On November 1, 2016, the Centers for Medicare and Medicaid Services (CMS) issued an advance copy of the final outpatient prospective payment system (OPPS) rule for 2017, which includes provisions to implement Section 603 of the Bipartisan Budget Act of 2015 (BBA 2015).¹ This memorandum summarizes CMS’ rule as it relates to Section 603 and highlights its implications for purposes of both Medicare payment and participation in the 340B program. We previously reported on Section 603, as well as related developments, in a memorandum dated November 19, 2015 and another dated July 11, 2016.
CMS published a proposed policies and regulations to implement Section 603 in the Federal Register on July 14, 2016.² The rule proposed parameters for the grandfathering provisions of Section 603 and proposed that hospitals would not be paid for services furnished in Section 603 clinics in 2017. CMS’ final rule differs in some significant respects from the proposed rule, particularly with regard to payments to Section 603 clinics. Because the payment provisions differ so significantly from those that CMS proposed, CMS published that portion of the rule as an interim final rule with comment period. Comments are due December 31, 2016.
I. Background − Section 603 of BBA 2015
Section 603 of the BBA 2015 specifies that, unless an off-campus provider-based outpatient department was billing in that capacity prior to BBA 2015’s date of enactment (November 2, 2015), it will be paid “under the applicable payment system” (i.e., the physician fee schedule) beginning January 1, 2017.³ Section 603 contains exceptions to this new requirement. First, off-campus emergency department services are exempted.4 Second, departments that are on-campus of a “remote location” of the provider (i.e., another facility that provides inpatient services and is not co-located with another hospital or on another hospital’s campus) are not subject to Section 603 even though they are off-campus to the main provider.5 Rural health clinics (RHCs) and certain federally qualified health centers (FQHCs) or FQHC “look-a-likes” are exempt. CMS refers to clinics that are exempt from Section 603 as “excepted” clinics and those that are subject to Section 603 as “non-excepted”.
II. CMS Final Rule
A. Grandfathering Provision
As stated above, off-campus clinics that were billing as provider-based prior to November 2, 2015 are exempt from Section 603. CMS stated in the final rule that it interprets the grandfathering provisions of Section 603 as exempting off-campus clinics “as they existed at the time” the law was enacted. However, as explained below, CMS relaxed its proposed requirement that an off-campus clinic may maintain grandfathered status only for services similar to those provided prior to November 2, 2015.
– No grandfathering if clinic relocates – CMS finalized its proposed policy that a grandfathered off-campus provider-based clinic loses that status if it relocates.6 The location of the off-campus department is determined by the address that was listed on the provider’s hospital enrollment form (855A or PECOS) as of November 1, 2015. CMS adopted a policy to allow an off-campus clinic to relocate without losing grandfathered status in “extraordinary circumstances outside of the hospital’s control, such as natural disasters, significant seismic building code requirements or significant public health and public safety issues, that necessitate moving to a new building (either temporarily or permanently)”.7 CMS stated that this list is illustrative only and is not intended to rule out other types of circumstances that might allow a grandfathered clinic to relocate and continue to be grandfathered. The CMS Regional Office will review requests for an exception under this policy. CMS plans to issue subregulatory guidance that will provide more detail about this process.
– No grandfathering if clinic is transferred to new owner who does not accept assignment – CMS finalized its proposal that an off-campus clinic would no longer be grandfathered if ownership of the clinic is transferred and the new owner does not accept assignment of the hospital’s provider agreement (and therefore bills under a different Medicare number).8 CMS clarified that a grandfathered clinic cannot be transferred to another hospital and maintain grandfathered status.
– Clinics may expand services and maintain grandfathered status – CMS proposed that an off-campus grandfathered clinic that expands the services that it offers would have the benefit of grandfathering for those services only if they are in the same “clinical family of services” as those provided at the clinic prior to November 2. CMS did not adopt this proposal.9 Therefore, a grandfathered clinic may expand the types of services that it provides, and the new services will be grandfathered.
CMS had sought public comments on how to identify whether a clinic had billed under the OPPS prior to November 2, 2015 and whether hospitals should self-report to CMS on a form that CMS would develop. CMS did not finalize a policy to require hospitals to self-report whether an off-campus clinic billed under OPPS prior to November 2, 2015. Instead, CMS stated that it would rely on “traditional practices, including prepayment and postpayment reviews,” to ensure that hospitals have correctly identified grandfathered clinics.10 CMS also stated that it will issue instructions to Medicare contractors to update enrollment data to identify each off-campus outpatient department by address and the date it was added to the hospital’s enrollment information.
B. Payment to Section 603 Facilities
CMS had proposed not to make any direct payments to a hospital for services provided at clinics subject to Section 603 in calendar year 2017 and pay only the physicians or other practitioners furnishing services at the Section 603 clinic. The physician would have been paid under the Medicare Physician Fee Schedule (MPFS) at the “non-facility” (i.e. freestanding) rate under the proposed rule.
After receiving comments that criticized CMS’s proposed payment policy, CMS is adopting a significantly different payment system. Under the rule, CMS will pay the hospital for services provided at a clinic subject to Section 603 under the MPFS, but, in fact, the payments will largely be based on the OPPS. Physicians furnishing services in a Section 603 clinic will be paid at the facility rate.
Most services provided in a clinic subject to Section 603 will be paid at 50% of the applicable OPPS rate, with some exceptions.11 One of those exceptions is for items or services that are reimbursed at the same rate in both a hospital outpatient department and freestanding clinic (such as Part B drugs reimbursed at ASP+6%), for which payment will not change.12 The bundling rules and the physician supervision requirements applicable to services furnished in hospital outpatient departments will apply to services furnished in a Section 603 clinic.13 In addition, payment for the services will also be subject to a geographic adjustment factor, called “geographic practice cost indices” or GPCIs, that will be based on the hospital wage index.14 The beneficiary cost-sharing rules that apply under the MPFS (i.e., 20% of the fee schedule amount) would apply to services furnished by clinics subject to Section 603.15 Hospitals will bill on an institutional claim using a new “PN” modifier to identify each item or service provided in a clinic subject to Section 603.16
CMS indicated that the payment system for Section 603 clinics is transitional, although it probably will not change for 2018.17 CMS stated that it is considering basing payments in 2019 and later years on actual claims data submitted by Section 603 clinics.18
As stated above, comments on the payment provisions for Section 603 clinics are due on December 31.
C. Implications For 340B Eligibility
Section 603 of BBA 2015 makes clear that Section 603 clinics are departments of the hospital.19 Under the 340B statute, the entirety of a covered entity hospital is eligible to participate in the 340B program. Therefore, off-campus clinics subject to Section 603 should continue to be eligible for the 340B program.
Stakeholders in the 340B program have been concerned, however, that the costs and charges for a Section 603 clinic might be reported differently on the Medicare cost report than the costs and charges for other provider-based clinics. Unique cost reporting rules for Section 603 clinics might have implications with respect to HRSA’s requirement that a clinic’s costs and charges must be reported on a reimbursable line of the Medicare cost report in order to register the clinic in the 340B program.
Although CMS did not explicitly state that the costs and charges for a Section 603 clinic would be reported on a reimbursable line of the Medicare cost report, it strongly suggested that the costs and charges for a Section 603 clinic will be reported on the Medicare cost report in the same way as other provider-based clinics.20 Furthermore, under the final rule, hospitals will bill for services provided in a Section 603 clinic on an institutional claim form. Although the payment made to the hospitals for services furnished in a Section 603 clinic will be less than the payment that Medicare makes to services furnished in clinics not subject to Section 603, the billing and payment methodology will be the same. Accordingly, it is reasonable to assume that the costs and charges for services furnished in a Section 603 clinic will be reported on a reimbursable outpatient line of the Medicare cost report.
1P.L. 114-74 (Nov. 2, 2015).
2 81 Fed. Reg. 45,603 (July 14, 2016).
3 P.L. 114-74, Section 603(1)(C), adding 42 U.S.C. Section 1395l(t)(1)(B)(v).
4 Id. at Section 603(2), adding 42 U.S.C. Section 1395l(t)(21)(A).
5 Id. at Section 603(2), adding 42 U.S.C. Section 1395l(t)(21)(B)(i)(II).
6 Final OPPS Rule, display copy, p. 588 – 97.
7Final OPPS Rule, display copy, p. 594 – 95.
8 Final OPPS Rule, display copy, p. 608 – 11.
9 Final OPPS Rule, display copy, p. 597 – 604.
10 Final OPPS Rule, display copy, p. 611 – 15.
11 CMS states in the final rule that items or services that will not be paid at 50% of the OPPS rate are identified in Table X. B. 2 (p. 680), but CMS appears to have omitted that table from the Federal Register and it does not appear to be included in the tables related to the rule on the CMS website.
12 Final OPPS Rule, display copy, p. 647.
13 Final OPPS Rule, display copy, p. 664-65, p. 687-88.
14 Final OPPS Rule, display copy, p. 682.
15 Final OPPS Rule, display copy, p. 688.
16 Final OPPS Rule, display copy, p. 680.
17 Final OPPS Rule, display copy, p. 688-92.
18 Final OPPS Rule, display copy, p. 689-90.
19 Sec. 603 defines an “off-campus department of a provider” by incorporating the definition of “department of a provider” and “campus” from the Medicare provider-based regulations. 42 U.S.C. § 1395l(t)(21)(B)(i).
20 CMS stated that, “Hospital outpatient services identified with the modifier will continue to be reflected on Provider Statistical and Reimbursement reports. We believe implementation of this policy will obviate the commenters’ concerns with the possibility that facility costs for [new off-campus provider-based clinic] items and services would not be billed and reflected as reimbursable costs on the Medicare hospital cost report.” Final OPPS Rule, display copy, p. 646.
If you have any questions on this memorandum, please do not hesitate to contact Powers Principal Barbara Straub Williams at Barbara.Williams@PowersLaw.com or 202-872-6733 or the Powers attorney with whom you normally work. Powers can be reached at 202-466-6550.