Late last week, the Centers for Medicare & Medicaid Services (“CMS”) released the CY 2020 Hospital Outpatient Prospective Payment System (“OPPS”) final rule [CMS-1717-FC] (display copy available here). While many hospitals had hoped for relief from recent OPPS payment cuts and for clarity on the scope of the price transparency mandate, CMS offers neither in this final rule. The only bright spot is the significant change to the physician supervision requirement for hospital outpatient therapeutic services, which, as of January 1, 2020, will permit general supervision across the board. This alert addresses these issues as well as several ancillary policies finalized by CMS. 

CMS will host a call today, Wednesday, November 6, from 2:15pm-3:45pm EST to discuss the content of the OPPS final rule (as well as the Physician Fee Schedule final rule) and to answer questions from stakeholders. The text of the final rule will be published in the Federal Register on November 12, 2019. For our analysis of the CY 2020 OPPS proposed rule, please see the prior alerts published here and here.

A. Payment for 340B Drugs to Remain at ASP - 22.5%

In confirming ASP-22.5% as the payment rate for 340B drugs for CY 2020, the final rule and corresponding commentary clearly demonstrate CMS’s intent to use all means necessary to pay 340B entities at or near cost. This is particularly evident considering CMS’s pending data collection effort, which is aimed at gathering 340B acquisition cost data to use in either setting rates prospectively or identifying appropriate retrospective remedies (or both). See 84 Fed. Reg. 51590 (Sept. 30, 2019). Ultimately, the CMS 340B payment framework appears to be: 1) apply the ASP-22.5% reduction until the D.C. Circuit affirms a lower Court decision that deemed the policy unlawful; 2) rely on pending 340B acquisition cost survey activity to establish an alternative to ASP-22.5%; or 3) use another alternative, such as ASP+3%, but only after attempting all means necessary to reimburse at cost.

For CY 2020, the ASP-22.5% payment rate will continue to apply to 340B-acquired drugs billed by disproportionate share and other urban hospitals. Critical access hospitals, rural sole community hospitals, children’s hospitals and PPS-exempt cancer hospitals remain excepted from the payment reduction. Hospitals subject to the payment reduction must continue to use claim-level modifiers “JG” and “TB” to signify when 340B and non-340B drugs are used, respectively. This includes 340B drugs provided in “non-excepted” provider-based sites under Section 603 of the Bipartisan Budget Act of 2015.

CMS’s decision to continue its unlawful payment reduction is in stark contrast to the recent decision by the D.C. District Court in American Hospital Association v. Azar (No. 18-2084 (RC) (Dec. 27, 2018)) where the Court held that CMS lacked statutory authority to implement the ASP-22.5% reduction. CMS received thousands of comments from industry stakeholders criticizing its proposal to continue the unlawful payment policy, particularly when CMS expressed its own concerns in its proposed rule that the lower Court’s ruling will be upheld on appeal. Rather than reverting back to the statutorily-mandated ASP+6% methodology until the issue is resolved by the D.C. Circuit, CMS has opted to continue its payment reduction.

Another key issue addressed by CMS and stakeholder comments pertains to how to “fix” underpayments that resulted from CMS’s 2018 and 2019 payment policy (ASP-22.5%) that was deemed unlawful. In a surprising move, CMS stated that it would use information from its data collection effort (noted above) on 340B hospital drug acquisition costs “in the event of an adverse decision on appeal.” In other words, if CMS loses its appeal, then it intends to use 340B acquisition cost survey data to potentially develop a remedy for CY 2018 and 2019 underpayments that would be based on cost. We would expect additional legal challenges to this method since CMS’s default payment rate to all hospitals in CY 2018 and CY 2019 was ASP+6%. This is a critical issue that may have significant financial impact on 340B hospitals, so we encourage comments regarding CMS’s acquisition cost data collection notice, especially regarding the burden, necessity and utility of the proposed information in light of the actual Congressional intent for the 340B program. Comments are due on November 29, 2019. 

CMS stated that if it does not use 340B acquisition cost survey data to devise a remedy for CY 2018 and 2019 in the CY 2021 OPPS proposed rule, it would consider suggestions submitted during the recent proposed OPPS rule comment period to develop a remedy. All signs point to 2021 being an interesting and critical year for 340B drug reimbursement.

B. Reduced Payment for Visits in Excepted Off-Campus Provider-Based Departments

For CY 2020, CMS has decided to complete the phase-in of the site-neutral payment reduction for clinic visits (HCPCS code G0463) furnished in excepted off-campus provider-based departments by utilizing a Medicare Physician Fee Schedule (PFS)-equivalent payment rate for the services. The PFS-equivalent rate for the second phase CY 2020 is 40 percent of the CY 2020 OPPS payment (that is, 60 percent less than the CY 2020 OPPS rate).

CMS acknowledged, but opted to ignore, the recent decision by the D.C. District Court vacating this payment policy for CY 2019. CMS stated that it was not appropriate to make changes to the second year of the two-year phase-in while it is evaluating its appeal rights. If CMS does not appeal the court’s ruling or if it is not successful on appeal, it is still considering how to ensure affected 2019 claims for clinic visits are paid consistent with the court’s order.

C. General Supervision for Hospital Outpatient Therapeutic Services

With relatively little fanfare, garnering only 13 pages of the 1,000+ page display rule, CMS has finalized a significant change in policy governing physician supervision of hospital outpatient therapeutic services. 

Under the current rule, Medicare requires nearly all hospital outpatient therapeutic services to be furnished under direct supervision, which means the supervising physician must be immediately available to provide assistance during the procedure. As a practical matter, this means the physician has to be within a reasonable physical distance of the hospital outpatient department where the procedure is performed, but not in the same room or necessarily within hospital space. The supervisor also must be available to intervene in the procedure, so being otherwise fully deployed (e.g., in the emergency department) is typically not an option. 

Beginning January 1, 2020, however, Medicare has finalized general supervision as the default level of physician supervision for all hospital outpatient therapeutic services in all hospitals (e.g., acute care hospitals, critical access hospitals (CAHs), rural hospitals).General supervision means that the procedure is furnished under a physician’s “overall direction and control,” but the physician is not required to be immediately available or even physically on the premises. That is, availability by phone is generally sufficient to meet the general supervision standard. 

This is a major policy shift that, according to CMS, is necessary to eliminate the “two-tiered system” under which general acute care hospitals have been subject to the higher direct supervision requirement while CAHs and small rural hospitals with fewer than 100 beds were historically exempt (and subject to more lenient general supervision requirements) through years of statutory and regulatory enforcement moratoria. While some commenters expressed concern about relaxing the minimum supervision standard, CMS supported its decision by reference to existing safeguards, such as state scope of practice laws and the hospital conditions of participation requiring all patients to be “under the care of a physician.” CMS also reiterated that individual hospitals and physicians have the flexibility to require a higher level of supervision for a particular service if they believe such a supervision level is necessary to ensure patient safety, leaving final decision-making authority with the clinicians.

Although CMS considered whether chemotherapy and radiation services should continue to be subject to direct supervision, the agency ultimately maintained general supervision as the default minimum level for all services and noted that it will continue to solicit feedback from the Advisory Panel on Hospital Outpatient Payment regarding specific services that may require more intensive supervision. In the revised regulation at 42 C.F.R. § 410.27(a)(1)(iv), CMS also retained the regulatory authority to adjust supervision levels through the rulemaking process if necessary.

As a practical matter, for CAHs and other rural hospitals, this final rule will ease the year-to-year uncertainty of operating under the moratorium and, for all hospitals, will provide much-needed operational flexibility in staffing outpatient departments.

D. Price Transparency Rule Delayed

After receiving more than 1,400 comments on its proposed price transparency policy, CMS has opted to publish a separate final rule on this topic. The rule appears to have been received by the White House Office of Management and Budget on October 29, 2019 and is pending review. 

As a reminder, the proposed policy would require all hospitals to post gross charges as well as payer-specific negotiated charges for all hospital items and services in machine-readable format as well as payer-specific negotiated charges for a subset of “shoppable” items and services (non-urgent items or services that can be scheduled in advance) in a user-friendly format. The breadth of the proposal is alarming and, pending any major revisions in the final rule, it will likely be challenged by various industry stakeholders. A complete summary of the proposed rule may be found here.

E. Additional Policy Changes

1. Medical Review Policies Under the Two-Midnight Rule

The final rule provides some administrative relief for hospitals furnishing services that have recently been removed from the inpatient-only (“IPO”) list. Under the current two-midnight policy for evaluating short hospital inpatient stays, when the procedure performed appears on CMS’ IPO list, the entire claim is exempt from medical review under the two-midnight benchmark regardless of the actual or expected length of stay. But when a procedure is removed from the IPO list, the two-midnight benchmark applies and the claims were historically subject to initial medical reviews by the Beneficiary and Family-Centered Care Quality Improvement Organizations (“BFCC-QIOs”), who can also refer providers to Recovery Audit Contractors (“RACs”). 

To facilitate hospital compliance with the two-midnight rule and to avoid unnecessary RAC referrals related to services recently removed from the IPO list, the final rule gives hospitals a two-year exemption from patient status claim denials, from BFCC-QIO referrals to RACs and from RAC patient status reviews. BFCC-QIOs remain authorized to review such claims for educational purposes and to deny claims for lack of medical necessity generally, but such claims will not be denied strictly based on site of service.

2. Requirements for Grandfathered Children’s Hospitals-Within-Hospitals

Perpetuating a somewhat tortured history, CMS continues to grapple with the necessary separateness and control requirements related to IPPS-excluded hospitals or units that are co-located within IPPS hospitals (“Hospitals-within-Hospitals” or “HwH”). Hospitals-within-hospitals that were in existence as of September 30, 1999 are considered “grandfathered”, and thus, exempt from the separateness and control requirements that are applicable to other HwHs, as long as they continue to operate under the same terms and conditions the facilities had in place as of that date. CMS has long interpreted the grandfathering provision to include a restriction on increasing the bed count at the HwH. Fearing loss of grandfathered status, many HwHs have struggled to be responsive to community need, as they have been limited to the bed count in place over 20 years ago.

Recognizing the limited number of Medicare claims submitted for children’s hospitals and the lack of incentive to shift patients between co-located facilities in an attempt to increase Medicare revenue, this final rule lifts the bed count restriction for IPPS-excluded grandfathered children’s HwHs. Children’s HwHs will now be able to increase their bed count in response to community need without jeopardizing their grandfathered status. 

3. New Prior Authorization Process for Limited Services

In the final rule, CMS finalizes its proposal to create a prior authorization process for certain hospital outpatient department (“OPD”) services. This rule stems from CMS research that showed a striking increase in the volume of certain services and their costs relative to the growth of Medicare beneficiaries. Moreover, CMS believes this segment of OPD services represent procedures that are often related to cosmetic procedures not otherwise covered by Medicare. As such, beginning July 1, 2020, hospitals (not ASCs or other facilities) will be required to seek prior authorization for CPT codes related to the following categories of services prior to the provision and billing of the service:

• Blepharoplasty;

• Botulinum toxin injection;

• Panniculectomy;

• Rhinosplasty; and

• Vein ablation.

CMS will implement a similar process as used for prior authorizations in the DMEPOS context.  Hospitals will have to submit a prior authorization request, seeking a “provisional affirmation” from the MAC, which would mean that the provider has shown that the service meets the Medicare coverage rules. Barring any technical claims error or additional information indicating such coverage was inappropriate, the hospital will be paid for the service. Hospitals can seek an expedited review in situations where a delay in getting prior authorization could seriously jeopardize the life or health of the beneficiary or impair their ability to regain maximum function. Importantly, CMS will allow providers that meet a 90 percent provisional affirmation threshold (meaning, they receive a provisional affirmation 90 percent of the time) to be exempt from the prior authorization process. As such, it behooves providers to evaluate their compliance with Medicare coverage rules for the affected OPD services, as success in the prior authorization process in the beginning of the program could mean a reduction in burden going forward.