Medicare Announces Payment Increase For Hospital Outpatient Service
Outpatient Prospective Payment System
Hospitals will receive a 2.3 percent increase in Medicare payments for
outpatient services effective Jan. 1, 2002, under a final rule announced today
by the Centers for Medicare & Medicaid Services (CMS). The new hospital
Outpatient Prospective Payment System (OPPS) determines payments for more than
$17.5 billion in reimbursement for more than 6000 hospital departments.
The rule implements one of the most complicated policy mechanisms in the
Medicare program including a one-time policy change for next year to
reimbursements for new high cost and high technology drugs and devices mandated
by Congress in the Balanced Budget Refinement Act of 1999 (BBRA). The rule
updates payments annually to hospitals for Medicare outpatient services in the
prospective payment system (PPS) that began Aug. 1, 2000.
"Given the restraints of the law, this rule adopts the best possible balance
between protecting beneficiary services in outpatient settings, and ensuring
that those beneficiaries have access to all the new drug and device technologies
that are critical to their improved health," said Tom Scully, administrator of
CMS.
The regulation "folds in" 75 percent of the costs of high technology drugs and
devices to the base payments for outpatient services, or APCs, resulting in a
significant enhancement of payments for these new technologies. Under the law,
one hundred percent of the costs are required to be included in the base
payments for 2003 and the payment system for 2002 begins the transition of those
new payments.
HHS Urges Congress To Adjust Policy For New Technologies
"The Secretary has made his concerns clear that in guaranteeing access to new
technologies in the outpatient setting that he was unwilling to have a negative
impact on the preventive procedures that we care deeply about," said Tom Scully,
administrator for CMS. "The Administration is working with Congress to get the
flexibility needed to avoid any such payment reductions. We would not be issuing
this regulation today if we were not confident that Congress will provide the
additional flexibility needed to guarantee access to important services for
seniors and disabled beneficiaries and to protect the appropriate payments for
preventive services," Scully added.
In a related rule also issued today, CMS has defined new criteria for
establishing pass-through categories for medical devices. In developing the
criteria, CMS has tried to ensure that the most significant innovations in
health care technology are available to people with Medicare coverage, without
diverting too many Medicare dollars from more traditional hospital care.
Medicare Hospital Outpatient Payment System
Overview:
The hospital outpatient prospective payment system (PPS) was mandated by
Congress in the Balanced Budget Act of 1997 (BBA), to replace the existing
cost-based payment methodology. The new system, which went into effect August 1,
2000, was designed to ensure that Medicare and its beneficiaries pay
appropriately for services and to encourage more efficient delivery of care.
Since the BBA, Congress has revisited the issue twice * in the Balanced Budget
Refinement Act of 1999 (BBRA) and the Medicare, Medicaid, and SCHIP Benefits
Improvement and Protection Act of 2000 (BIPA) * increasing payments to hospitals
for outpatient services and accelerating the rate of reduction of beneficiary
copayments.
Background:
Prior to August 1, 2000 Medicare paid for services performed in the hospital
outpatient setting under a number of different payment methods. Some procedures
were paid on a blend of hospital costs and the rates paid in physician offices
or other ambulatory settings, while others, such as diagnostic laboratory tests,
were paid on fee schedules. For most services, however, Medicare paid 80% of
allowed charges, which were based on historical costs.
In the meantime, a beneficiary's copayment was based on 20 percent of the
hospital's actual charges. As hospital actual charges increased faster than
Medicare payments, beneficiaries ended up paying a higher percentage of the
hospital bill. In fact, on average, beneficiary coinsurance accounted for about
50 percent of the total payments to hospitals for outpatient services prior to
August 1.
The new payment system was implemented by the Health Care Financing
Administration (now the Centers for Medicare & Medicaid Services or CMS) in an
April 7, 2000, final rule, effective August 1. Further refinements affecting
payment for innovative drugs, devices, and biologicals were published in an
August 3 interim final rule. A final rule, revising and updating the outpatient
PPS was released on November 2 and published in the November 13 Federal
Register.
Outpatient PPS will save beneficiaries billions of dollars in coinsurance over
the next several years, while assuring more accurate payments to hospitals under
Medicare. The payment system also will encourage hospitals to become more
efficient, while continuing to provide quality care for Medicare beneficiaries.
Overview Of Hospital Outpatient PPS
The BBA required HCFA (now CMS) to replace the cost-based system with the
outpatient PPS, which pays hospitals specific predetermined payment rates for
outpatient services. The law also changed the way beneficiary coinsurance is
determined for services under the outpatient PPS. Generally, under the
outpatient PPS, coinsurance amounts are based on 20 percent of the national
median charge billed by hospitals for the service. Eventually, coinsurance will
be 20 percent of the prospective payment amount.
The outpatient PPS covers all Medicare participating hospitals, except critical
access and Indian Health Service hospitals and hospitals in Maryland that are
subject to the state's cost containment system. (Indian Health Service hospitals
will be excluded only temporarily and will eventually be paid under the
outpatient PPS.) Community mental health centers (CMHCs) that provide partial
hospitalization services to Medicare beneficiaries are also paid under the
outpatient PPS. In addition, antigens, vaccines, casts and splints furnished by
home health agencies; antigens, splints and casts furnished by hospices; and
vaccines furnished by comprehensive outpatient rehabilitation facilities are
paid under the outpatient PPS.
The outpatient PPS includes most hospital outpatient services, and Medicare Part
B services furnished to hospital inpatients who have no Part A coverage.
Excluded from the outpatient PPS by law are ambulance services, for which a new
fee schedule is being developed. CMS will continue to pay physician services
separately under Medicare's physician fee schedule. CMS will also continue to
use existing fee schedules to pay for physical, occupational, and speech
therapies; durable medical equipment; clinical diagnostic laboratory services;
and nonimplantable orthotics and prosthetics.
Outpatient PPS payment is based on the ambulatory payment classification (APC)
system, which divides all outpatient services included in the new payment
schedule into almost 600 procedural groups. The services within each group are
clinically similar and require comparable resources.
Each APC is assigned a relative payment weight based on the median cost of the
services within the APC. The APC payment rates are calculated on a national
basis and then adjusted by geographic area, depending on the area's wage level.
To adjust for wage differences across geographic areas, the labor-related
portion of the payment rate (60 percent) is wage adjusted, using each hospital's
wage index value.
Some incidental items and services, including anesthesia, certain drugs,
supplies, recovery room and observation services will be packaged into the APC
payment for the related procedure. A hospital may furnish a number of procedures
to a beneficiary on the same day and receive an APC payment for each
Effects Of BBRA Amendments On The Outpatient PPS
The BBRA also contained a number of major provisions affecting the outpatient
PPS. These changes, which have been incorporated in the regulation, help ensure
a smoother transition to the new system for hospitals and establish special
payments for new drugs and technologies. They include:
