Hospitals will get a nearly 10 percent increase beginning Jan. 1 under the Hospital Outpatient Prospective Payment System and Ambulatory Surgical Center (ASC) Payment System Policy Changes and Payment Rates, according to a proposed rule issued by the Centers for Medicare and Medicaid Services (CMS) last week.

The bad news is that as part of the revised Medicare Physician Fee Schedulehospitals will get the promised reductions in more than 200 DRG codes, a move aimed at bringing reimbursement rates more in line to when services are rendered in a physician’s office.

CMS also released proposed changes for the Physician Quality Programs/Value Based Payment Modifier.

All the proposed rules will be published July 19, and comments will be open until Sept. 6 registered users can download the proposed OPPS/ASC rules (including the proposed changes to PQRS) here (You must be logged in to download this file. Don't have an account? Register for free and you'll be returned to this page.)

The proposed Physician Fee Schedule can be downloaded here:  (You must be logged in to download this file. Don't have an account? Register for free and you'll be returned to this page.)


OPPS payments will increase $4.37 billion or 9.5 percent, according to CMS calculations, and payments to ASCs are projected to grow by approximately $133 million or 3.51 percent.

While the proposed increase is good news to healthcare providers, CMS is also modifying the payment system for OPPS/ASC. According to CMS’s fact sheet on the new reimbursement rates:

The OPPS is currently a hybrid of a prospective payment system and a fee-for-service system, with some payments representing costs packaged into a primary service and other payments representing the cost of a particular item, service, or procedure.  Payment amounts vary according to the Ambulatory Payment Classification (APC) group to which a service is assigned.  The OPPS includes payment for most hospital outpatient department services, and covers partial hospitalization services furnished by hospital outpatient departments and community mental health centers.


The CY 2014 OPPS/ASC rule proposes to expand the categories of related items and services packaged into a single payment for a primary service under the OPPS, in order to make the OPPS more of a prospective payment system.  When the OPPS began in 2000, the payment system provided for the packaging of a limited number of items and services, such as anesthesia and surgical supplies. CMS expanded the categories of included items and services in 2008 and 2009, by adding eight additional categories, including image processing services, and implantable biologicals.  This proposed rule would further expand the categories of packaged items and services by adding seven additional categories of supporting services, thereby moving the OPPS closer to a prospective payment system that is more analogous to Medicare payment for hospital inpatient services and less like a rate-for-service payment model. In addition to packaging these seven categories, CMS is proposing to create 29 comprehensive APCs to replace 29 existing device-dependent APCs.


Proposed Changes to Hospital OPPS Payments and Policies


Proposed Payment Update. CMS proposes to update the OPPS market basket by 1.8 percent for CY 2014.   The proposed hospital market basket increase published in the Fiscal Year (FY) 2014 Inpatient Prospective Payment System (IPPS)/Long-Term Care Hospital Prospective Payment System (LTCH PPS) proposed rule is 2.5 percent.  The Medicare statute requires a productivity adjustment reduction of 0.4 percentage points and a 0.3 percentage point reduction to the CY 2014 OPPS market basket, so the proposed CY 2014 OPPS market basket update would be 1.8 percent.


Proposed Items and Services to be “Packaged” or Included in Payment for a Primary Service. For 2014, CMS proposes to package seven new categories of supporting items and services. For many of these services, the OPPS will continue to make a separate payment if they are reported alone on a claim.  The seven proposed categories are:


  1. Drugs, biologicals, and radiopharmaceuticals that function as supplies when used in a diagnostic test or procedure;
  2. Drugs and biologicals that function as supplies or devices when used in a surgical procedure;
  3. Certain clinical diagnostic laboratory tests;
  4. Procedures described by add-on codes;
  5. Ancillary services, such as a chest x-ray, that are assigned status indicator “X”;
  6. Diagnostic tests on the bypass list, and
  7. Device removal procedures.


In addition to packaging these seven categories, CMS is proposing to create 29 comprehensive APCs to replace 29 existing device-dependent APCs.


Collapsing Five Levels of Visits to One.  In an effort to further our goals of using larger payment bundles to maximize hospitals’ incentives to provide care in the most efficient manner, discouraging upcoding, and to continue to set accurate payments, CMS is proposing to streamline the current five levels of outpatient visit codes. The proposal would replace them with a single Healthcare Common Procedure Coding System (HCPCS) code for each unique type of outpatient hospital visit; one for clinic and one for each type of emergency department visit (24 hour and non-24 hour).  By collapsing the current five levels of codes to one level, CMS believes this proposal will remove incentives hospitals may have to provide medically unnecessary services or expend additional, unnecessary resources to achieve a higher level of visit payment under the OPPS, will reduce administrative burden and be easily adopted by hospitals, and will allow a large universe of claims to be utilized for rate setting.


Part B Drugs in the Outpatient Department.  We propose to continue paying at ASP+6 percent for non-pass-through drugs and biologicals that are payable separately under the OPPS.


Other Proposed Payment Updates


ASC Payment Update.  ASC payments are annually updated for inflation by the percentage increase in the consumer price index for all urban consumers (CPI-U).  The Medicare statute specifies a multifactor productivity (MFP) adjustment to the ASC annual update.  For CY 2014, the CPI-U update is projected to be 1.4 percent.  The MFP adjustment is projected to be 0.5 percent, resulting in an MFP-adjusted CPI-U update of 0.9 percent for CY 2014.  In addition, CMS is proposing that certain ancillary or adjunctive services that would be packaged under the OPPS for CY 2014 also would be packaged under the ASC payment system for CY 2014.  Payments to ASCs that fail to meet ASC Quality Reporting Program requirements would be reduced by two percent.


Partial Hospitalization Program (PHP) Rates.  CMS proposes to update the two payment rates for community mental health centers and the two payment rates for hospital-based PHPs.  For community mental health centers, the proposed CY 2014 APC geometric mean per diem cost for Level I (three services) would be $94 and for Level II (four or more services), $106.  For hospital-based PHPs, the proposed update to the APC geometric mean per diem cost would be $213 for Level I and $215 for Level II.


Proposed Quality Program Changes


Hospital Outpatient Quality Reporting (OQR) Program.  CMS is proposing five new measures for the OQR program, affecting payment in CY 2016, with data collection beginning in CY 2014:


  1. Influenza Vaccination Coverage among Healthcare Personnel (NQF #0431).  This measure was also adopted for the ASC Quality Reporting Program for the CY 2016 and subsequent years payment determinations, as well as the Hospital Inpatient Quality Reporting (IQR) Program for the FY 2015 and subsequent years payment determinations.
  2. Complications within 30 Days Following Cataract Surgery Requiring Additional Surgical Procedures (NQF #0564).
  3. Endoscopy/Poly Surveillance: Appropriate follow-up interval for normal colonoscopy in average-risk patients(NQF #0658).
  4. Endoscopy/Poly Surveillance: Colonoscopy Interval for Patients with a History of Adenomatous Polyps — Avoidance of Inappropriate Use (NQF #0659).
  5. Cataracts — Improvement in Patient’s Visual Function within 90 Days Following Cataract Surgery (NQF #1536).


CMS proposes to remove two measures:


  • Transition Record with Specified Elements Received by Discharged ED Patients (OP-19), because this measure cannot be implemented with the degree of specificity that would be needed to fully address safety concerns related to confidentiality without being overly burdensome.
  • Cardiac Rehabilitation Measure: Patient Referral from an Outpatient Setting (OP-24), due to continued difficulties with defining the measure care setting that would enable hospital outpatient departments to collect information on patient referrals without creating undue burden on providers.


ASC Quality Reporting Program.  CMS proposes to adopt four new measures for the ASC Quality Reporting Program for the CY 2016 payment determination and subsequent years.  CMS proposes to collect the data on these measures via an online Web-based tool.  CMS asks for public comment on alternative data collection strategies, such as through registries or other third party data aggregators, and via certified EHR technology.


Hospital Value-Based Purchasing (VBP) Program.  The rule proposes to set performance and baseline periods for the catheter-associated urinary tract infections (CAUTI), central line-associated bloodstream infection (CLABSI), and surgical site infection (SSI) measures for the FY 2016 Hospital VBP Program.  The proposed performance period would be January 1, 2014 through December 31, 2014, and the proposed baseline period would be January 1, 2012 through December 31, 2012.  CMS proposed to adopt these measures for the FY 2016 Hospital VBP program in the FY 2014 IPPS/LTCH proposed rule.


The rule also proposes to create a second level independent CMS review process for hospitals that are dissatisfied with the result of an existing administrative appeal.


QIO changes. The rule seeks comment on proposed changes to the regulations governing eligibility for organizations to be Quality Improvement Organizations (QIOs) and the contracting process for QIOs.  The proposed changes aim to improve QIOs’ quality improvement initiatives and case-review activities and improve the QIOs’ ability to meet the needs of Medicare beneficiaries by incorporating changes to the QIO statute made by the Trade Adjustment Assistance Extension Act of 2011 (TAAEA).


Other changes.  The proposed rule also addresses the Provider Reimbursement Determinations and Appeals policy, and would make changes to the Medicare EHR Incentive Program that would affect eligible professionals who reassign their benefits to Method II Critical Access Hospitals.


Medicare Physician Fee Schedule

From CMS’s fact sheet:


Primary Care and Complex Chronic Care Management: Medicare continues to emphasize primary care management services with a proposal for separate payment for complex chronic care management services beginning in 2015. In last year’s final rule, we established separate payment for transitional care management services for a beneficiary making the transition from a facility stay back to the community. We also solicited comment on establishing separate payment for advanced primary care—ongoing care management and continuous assessment that occurs outside of a face-to-face visit with a patient.


In this proposed rule, we emphasize advanced primary care through our proposal to pay separately for complex chronic care management services, beginning in CY 2015. Specifically, we propose to pay for non-face-to-face complex chronic care management services for Medicare beneficiaries who have multiple, significant chronic conditions (two or more). Complex chronic care management services include regular physician development and revision of a plan of care, communication with other treating health professionals, and medication management. Medicare will make separate payment to physicians through two G-codes for establishing of a plan of care and furnishing care management over 90-day periods. To be eligible for these services, we propose that beneficiaries also must have had an Annual Wellness Visit (or an Initial Preventive Physical Examination (IPPE), if applicable) — as the Annual Wellness Visit  can serve as an important foundation for establishing a plan of care. We also propose that a single practitioner furnish these services and that they must have the beneficiary’s consent to receiving these services over a one-year period.


The proposed rule indicates that CMS intends to establish practice standards necessary to support payment for furnishing complex care coordination management services. Potential standards include access at the time of service to Electronic Health Records (EHR) that meet the HHS certification criteria and written protocols for many aspects of care management implementation, such as specific steps for monitoring medical and functional patient needs. The rule solicits comment on the potential for CMS to recognize a patient-centered medical home (PCMH) designation by private organizations as one means for a practice to demonstrate that it has met the requisite practice standards. We plan to address policy regarding the practice standards, including PCMH recognition, through separate notice-and-comment rulemaking.


Telehealth Services: We are proposing to modify our regulations describing eligible telehealth originating sites to include health professional shortage areas (HPSAs) located in rural census tracts of urban areas as determined by the Office of Rural Health Policy.  We believe this change will more appropriately identify sites within urban HPSAs that have rural characteristics and improve access to telehealth services in shortage areas.  In addition, we are proposing to add transitional care management services to the list of eligible Medicare telehealth services.


Revisions To The Practice Expense Geographic Adjustment:  As required by the Medicare law, CMS adjusts payments under the PFS to reflect local differences in practice costs. CMS assigns separate geographic practice cost indices (GPCIs) to the work, practice expenses (PE), and malpractice cost components of each of more than 7,000 physicians’ services. Also, the law requires that we assess the GPCIs every three years and adjust them as appropriate with a two-year phase-in of the new GPCIs. We are proposing new GPCIs using updated data. In addition, we are changing the weights assigned to each GPCI (work, PE and malpractice) consistent with the recommendations of the Medicare Economic Index (MEI) Technical Advisor Panel (see below) that increases the weight of work and reduces the weight of practice expense. These new GPCIs would be phased in over CY 2014 and CY 2015. These changes are budget neutral. The statutory work GPCI “floor” of 1.0 is scheduled to expire under current law on December 31, 2013.  The proposed GPCIs reflect the elimination of the work “floor” and as a result 51 localities will have a work GPCI below 1.


Medicare Economic Index:  CMS is proposing revisions to the calculation of the MEI, which is the price index used to update physician payments for inflation. The changes are in response to recommendations by a Technical Advisory Panel that met during CY 2012. Application of the MEI along with sustainable growth rate determines the total amount of payment made each year under the physician fee schedule. The proposed rule includes proposed changes in the RVU and GPCI weights assigned to work and practice expense so that the weights in the payment calculation would continue to mirror those in the MEI if the proposed revisions are adopted.  As a result, the proposal is to re-distribute some payment to work from practice expense.


Misvalued Codes: Consistent with amendments to the Affordable Care Act, CMS has been engaged in a vigorous effort over the past several years to identify and review potentially misvalued codes, and make adjustments where appropriate. In the proposed rule, CMS is proposing to adjust payment rates for more than 200 codes where Medicare pays more for services furnished in an office than in an outpatient hospital department or ASC. We generally expect the resource costs required to furnish a service to be higher in a hospital or ASC, which have to meet conditions of participation and conditions for coverage, respectively. Hospitals also must have stand-by capacity. We are proposing to limit the PFS payment in the situation described above to the total payment that Medicare would make to the practitioner and the facility when the service is furnished in a hospital outpatient department or ASC. In addition, for CY 2014, we are proposing potentially misvalued codes that we identified with the assistance of the Contractor Medical Directors based on their personal experience in paying for Medicare services.


Application of Therapy Caps to Critical Access Hospitals:  The law applies two per beneficiary limits to outpatient therapy services—one for physical therapy and speech-language pathology services and another for occupational therapy services. Before the American Taxpayers Relief Act passed earlier this year, the caps did not previously apply in Critical Access Hospitals (CAH).  We propose to apply the therapy cap limitations and related policies to outpatient therapy services furnished in a CAH beginning on January 1, 2014 to conform Medicare’s regulations to current law.