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CMS Issues Final Rule with Comment Period to Implement Site-Neutrality For New Off-Campus Provider-Based Departments
November 3, 2016

On November 2, 2016, the Centers for Medicare and Medicaid Services (CMS) released its interim final rule implementing Section 603 of the Bipartisan Budget Act of 2015 (Section 603) as part of the 2017 Outpatient Prospective Payment System (OPPS) rule. 

Under Section 603, applicable items and services furnished in “new,” off-campus outpatient, provider-based departments of a hospital (PBDs) are barred from receiving payment under OPPS beginning January 1, 2017.  Instead, services rendered in such PBDs on or after January 1, 2017 may be eligible for reimbursement under another applicable Medicare payment system.  As discussed in further detail below, “new” PBDs are those that were not furnishing and billing for hospital outpatient services prior to November 2, 2015.  The portions of the rule addressing exceptions to Section 603 were released as a final rule with comment period, while the portions addressing payment for new, off-campus PBDs were released as an interim final rule with comment period.

The rule addresses (1) exemptions for items and services furnished in dedicated emergency departments, on-campus locations, or PBDs near remote locations; (2) the exception for off-campus PBDs that were billing under OPPS prior to November 2, 2015; and (3) the applicable payment methodology for new, off-campus PBDs.  The rule finalizes many of CMS’ proposals that implement Section 603 in an expansive and restrictive manner (e.g., broad restrictions on the relocation of existing, off-campus PBDs), but it does include a couple of key changes.  In particular, the rule allows hospitals to directly bill and obtain Medicare payment for items and services rendered in new, off-campus PBDs rather than CMS’ proposal to require professional billing and hospital-physician contracting to reimburse hospitals for these services.  In addition, CMS did not finalize its proposal to deny OPPS payments to existing, off-campus PBDs that furnish services in new clinical families.

Direct Payment to Hospitals for Items and Services Furnished in New, Off-Campus PBDs.  In light of implementation difficulties for 2017, CMS had proposed that, where Section 603 precludes payment under OPPS for items and services rendered in a PBD, the rendering practitioner would bill for both the professional and facility components of the service under the Medicare Physician Fee Schedule (MPFS) using a CMS-1500 professional claim form and hospitals would have to negotiate a payment arrangement with such professionals for the facility component.  This proposal created significant concerns for providers under various rules, including the physician self-referral statute (Stark Law) and the anti-kickback statute because of the multiple new payment arrangements with physicians that would be required.  In light of these concerns, CMS instead issued an interim final rule that permits hospitals to bill for the technical component using a facility claim form and the new “PN” modifier.  The payment amount is based on the MPFS and is generally 50 percent of the OPPS reimbursement amount. The professional component of services will continue to be billed separately by the rendering provider (or by the hospital pursuant to reassignment).  This proposal is issued as an interim final rule, with comments due by December 31, 2016.

Improved Clarity Implementing the 250-Yard Standard.  The so-called 250-yard standard is the main method by which a PBD’s on-campus status is determined.  Given the new significance of on-campus designations to reimbursement for PBDs, there has been increased focus on precisely how 250 yards should be measured.  The final rule does not expressly address the 250-yard standard for on-campus designations, but CMS did provide some insight into how the 250 yards should be measured.  In discussing the exception for PBDs within 250 yards of a remote location of a hospital, CMS indicated that it would use an approach that is consistent with how it has “historically implemented the 250-yard criterion when making on-campus determinations.”  CMS stated that the 250 yards would be measured “from any point of the physical facility that serves as the site of services of the remote location to any point in the PBD.”  This approach appears to confirm that, for on-campus determinations, 250 yards should be measured from any point in the main hospital building(s) (i.e., the nearest wall or corner of the main hospital building) and “any point in the PBD.”  This would be a straight-line measurement, so it appears that a portion of the PBD could be further than 250 yards from the main hospital building as long as some part of the PBD does fall within the 250-yard measurement.

On-Campus, Remote Location, and Dedicated Emergency Department Exemptions Finalized as Proposed.  CMS made no changes to its proposals concerning implementation of the statutory exemptions for on-campus PBDs, PBDs within 250 yards of a remote locations, and PBDs that are Dedicated Emergency Departments (DEDs).  CMS is not altering its definition of on-campus PBDs, but CMS did indicate that it may undertake future rulemaking concerning on-campus determinations under 42 C.F.R. § 413.65.  In addition, CMS adopted its proposal that PBDs may be exempted from Section 603 on the basis of their physical proximity to a hospital’s remote location.  With regard to DEDs, CMS confirmed that both emergency and non-emergency services furnished by the DED remain eligible for OPPS reimbursement, provided that the DED meets the requirements of a PBD.

Excepted (Grandfathered), Off-Campus PBDs.  Under Section 603, off-campus PBDs that furnished and were billing for covered outpatient department services under OPPS prior to November 2, 2015 are excepted (grandfathered) and may continue to receive payment under OPPS for future services.  Many stakeholder questions and comments have focused on those changes to excepted PBDs that might cause the PBD to no longer qualify as excepted, including relocations, changes to service lines or volumes, and changes of ownership.

1.  Relocations Broadly Restricted, but Limited, Case-by-Case Exceptions may be Granted by Regional Offices Due to Extraordinary Circumstances.  Despite pressure from Congress and stakeholders, CMS finalized its proposal that a relocation from the physical address in use on November 2, 2015 would cause a PBD to lose its excepted status.  CMS did, however, indicate that a limited exceptions process would be created for use in extraordinary circumstances, including natural disasters, significant seismic building code requirements, and significant public health and public safety issues.  CMS did not directly respond to stakeholder comments indicating that lease expirations and lease terms permitting relocation at the landlord’s option might constitute extraordinary circumstances necessitating relocation, but CMS will issue sub-regulatory guidance to the regional offices concerning the review of relocation exception requests.

2.  Restrictions on Clinical Families and Volume Expansion Not Finalized.  CMS declined to finalize its highly criticized proposal to restrict excepted PBDs to those “clinical families of services” that were furnished and billed under OPPS prior to November 2, 2015.  While CMS maintained that it has the legal authority to implement service line or volume restrictions, it accepted concerns from stakeholders regarding operational issues and administrative burdens associated with the proposal.  Therefore, excepted PBDs may add new services and bill for those services under OPPS.  CMS is, however, soliciting comments on potential approaches to restricting service line changes or service volume expansions.  CMS also indicated that it will monitor for shifts in services to excepted off-campus PBDs and that it may adopt limitations on service expansions or shifts in the future.

3.  Excepted PBDs Only Survive Changes of Ownership with Acceptance of the Provider Agreement.  CMS finalized its proposal that an off-campus PBD’s excepted status would only transfer to a new owner if both the PBD and main provider itself are transferred to the new owner and the new owner accepts the Medicare provider agreement. Transfers of PBDs only will cause loss of excepted status.

Effective Date.  The final rule takes effect on January 1, 2017, but the restrictions on OPPS payment for non-excepted items and services are applicable “for cost reporting periods beginning on or after January 1, 2017.”  42 C.F.R. § 413.22(v).

Comments.  The final rule will be published in the Federal Register on November 14, 2016 at  Public comments on (1) a potential limitation on clinical service line expansion or volume of services by non-excepted off-campus PBDs and (2) the Medicare Physician Fee Schedule (MPFS) payment rates for items and services furnished and billed by non-excepted off-campus provider-based departments of hospitals are due on or before December 31, 2016.

For more information, please contact Katrina Pagonis or Steve Lipton in San Francisco at 415.875.8500; John HellowDavid HenningerHope Levy-Biehl or Amy Joseph in Los Angeles at 310.551.8111; or Marty Corry or Keith Fontenot in Washington, D.C. at 202.580.7700.

For media assistance, please contact Maura Fisher at 202-580-7714.