustment of 0.3 percentage points. This is an increase from the 2.7 percent update originally proposed for CY 2023. The agency estimates this will result in a total of approximately $86.5 billion in payments to OPPS providers ($6.5 billion more than CY 2022). However, CMS applied several budget neutrality and other adjustments, including a significant 3.09 percentage point reduction to account for changes to its 340B drug purchasing policy.

ASC Payment Update

CMS finalized an increase of 3.8 percent for ASC payment rates in CY 2023, which is consistent with CMS' 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 $5.3 billion in payments to ASC providers ($230 million more than CY 2022).

Data Used in CY 2023 OPPS/ASC Rate-Setting

Because of impacts of the COVID-19 pandemic, CMS finalized its proposal to use CY 2021 claims data and cost report data (CY 2019) prior to the pandemic to set OPPS and ASC CY 2023 payment rates. Ordinarily, CMS would use the most recently available claims and cost report data for OPPS and ASC rate-setting, which includes cost report data during the pandemic.

Cancer Hospital Payment Adjustment

CMS will continue to provide additional payments to cancer hospitals so that a cancer hospital's payment-to-cost ratio (PCR) after the additional payments is equal to the weighted average PCR for the other OPPS hospitals using the most recently submitted or settled cost report data.

Hospital Outpatient Outlier Payments

CMS will continue estimating outlier payments to be 1 percent of the estimated aggregate total payments under the OPPS. It will also trigger outlier payments when the cost of furnishing CY 2023 OPPS and ASC service exceeds either 1.75 times the APC payment amount or the APC payment amount plus $8,350, whichever is higher.

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 removed 11 services from the IPO list based on the determination that they meet criteria to be safely furnished in outpatient settings and for removal from the IPO list. See Table 64 for more detail. CMS also finalized adding eight services to the IPO list recently created by the American Medical Association (AMA) CPTEditorial Panel for CY 2023. See Table 65 for the impacted codes.

OPPS 340B Payment

In 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. So for CY 2023, CMS did not finalize a payment rate of ASP minus 22.5 percent for drugs and biologicals acquired through the 340B program. Instead, CMS is applying the default rate, generally ASP plus 6 percent, to 340B-acquired drugs and biologicals in this final rule for CY 2023 and removing the increase to the conversion factor that was made in CY 2018 to implement the 340B policy in a budget neutral manner by including a budget neutrality adjustment applicable to all other items and services paid under OPPS that decreases payments by 3.09 percent. Because payments increased for many hospitals that do not participate in the 340B program, and even to some that do, CMS needed to make a corresponding adjustment to the conversion factor to preserve budget neutrality in the other direction. This payment reduction applies to all hospitals.

CMS will issue a separate proposed rule on how to apply the Supreme Court's ruling to address remedies for CYs 2018-2022, in advance of the CY 2024 OPPS/ASC Proposed Rule.

Lastly, starting Jan. 1, 2023, the "JG" modifier will be used by hospitals (except rural sole community hospitals, children's hospitals and Prospective Payment System (PPS)-exempt cancer hospitals, all of which will continue to use the "TB" modifier) to identify 340B drugs for informational purposes.

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 proposed considering these remote behavioral health services as covered outpatient services, paid under the OPPS, even after the PHE expires.

Accordingly, in the final rule, CMS will make permanent COVID-19 PHE flexibilities that allow certain mental health services to be provided remotely to patients in their homes as covered outpatient department services. To facilitate this payment, CMS will create OPPS-specific Healthcare Common Procedure Coding System (HCPCS) codes for these services: C7900, C7901 and C7902. Beneficiaries using these codes will be required to be in their homes when receiving services. In response to comments, CMS modified 42 CFR 410.27(a)(1)(iii) to include an amendment that would not require physicians to be physically present in the hospital when furnishing mental health services to patients in the home.

However, CMS is finalizing the proposal to require that payment for behavioral health services furnished remotely, to beneficiaries in their homes, may only be made if the beneficiary receives an in-person service within six months prior to the first time hospital clinical staff provides the behavioral health services remotely, and that there must be an in-person service, without the use of communications technology, within 12 months of each behavioral health service furnished remotely by hospital clinical staff. CMS clarified that for purposes of the requirement that an in-person visit required within six months prior to the initial mental health telehealth services, this requirement does not apply to beneficiaries who began receiving mental health telehealth services in their homes during the PHE or during the 151-day period after the end of the PHE.

CMS also clarified that beneficiaries who began receiving mental health telehealth services in their homes during the PHE or the 151-day period after the end of the PHE before the in-person visit requirements take effect do not need to have an in-person, non-telehealth service within six months prior to receiving mental health service in their homes. Instead, the requirement to receive an in-person visit within 12 months of each remote mental health telehealth service would apply.

Finally, CMS finalizes its proposal that while hospital staff must have the capability of providing two-way audio and video services to patients, audio-only communications may be utilized to support an individual patient's access or preference.

Supervision by Nonphysician Practitioners of Hospital and Critical Access Hospital (CAH) Diagnostic Services Furnished to Outpatients

CMS finalized its policy to further revise existing supervision requirements to clarify that nurse practitioners, clinical nurse specialists, physician assistants, certified registered nurse anesthetists and certified nurse midwives may 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 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 confident that 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 finalized a single blended payment for devices and services in Category B IDE studies. CMS will also develop a new, or revise an existing, HCPCS code that would describe both the control and treatment arms and related devices.

For a device and service to be eligible for this coding and payment, CMS must determine that a new code and payment rate is necessary to preserve scientific validity and that the study meets Medicare criteria. The goal of this change is to preserve validity of the studies by blinding Medicare payment differences that may reveal differences in trial participant treatments.

The new code and blended payment rate will include both treatment and control arm devices as well as related routine care and services. The payment rate would depend on each specific trial protocol and frequency of device versus placebo use. Payment would be based on average resource utilization for each clinical trial participant.

Hospital OQR and ASCQR Programs

For CY 2023, CMS finalized the policy of maintaining voluntary reporting for the Cataracts: Improvement in Patient's Visual Function within 90 Days Following Cataract Surgery (OP-31) Outpatient Quality Reporting (OQR) measure and the Cataracts: Improvement in Patient's Visual Function within 90 Days Following Cataract Surgery (ASC-11) Ambulatory Surgical Center Quality Reporting (ASCQR) measure because of the ongoing COVID-19 public health emergency (PHE).

In addition, CMS finalized:

  • alignment of Hospital OQR Program patient encounter quarters for chart-abstracted measures to the calendar year for annual payment update (APU) determinations, and
  • addition of a targeting criterion for the Hospital OQR Program in the selection of hospitals for data validation, for hospitals with fewer than four quarters of data subject to validation, due to receiving an extraordinary circumstance exception for one or more quarters

Rural Emergency Hospitals (REHs)

CMS finalized standards for REHs, a new Medicare provider type established by Section 125 of the Consolidated Appropriations Act of 2021. Hospitals may convert to REHs if they were critical access hospitals (CAHs) or rural hospitals with not more than 50 beds participating in Medicare as of Dec. 27, 2020.

CMS established Conditions of Participation (CoPs) that include a full range of health and safety standards specific to governance, services offered, staffing, physical environment and emergency preparedness. Specific requirements include the following:

  • REHs must have a clinician on-call at all times and available onsite within 30 or 60 minutes, depending on whether the facility is located in a frontier area
  • The REH emergency department must be staffed 24 hours per day and seven days per week by an individual competent in the skills needed to address emergency medical care
  • REHs must develop, implement and maintain a quality assurance and performance improvement program
  • The annual per-patient average length of stay cannot exceed 24 hours
  • REHs must have an infection prevention and control and antibiotic stewardship program

CMS also finalized its proposal to update existing Medicare provider enrollment regulations to address enrollment requirements for REHs. A key provision allows facilities to submit a Form CMS-855A change of enrollment application, rather than an initial application, to accelerate the process of switching from a CAH to a REH.

Lastly, CMS finalized one of its two proposed updates to the Stark Law, which prohibits physician self-referral of certain designated services, for the REH provider type. CMS finalized a policy revising certain Stark Law exceptions to make them applicable to compensation arrangements for REH providers. CMS did not finalize its proposed exception for ownership or investment interests in REHs, but the rural provider exception remains available to REHs.

Prior Authorization Process for Certain Services

CMS will require prior authorization for a new service, facet joint interventions, effective for dates of services on or after July 1, 2023. The 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.

Payment Adjustments for Domestically Produced N95s

CMS adjusted payments under OPPS and Inpatient Prospective Payment System (IPPS) to include the additional costs of domestically manufactured, National Institute for Occupational Safety and Health (NIOSH)-approved surgical N95 respirators, effective Jan. 1, 2023. CMS will categorize all NIOSH-approved surgical N95 respirators purchased by hospitals as either domestic or non-domestic, as domestically produced respirators are typically more expensive than those produced abroad.

CMS will base the payment adjustments on the estimated difference in the reasonable costs of a hospital to purchase domestic and non-domestic respirators. CMS finalized that this payment be a biweekly interim lump-sum payment, effective Jan. 1, 2023.

CMS will calculate the hospital-specific unit cost differential between domestic and non-domestic respirators by calculating the average cost of domestic and non-domestic respirators purchased and dividing the total reported aggregate cost of each by the respective total quantity purchased then subtracting the two average costs.

Rural Sole Community Hospital (SCH) Site Neutral Payment Exemption

CMS finalized its proposal to exempt excepted off-campus provider-based outpatient departments of rural SCHs from the payment cuts initially adopted by CMS in the CY 2019 final rule. Under that 2019 rule, CMS paid the equivalent of the Physician Fee Schedule (PFS) payment rate for clinic visits provided at excepted off-campus provider-based departments (PBDs), an amount that is approximately 60 percent less than the OPPS payment rate. CMS claimed that it adopted this method in CY 2019 to control unnecessary increases in the volume of clinic visit services in provider-based departments by providers seeking to maximize payment. 

CMS will exempt some off-campus PBDs of rural SCHs from this volume-control measure because service volume at these sites is likely driven by factors outside of the increase in payment due to share of cost. CMS finalized that an excepted off-campus PBD of rural SCH would still bill to HCPCS code G0463 with a PO modifier, but that the payment rate will be changed to the full OPPS payment rate. This change will impact beneficiaries by increasing copays by $16 per visit. This increase will not be budget neutral but, it will not increase overall OPPS spending because it exempts only a single provider type.

CMS did not finalize a similar exception for other provider types, noting that it believed that "the underlying principles of the clinic visit policy continue to justify application" of the existing payment methodology for clinic visits to other hospital types, "including most rural and safety-net providers," and that these other provider types do not "demonstrate the additional resource costs that rural SCHs do."

Non-Opioid Pain Management Drug and Biological Policy

CMS is finalizing separate payment in the ASC setting for three non-opioid pain management drugs (C9089, J1097, C9290) that function as surgical supplies, including certain local anesthetics and ocular drugs. Further, CMS is finalizing the proposal that C9088 is not eligible for separate payment under the ASC payment system policy for non-opioid pain management drugs and biologicals that function as surgical supplies in CY 2023.

Discarded Single-Dose/Single-Use Packaged Drugs

Because of reliance on often-incomplete JW modifier data, CMS proposed that providers use a new modifier (the JZ modifier) to attest that there were no discarded drug amounts. CMS proposed requiring the use of the JZ modifier in all instances in which there are no discarded amounts of single-dose and single-use package drugs. In the CY 2023 Medicare Physician Fee Schedule (MPFS) final rule, CMS codified the JW modifier for wasted or discarded units.

Some stakeholders commented that requiring the use of the JZ modifier would cause confusion and increase overhead burden among providers and was unnecessary given the required use of the JW modifier. CMS disagreed, citing likely underreporting of wastage from the JW modifier. CMS codified the JZ modifier, effective Jan. 1, 2023. To allow for an adjustment period, providers are not required to use the modifier until July 1, 2023 and Medicare Administrative Contractors (MACs) are not required to make claim edits until Oct. 1, 2023.

Pass-Through Policies for Certain Drugs, Biologicals and Radiopharmaceuticals

Under current law, CMS provides temporary additional payments or "transitional pass-through payments" for certain drugs and biological agents for "new" drugs, devices and biological agents that were not paid for as a hospital outpatient department service as of Dec. 31, 1996, and whose cost is "not insignificant" in relation to the OPPS payment for the procedures or services associated with the new drug, device or biological. Under statute, transitional pass-through payments can be made for at least two years but not more than three years.

CMS finalized its proposal to continue existing pass-through payment policies for drugs, biologicals and radiopharmaceuticals through CY 2023, for 32 drugs and biologicals that were approved for pass-through payment status with effective dates between April 1, 2021, and April 1, 2022.

In addition, CMS finalized its proposal to continue pass-through payment status in CY 2023 for 49 drugs and biologicals which were approved for pass-through payment status with effective dates beginning between April 1, 2021, and Oct. 1, 2022.

CMS also finalized its proposal to end pass-through payment status in CY 2023 for 43 drugs and biologicals that were initially approved for pass-through payment status between April 1, 2020, and Jan. 1, 2021.

Skin Substitutes

CMS finalized its proposal to retain its high-cost and low-cost categories policy. Skin substitutes that exceed either the Measures under Consideration (MUC) or the Proportion of Days Covered (PDC) threshold would be assigned to the high-cost group and all others will be assigned to the low-cost group. CMS finalized its proposal to continue assigning skin substitutes with pass-through payment status to the high-cost category and to assign skin substitutes with pricing information but without claims data to calculate a geometric MUC or PDC to either the high-cost or low-cost category based on the product's ASP plus 6 percent payment rate as compared to the MUC threshold.

CMS also finalized its proposal to delete HCPCS code C1849. It also finalized its proposal that any graft skin substitute product that is (or will be) assigned a code in the HCPCS A2XXX series and is also appropriately described by HCPCS code C1849 is assigned to the high-cost skin substitute group. CMS finalized that HCPCS code A4100 is assigned to the low-cost skin substitute group.

Lastly, CMS did not finalize a proposal to change the term "skin substitutes" to "wound care management" or "wound care management products." CMS sought comments on this proposal and was particularly interested in feedback on how to address the challenges with Current Procedural Terminology (CPT) reference. The agency believes that additional dialogue will be beneficial before finalizing new terminology. CMS intends to host a town hall in early 2023 to further understand the concerns that interested parties may have regarding changes in terminology and payment policies for these products. CMS will address additional changes in future rulemaking.

Organ Acquisition Costs

CMS finalized its proposal to require transplant hospitals and organ procurement organizations (OPOs) to exclude organs used for research in the calculation of Medicare's share of organ acquisition costs on the Medicare cost report (for both Medicare usable organs and total usable organs) with modifications.

As most commenters opposed CMS' proposal for research organs and raised a number of concerns about counting of organs for organ acquisition costs.

To address these concerns, CMS clarifies that acquisition costs of organs that are intended for transplant but determined to be unsuitable and instead used for research are allowable organ acquisition costs. Consequently, CMS also clarifies that acquisition costs of organs that were initially intended for research are not allowable organ acquisition costs, except for certain islet cell transplant pancreata.

In other words, for transplant hospitals or OPOs to include the costs to procure research organs in the organ acquisition costs, they must account for those costs in one of two ways: 1) by deducting the costs to procure organs for research from the total organ acquisition costs, or 2) by offsetting the costs to procure the organs by the revenue received for furnishing the organs to research organizations. This flexibility in how to account for the costs was established so that transplant hospitals and OPOs can account for research costs in a way that is most consistent with their current accounting practices.

CMS also finalized its proposal that organ acquisition costs include certain hospital costs incurred for services provided to deceased donors.

CMS did not respond to comments that it received in response to the proposed rule's "request for information" regarding organ acquisition costs. In particular, in the proposed rule, CMS requested information on: 1) a new methodology for counting organs under which transplanting hospitals and OPOs would report only organs actually transplanted into Medicare beneficiaries in the transplanting hospital for purposes of calculating Medicare's share of organ acquisition costs; 2) a revised methodology under which OPOs – rather than Medicare contractors – would establish their kidney standard charges; and 3) potentially amending the cost report reconciliation process to require Medicare-certified independent OPOs to submit Medicare cost reports to the Medicare contractors for review, reconciliation and settlement of non-renal organ acquisition costs to determine Medicare's reasonable costs. In the final rule, CMS stated that it was "not responding to specific comments submitted" in response to the proposed rule and that the agency "intend[ed] to use this input to inform future policy development."

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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