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Medicare Issues Proposed Hospital Outpatient Payment Rule, Proposes to Extend Site-Neutral Payment Reductions and 340B Payment Reductions

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On July 31, the Centers for Medicare and Medicaid Services (CMS) published a proposed rule outlining the proposed payment rates for 2019 under the Medicare Outpatient Prospective Payment System (OPPS), one of several payment rules recently proposed by CMS. The OPPS reimburses hospitals for outpatient services provided to Medicare Part B beneficiaries. Several of Medicare's proposals would have a significant impact on hospital payments, if finalized. Hospitals should consider submitting comments in response to the proposed rule. Comments are due September 24, 2018.

CMS proposes to expand its "site-neutral" policies in 2019, further reducing hospital payments to rates that are closer to physician payments. Section 603 of the Bipartisan Budget Act of 2015 requires Medicare to pay for hospital outpatient services provided in new off-campus departments at a rate more similar to what Medicare pays physicians. CMS has implemented this provision by paying for hospital services in new off-campus locations under the Medicare Physician Fee Schedule (MPFS), at a rate that is 40 percent of what the services would be paid under the OPPS.

For 2019, CMS proposes to continue this site-neutral payment reduction and extend the policy to evaluation and management services provided during clinic visits in off-campus hospital locations that are not currently subject to site-neutral payments. Off-campus hospital departments already in place when Congress enacted the site neutrality law are exempt from the site-neutral payment reduction and continue to be paid under the OPPS. CMS's proposal would apply the payment reduction to clinic visits provided in exempt off-campus locations. CMS says the clinic visit is the most common service billed under the OPPS and estimates that its proposal would reduce Medicare spending by $760 million for 2019.

CMS also proposes to extend the site-neutral policy to new types of services provided in off-campus locations that are exempt from site neutrality. Currently, Medicare pays for all services provided in exempt off-campus locations under the OPPS, not at reduced rates, regardless of what type of service is provided. For 2019, CMS proposes to apply the site-neutral payment reduction to new types of services provided in these otherwise exempt locations that are different from the categories of services already provided. Click here to read our review of the proposed changes.

In addition to extending the site-neutral payment policies, CMS also proposes to continue and extend the Medicare drug payment reductions to certain hospitals participating in the 340B drug pricing program that went into effect this year. The 340B program requires drug manufacturers to sell outpatient drugs at discounted rates to certain public and non-profit hospitals that treat high volumes of low-income patients or are located in rural areas and other safety net providers that receive federal grant funding.

Effective January 1, 2018, Medicare reduced Part B drug payments to certain 340B hospitals by nearly 30 percent, from average sales price (ASP) plus six percent to ASP minus 22.5 percent. CMS proposes to continue the payment reduction in 2019 and to extend the cut to 340B drugs administered in off-campus locations exempt from the site neutrality policy. The 340B payment reduction does not currently apply to 340B drugs provided in these locations, and CMS proposes to change this for 2019, extending the 340B cuts to cover additional drugs. CMS estimates this will reduce Medicare spending by $48.5 million and will affect 115 clinics. Click here to read our review of the proposed changes.

Collectively, these proposals would have a significant financial impact on hospitals. Baker Donelson policy advisors and attorneys are available to assist clients with the drafting of comments.

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