Medicare Issues Final Payment Rates For Hospital Outpatient Services In 2003

October 31, 2002 - Medicare expenditures for hospital outpatient services will increase by nearly 6 percent - and payment rates for mammography and colonoscopy will increase significantly - under a final rule released today by the Centers for Medicare & Medicaid Services (CMS).  The increase reflects higher payment rates for outpatient services, as well as anticipated increases in volume of services.

Total payments to outpatient hospital departments are expected to be $18.7 billion in 2003, up from $17.7 billion in 2002.  Medicare payment rates will increase, for each service, by an average of 3.7 percent.  While payments to nearly every category of hospital will increase as a result of the final rule, rural hospitals especially will benefit with total payments increasing by 6.2 percent.

Medicare will fully fund pass-through payments for "new tech" drugs and devices for 2003 to help ensure beneficiary access to these valuable technologies. CMS has estimated that spending for these items will not exceed a statutorily set limit, so reductions in funding will not be necessary.

"With the rapid pace of technological development, outpatient services continue to play a growing role in healthcare delivery," says CMS administrator Tom Scully. "In this rule, CMS has made every effort to ensure that Medicare beneficiaries enjoy the benefits of cutting-edge developments, while improving payment for preventive and routine services that represent the majority of outpatient cases."

Medicare pays about 5,000 hospital outpatient departments for the outpatient services they provide based on the Outpatient Prospective Payment System (OPPS), which went into effect August 1, 2000. The OPPS, which was mandated by the Balanced Budget Act of 1997, is designed to encourage efficient delivery of care and ensure more appropriate payment for services. In addition, the system is intended to reduce beneficiary co-payments over time to 20 percent of the total payment to the hospital.

The OPPS establishes base payment rates for 569 ambulatory payment classifications (APCs). APCs are groups of services that are similar clinically and in terms of resource use.

CMS has improved the data on which the OPPS rates are calculated. In 2003, APC rates are being set for the first time using actual data from claims submitted by hospitals under the OPPS. In addition, CMS has increased the percentage of claims used to set relative weights for APCs from roughly, 40 percent for 2002 rates to more than 80 percent for 2003, by including data from multiple procedure claims. CMS will continue to explore ways to refine the data used to develop outpatient payments, and to explore alternative types of data to ensure payments are appropriate.

The rule also establishes a new APC for procedures that use drug-eluting stents in the event that the U.S. Food and Drug Administration (FDA) approves pending applications to permit their use. Preliminary studies have shown that use of drug-eluting stents in coronary arteries dramatically reduces the frequency of restenosis - the build-up of scar tissue that can narrow a reopened artery - in the stented vessel as compared to restenosis in vessels where other types of stents have been placed.  If the FDA approves the use of these stents, the new APC codes will allow Medicare to move quickly to pay hospitals the higher costs associated with using the devices in Medicare beneficiaries' outpatient procedures.

The final rule also establishes how Medicare will pay hospitals for 95 categories of devices and approximately 240 drugs that qualify for temporary pass-through payments through the end of 2002, but, by law, will no longer be eligible for these add-on payments.

To meet the requirements of the law, the final rule rolls the estimated costs of the former pass-through devices into their associated procedures.  Payment for low-cost drugs (drugs costing $150 or less per patient encounter) will also be bundled into the associated APCs.  Higher cost drugs will be assigned to separate APCs on an interim basis until CMS collects enough data to determine how to incorporate their costs into the administration procedure.

In addition, CMS has taken steps in the final rule to reduce the potential impact of payment reductions for APCs that would have decreased by more than 15 percent in 2003 under the proposed rule.  Many of the services in this category use devices or drugs that will no longer be eligible for pass-through payments in 2003.  The final rule moderates the potential reductions to help ensure that Medicare beneficiaries will continue to have access to cutting-edge technology.

In other provisions, the final rule:

·          Sets significantly higher payment for two key diagnostic tests - mammography (up 11 percent) and colonoscopy (up 10 percent).

·          Excludes flu and pnuemoccocal vaccines and certain orphan drugs from the OPPS and pays for these items on a reasonable cost basis

·          Allows separate payment for observation services for patients with congestive heart failure, chest pain, and asthma who are directly admitted from a physician's office.

·          Amends Medicare payment suspension regulations to allow for a partial rather than a complete suspension when a hospital fails to file a timely and acceptable cost report, reducing disruption both to the provider and to the beneficiaries it serves.

The final rule will be published in the Nov. 1 Federal Register, and will become effective Jan. 1, 2003.  The full text of the final rule is available on the Web at www.cms.hhs.gov.

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