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CMS Proposes Restrictive Implementation of Site Neutrality for New, Off-Campus Hospital Outpatient Departments
July 7, 2016

On July 6, 2016, the Centers for Medicare and Medicaid Services (CMS) released its proposed 2017 outpatient prospective payment system (OPPS) rule, which includes highly anticipated proposed guidance and regulations implementing the site neutral payment provision enacted at section 603 of the Bipartisan Budget Act of 2015 (Section 603).  Under Section 603, applicable items and services furnished in new, off-campus outpatient, provider-based departments of a hospital (PBDs) are generally not covered and barred from receiving payment under OPPS beginning January 1, 2017.  Instead, services rendered in such new PBDs on or after January 1, 2017 may be eligible for reimbursement under another applicable payment system.

In its proposed rule, CMS makes a number of proposals concerning (1) exemptions for items and services furnished in dedicated emergency departments, on-campus locations, or PBDs near remote locations; (2) excepted off-campus PBDs that were billing under OPPS prior to November 2, 2015; and (3) the applicable payment methodology for new, off-campus PBDs.

In many regards, CMS' proposal would implement Section 603 in an expansive and restrictive manner, raising concerns for hospitals.  If finalized, the proposed rule would prohibit hospitals from receiving OPPS payments for existing, off-campus PBDs that are relocated or expanded to offer services in new clinical families.  In 2017, CMS proposes that hospitals would receive Medicare physician fee-schedule payments for off-campus PBDs that are not exempted or excepted.

Nonemergency Services Provided at a Dedicated Emergency Department.  CMS’ proposed rule conforms to the language and legislative history of Section 603 by proposing that both emergency and nonemergency items and services provided in a dedicated emergency department (ED) would be exempt from the site neutral rule and corresponding payment limitation.  In states where providers can operate off-campus, free-standing EDs, this approach would ensure that the full range of services offered in such EDs are exempted from the site neutral rule.

No Clarification of On Campus PBDs.  Section 603 only imposes site neutrality for off-campus PBDs, lending new importance to on-campus determinations.  Existing regulations define on-campus locations as those immediately adjacent to the provider’s main buildings, those within 250 yards of the main buildings, and other areas determined on an individual case-by-case basis by the CMS regional office to be on campus.  To date, however, CMS has not offered specific guidance clarifying the appropriate measurement of the 250 yards or the relevant factors considered in making on campus determinations in individuals cases.  The proposed rule would not alter or clarify the standards for determining whether a PBD is located on the hospital campus.  CMS believes that “hospitals can adequately determine whether their departments are on-campus” and notes that a hospital can confirm a PBD’s on-campus status through the voluntary, provider-based attestation process.

Remote Location PBDs.  Section 603 also exempts off-campus PBDs that are located within 250 yards of the remote location of a hospital.  CMS recommends the use of surveyor reports or other appropriate documentation to ensure that off-campus PBDs fall “within 250 yards (straight-line) from any point of a remote location” in order to verify the applicability of this exemption.

Excepted (Grandfathered), Off-Campus PBDs.  The proposed rule refers to off-campus PBDs that were billing for OPPS services prior to November 2, 2015 as “excepted” PBDs.  These PBDs are also widely referred to as “grandfathered” PBDs among stakeholders.  To date, many stakeholder questions have focused on changes to excepted PBDs that might cause the PBD to no longer qualify as excepted, including relocations, service line changes and changes of ownership.

Relocations Broadly Restricted.  In the proposed rule, CMS expresses the concern that hospitals might seek to fold newly acquired physician practices into excepted PBDs if excepted PBDs are permitted to relocate to larger spaces.  Instead of restricting relocations to address these concerns, however, CMS proposes that a PBD can only remain excepted as long as it remains at the physical address listed on the hospital’s enrollment form as of November 1, 2015.  Recognizing that a hospital may need to relocate a PBD due to circumstances beyond the provider’s control, however, CMS solicits comments as to whether it should develop an exception process for disasters and extraordinary circumstances or for any other circumstances completely beyond the control of the hospital.

Services Restricted to Clinical Family of Services.  CMS also proposes restricting the services for which an excepted PBD can receive OPPS payment.  The proposed rule sets forth 19 “clinical families” of services (e.g., advanced imaging, minor imaging, diagnostic tests, clinical oncology, and radiation oncology) by ambulatory payment classification (APC).  Under CMS’ proposal, if an off-campus PBD provides services outside the clinical family(ies) of services it was furnishing prior to November 2, 2015, the new services would not be eligible for OPPS reimbursement.  In the proposed rule, CMS solicits guidance as to the timeframe that should be used to identify which clinical family(ies) of services were provided prior to November 2, 2015 (e.g., CY 2013 through November 1, 2015).

Changes of Ownership.  Finally, CMS proposed that an off-campus PBD’s excepted status would transfer to a new owner if the PBD and main provider itself are transferred to the new owner and the new owner accepts the Medicare provider agreement.  If the provider agreement is not accepted and/or terminated, CMS proposes that the associated PBDs would no longer be excepted.  In addition, CMS also proposed that an excepted PBD would lose its excepted status if it were transferred independently from its main hospital. 

Reporting Obligations for Excepted PBDs.  CMS is seeking public comment on whether hospitals should be required to submit a form that separately identifies all individual excepted off-campus PBD locations, the date that each began billing, and the clinical families of services that were provided at each location prior to November 2, 2015.

Payment Methodology.  Lastly, CMS proposes reimbursing new, off-campus PBDs under the Medicare Physician Fee Schedule.  In the alternative, CMS indicates that a hospital can enroll  as a different provider/supplier type (e.g., an ambulatory surgery center), in which case the facility would bill and be paid for qualifying services under the payment system for that provider type.

Comments and Timeline.  The proposed rule will be published in the Federal Register on July 14, 2016 and is available here.  The deadline for comments is September 6, 2016.  Generally, CMS finalizes the OPPS rule in November or early December, so we will expect the final rule to be published in four or five months.

For more information on Section 603 and related issues, please contact: Hope Levy-BiehlJohn Hellow or Amy Joseph in Los Angeles at 310.551.8111; Steve Lipton or Katrina Pagonis in San Francisco at 415.875.8500; or Bill Eck in Washington, D.C. at 202.580.7715.

For media inquiries, please contact Barrett McBride at bmcbride@health-law.com or 916.456.5855.