On July 29, 2019, the Centers for Medicare & Medicaid Services (“CMS”) released the CY 2020 Hospital Outpatient Prospective Payment Systems (“OPPS”) proposed rule [CMS-1717-P] (display copy available here). In addition to the customary payment adjustments, the highlights of this year’s proposed rule are two policies with significant implications: (1) a broad price transparency policy, requiring hospitals to publish extensive charge and payment rate information; and (2) a proposal to reduce the required level of physician supervision from direct to general for hospital outpatient therapeutic services in all hospitals. This alert will focus on these policies and also address a series of ancillary proposals appearing in the 800+ page display copy of the proposed rule. The rule will be published in the Federal Register on August 9, 2019.

In addition, CMS released the OPPS proposal alongside the CY 2020 Physician Fee Schedule proposed rule, which is also the topic of a separate Polsinelli alert to be published in the near future.  

Comments on the OPPS proposed rule are due no later than 5 pm ET on September 27, 2019.

A. Price Transparency

In this rule, CMS has introduced a far-reaching proposal to implement the price transparency mandate that, to this point, has not produced CMS’ desired effect of reducing the overall cost of health care.  At its core, the proposal would require all hospitals to post gross charges as well as payor-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.  Discussed in more detail below, the breadth of this proposal is alarming and almost certainly will be challenged by all sides of the industry.

For context, the price transparency mandate originated in the Affordable Care Act (“ACA”) (Section 2718(e) of the Public Health Service Act), which requires all hospitals to make public a list of “standard charges” for items and services “provided by the hospital.” In the FY 2015 IPPS final rule, CMS initially interpreted the law to require hospitals to publish either a list of their standard charges (in the form of a chargemaster or other charge list) or their policies for allowing the public to view a list of the charges in response to an inquiry. Disappointed in the outcome of the initial policy, effective January 1, 2019, CMS narrowed its interpretation in the CY 2019 IPPS and mandated that all hospitals formally publish their standard charges online in a machine-readable format. A June 24 Presidential Executive Order (Improving Price and Quality Transparency in American Healthcare to Put Patients First) took this a step further, compelling the Department of Health and Human Services (“HHS”) to issue regulations requiring hospitals to publish charges and “information based on negotiated rates” for common items and services. The provisions of the CY 2020 OPPS proposed rule respond to this Executive Order and are issued under the statutory authority of the ACA. 

The key aspects of the proposed new regulations, which would appear at 45 C.F.R. § 180, are as follows:

• Application to All Hospitals. For purposes of this rule, CMS proposes to define “hospital” as any institution licensed as a hospital under applicable State or local law or approved as meeting the requirements for hospital licensing by such State or locality. This means the rule would encompass every hospital in the United States, regardless of whether it is enrolled in Medicare and regardless of its designation under Medicare—i.e., it would apply to critical access hospitals, inpatient psychiatric facilities and inpatient rehabilitation facilities if licensed as a hospital under state law. The only category of hospitals that CMS proposes to exclude is those that are federally-owned or operated, such as Indian Health Service and Veterans Affairs facilities.

• Scope of “Items and Services” Requiring Charge Disclosure. Similarly broad in scope, CMS proposes to require hospitals to disclose charges for all items and services—including both individual items and services as well as service packages—furnished by a hospital in connection with an inpatient stay or outpatient visit for which the hospital has established a standard charge (see below). Service packages are bundles of services for which a hospital has negotiated a specific charge, such as a diagnosis-related group (“DRG”) in the inpatient setting. It might also include ambulatory payment classifications (“APCs”) in the outpatient setting. Consistent with the Executive Order, but arguably beyond the scope of the authorizing ACA statute, CMS also proposes to require disclosure of charges for employed physician and non-physician practitioner services on the theory that these are also “hospital” services because they are potentially negotiated and billed by the hospital. CMS fails to address how the rule would apply to practitioners employed by a health system (or system-owned physician group) rather than the individually licensed hospital.

• Definition of “Standard Charges”. Perhaps the most stunning aspect of this proposal is the requirement for hospitals to make public two types of “standard charges”: (1) gross charges and (2) payer-specific negotiated rates.

  Gross charges would be defined as those charges “reflected on a hospital’s chargemaster, absent any discounts.” According to CMS, such charges are “both informative and necessary for consumers to understand their potential out-of-pocket cost obligations,” when in fact neither is true. CMS also seems to believe that self-pay patients are subject to these rates, even though most hospitals apply some level of self-pay discount. As many in the industry have commented since implementation of the original price transparency requirements, the chargemaster typically has little relation to a patient’s ultimate out-of-pocket cost and is of little use to patients without an understanding of how the hospital actually gets paid by the plan (e.g., fee-for-service, bundled rate, percentage of charges).  

  More alarming is the proposal to require publication of payer-specific negotiated rates, which CMS would define as the “charge that the hospital has negotiated with a third-party payer for an item or service.” (Presumably, when CMS uses the word “charge” in this context, it means “payment rate.”) While this may be more useful to patients, it will undoubtedly be viewed by hospitals and payers as an intrusion into their confidential contractual relationship. In addition, by requiring public disclosure of all rates (rather than disclosure to patients on an individual basis), the information is open to exploitation in both known and unknown ways. Even CMS acknowledges that “the impact resulting from the release of negotiated rates is largely unknown.” Both hospitals and payers should submit comments to educate CMS on the impact of this policy and propose alternative definitions of “standard charges” that could achieve the same positive result for patients (e.g., median private payer rate, the “amounts generally billed” under the look-back method in IRC Section 501(r)).

• Two-Tiered Disclosure Requirement. CMS is proposing that hospitals disclose these standard charges in two different ways. First, hospitals would be required to publish both gross charges and payer-specific negotiated charges (as defined above) for all items and services in a “machine-readable” file to be updated annually. The file would include the charges (with third-party payer charges identified by name of the payer), a description of each item or service as well as service packages, specific codes used by the hospital for billing (e.g., CPT, HCPCS, DRG, NDC) and revenue codes, if applicable. 

  Second, hospitals would be required to publish payer-specific negotiated charges for a subset of at least 300 “shoppable” services in a consumer-friendly format. Shoppable would be defined as a non-urgent “service package that can be scheduled by a health care consumer in advance,” such as an MRI, joint replacement, or sleep study. The hospital would be required to post rates for the shoppable service as well as any ancillary services, meaning items or services customarily provided as part of a shoppable primary service. As proposed, CMS would dictate 70 of the shoppable services and the hospital would select the remaining 230. The required data elements would include a “plain-language description” of the service, the payer-specific negotiated charge, a list of associated ancillary services and corresponding charges, the location at which the service is available, and other billing codes used by the hospital (e.g., CPT, HCPCS, etc.). CMS leaves open the question of what is required for a “consumer-friendly” format, except to say that the website must be easily accessible.

• Enforcement. Finally, unlike the implementing statute and the prior CMS regulations, this proposed rule would have teeth. A noncompliant hospital would be allowed to take corrective action first, but if it failed to submit a corrective action plan or continued to be in material violation of the rule, the hospital could be subject to civil monetary penalties of up to $300 per day.

CMS is seeking comments on many aspects of its proposed price transparency policy. We strongly encourage hospitals to submit comments and, in doing so, to address the legal and practical issues with the rules as proposed. Legally, the scope of the information required to be disclosed, including both payer-specific negotiated rates as well as charges for physician services, arguably goes beyond the scope of the authorizing statute. Additionally, disclosure of pricing data likely violates contractual obligations of confidentiality with payers. The agency seems to believe this type of disclosure is already happening at the state level and would be easy to implement, requiring only $1,000 per year per hospital to comply. Hospitals should convey the administrative and financial burden this would impose if finalized—from the industry-wide impact of publishing negotiated rates to identifying service packages and ancillary services, to developing a new consumer-friendly interface for shoppable services.

B. Physician Supervision of Hospital Outpatient Therapeutic Services

Although physician supervision is a relatively standard component of CMS’ annual rulemaking, recent years have seen only minor adjustments to supervision requirements in narrow circumstances (for example, 2019 changes to supervision of diagnostic tests performed by radiology assistants). This year, however, CMS has decided to go big.   

Under existing rules, Medicare requires nearly all hospital outpatient therapeutic services to be furnished under direct supervision, which means the supervising physician must be immediately available to assist with 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 generally not an option. Through years of statutory and regulatory enforcement moratoria, critical access hospitals (“CAHs”) and small rural hospitals with fewer than 100 beds have been exempt from the direct supervision requirement and, instead, obligated to provide at least general supervision for the same set of therapeutic services.  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, being available by phone is generally sufficient to meet the general supervision standard. According to CMS, while this exemption is justified based on staffing challenges in rural locations, it has created a “two-tiered system of physician supervision requirements…with direct supervision required for most hospital outpatient therapeutic services in most hospital providers, but only general supervision required for most hospital outpatient therapeutic services in CAHs and small rural hospitals…”.

Under the proposed rule, CMS would take the bold step of eliminating this two-tiered system and reducing the required level of supervision for most hospital outpatient therapeutic services from direct to general supervision for all hospitals. Consistent with its oft-cited strategy of reducing regulatory burden, CMS supports this proposal by noting the agency has “come to believe that the direct supervision requirement...places an additional burden on providers that reduces their flexibility to provide medical care” and that “Medicare providers will provide a similar quality of [services], regardless of whether the minimum level of supervision…is direct or general.” CMS also points to existing safeguards in place via state scope of practice laws as well as the hospital conditions of participation, which require all Medicare patients to be “under the care of a physician” and for the hospital to have an “organized medical staff” operating under a governing body ultimately responsible for the quality of medical care.

CMS will continue seeking guidance from the Advisory Panel on Hospital Outpatient Payment regarding specific services that may require more intensive supervision, and it is also seeking public comments on whether certain types of services— e.g., chemotherapy administration or radiation therapy—should remain subject to direct supervision. As proposed, this would be a sweeping change to the physician supervision landscape for hospitals and would permit much greater flexibility in terms of staffing, particularly for off-campus hospital outpatient departments and other ancillary sites. Hospitals and their clinical leadership do, however, have a valuable role to play in defining the scope of therapeutic services subject to this new policy and, through the comment process, should consider advising CMS on which categories of services can be furnished safely under general supervision and those that cannot (if any), rather than allowing CMS to make these determinations in isolation.

C. Additional Proposals & CMS Requests for Comment

1.  Payment for 340B Drugs

This topic is fully addressed in a separate Polsinelli alert published on August 5. In short, however, in this proposed rule, CMS indicated its intent to maintain reduced payment rates and associated modifiers for 340B drugs and biosimilars. Specifically, CMS proposes to continue its drastic reimbursement rate cut of ASP minus 22.5% for separately payable, non-passthrough drugs and biosimilars administered by certain urban hospitals. Likewise, CMS proposes to maintain its JG and TB modifier structure as the mechanism to identify drugs to which the payment reduction applies.

CMS’s ASP minus 22.5% payment rate is a continuation of a reduced payment rate CMS established in its CY 2018 OPPS Final Rule and expanded in its CY 2019 OPPS Final Rule. Both rules are subject to litigation where covered entities have prevailed at the district court level. The case is now on appeal at the D.C. Circuit Court of Appeals, and hospitals would likely challenge CMS’s 2019 proposed 340B payment structure if finalized.

CMS showed signs it is prepared to revert to a higher payment rate should it lose its case on appeal. CMS is seeking comments on whether ASP plus 3% would be an acceptable payment rate if forced to abandon its 340B drug payment cuts. CMS is also seeking comments on other vehicles to use to remedy prior underpayments if it loses its appeal. Affected covered entities should carefully review CMS’s proposals and participate in the rulemaking process with CMS.

2.  Medical Review Policies Under the Two-Midnight Rule

Consistent with the current two-midnight policy for evaluating short hospital inpatient stays when the procedure performed appears on CMS’ inpatient-only list (“IPO”), the entire claim is exempt from medical review under the two-midnight benchmark regardless of the actual or expected length of stay. When a procedure is removed from the IPO list, however, the two-midnight benchmark applies and the claim can be 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”). Under this proposed rule, beginning January 1, 2020, for procedures removed from the IPO list, CMS would establish a one year exemption from certain medical review activities. Specifically, these procedures would be exempt from patient status claim denials, from BFCC-QIO referrals to RACs, and from RAC patient status reviews for one calendar year. BFCC-QIOs remain authorized to review such claims for educational purposes, but not for purposes of medical review or claim denial.

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

Over the last several years, CMS has been reassessing and changing limitations on Hospitals within Hospital (“HwHs”). Certain long-existing IPPS-excluded hospitals and satellite facilities, including children’s hospitals, could take advantage of CMS grandfathering provisions that exempted them from separateness and control provisions applicable to other HwHs, as long as they continued to operate under the same terms and conditions. The grandfathering provisions were strict and facilities jeopardized their IPPS-exempt status if they made any changes to their structure, including their bed count. This has made it difficult to respond to changing circumstances over time. 

Acknowledging the low number of Medicare claims from children’s hospitals and lack of incentives to inappropriately shift patients to maximize Medicare payment, CMS is proposing to allow grandfathered children’s HwH to increase its bed count to address changing community need without jeopardizing its IPPS-excluded status.

4.  New Prior Authorization Process for Limited Services

CMS has proposed the implementation of a new prior authorization process for certain hospital outpatient department services that it considers to be primarily cosmetic. CMS has identified five broad buckets of services for this new process: (1) blepharoplasty, eyelid surgery, and brow lifts, (2) botulinum toxin (Botox) injections; (3) panniculectomy and excision of excess skin and subcutaneous tissue, (4) rhinoplasty and (5) vein ablation. This new process will draw heavily from existing CMS prior authorization procedures for DMEPOS. See, 42 C.F.R. § 414.234.

5.  Laboratory Date of Service Policy

CMS is also requesting comments on proposed revisions to its laboratory date of service (“DOS”) policy.  As a general rule, the policy requires the DOS for a lab test to be the date the specimen is collected, regardless of when the actual test is performed. 42 C.F.R. § 414.510. If a specimen is collected during a hospital stay, Medicare then pays for the test as part of the hospital’s bundled payment. Over the years, CMS has developed exceptions to this policy for tests performed on stored specimens when the test is ordered by a physician within 14 days following the patient’s discharge from the hospital (among other criteria). In such cases, CMS rules require the DOS to be the “date the test was performed” rather than the date of collection, which in turn allows separate Medicare payment to be made. This is referred to as the “14-day rule.”  Variations of the 14-day rule technically apply to molecular pathology tests and advanced diagnostic laboratory tests (“ADLTs”), although CMS has exercised enforcement discretion through January 2020. 

Based on industry feedback, CMS is now requesting comments on proposed changes to the laboratory DOS policy and, specifically, the application of the 14-day rule to molecular pathology tests and blood banks and blood centers. Laboratories and hospitals engaged in this space should consider practical feedback to CMS on the impact of these policy proposals.