MEDICARE PROPOSES PAY INCREASE FOR HOSPITAL OUTPATIENT SERVICES

CMS Public Affairs Office
August 6, 2002

Hospitals would receive an increase of 3.5 percent in payment rates for outpatient services in 2003 under a proposed rule released today by the Centers for Medicare & Medicaid Services (CMS). Aggregate payments to hospitals are expected to be $530 million more than in 2002. Payments to rural hospitals would increase by 7.6 percent.

Medicare pays over 6,000 hospital outpatient departments for the services they provide based on the Outpatient Prospective Payment System (OPPS), which went into effect Aug. 1, 2000. The OPPS, which was mandated by the Balanced Budget Act of 1997, is designed to encourage efficient delivery of care and to ensure more appropriate payment for services.

The OPPS establishes base payment rates based on ambulatory payment classifications (APCs). APCs are groups of services that are clinically similar and require comparable resources. Prior to the implementation of the OPPS, hospitals were paid for outpatient services based on costs. The data underlying the 2003 proposed rule have been refined significantly from those available in previous years. For example, for the first time, payment rates for the APCs are being set using actual data from claims submitted by hospitals under the OPPS, rather than the previous payment system. In addition, CMS has developed ways to make use of data from multiple procedure claims. As a result, the percentage of claims used to set relative weights of APCs has nearly doubled from 42 percent for 2002 to 82 percent for 2003.

CMS is proposing to create a new APC for procedures that use drug eluting stents, if these devices are approved by the Food & Drug Administration. These stents are similar to the drug-coated stents that will be folded into the APCs in January, but where the existing stents were coated to prevent clotting during the insertion of the stent, the drug-eluting stents have been found useful in preventing the reclosing of the artery in which it is inserted.

The proposed rule would allow separate payment for observation services for patients with congestive heart failure, chest pains, and asthma who are directly admitted

from a physician's office. The rule would also create separate codes appropriate for use in the outpatient setting for payment to the hospital for evaluation and management (E&M) services. The new codes would take effect no earlier than 2004. Under current rules, outpatient departments have been using the E&M codes developed by the American Medical Association for physician services, even though they do not reflect the hospital resources involved in these services.

IN OTHER PROVISIONS, THE PROPOSED RULE:

*     Outlines the methodology CMS proposes to use to pay for 95 categories of devices and approximately 240 drugs that will no longer be eligible for pass-through payments on January 1, 2003. The law that created the pass-through system requires Medicare to end these extra payments for drugs and devices after several years. Under the proposal, CMS would include the estimated purchase costs of these devices and of lower-cost drugs (up to $150 per encounter) in their associated APCs. Separate APCs would be created for the higher cost drugs. Also scheduled to receive separate payment under the proposed rule are "orphan" drugs used solely to treat a rare condition or disease, blood and blood products, and vaccines, like the flu and Hepatitis B vaccine, which are paid under a separate benefit. CMS would use the best data available to make the appropriate payment adjustments, which by law must be budget neutral.

*     Amends Medicare payment suspension regulations to allow the option of a partial suspension when a hospital fails to file a timely and acceptable cost report. Under current rules, if a provider fails to file a timely and acceptable cost report, Medicare payments must be suspended completely - a step that can be extremely disruptive not only to the provider, but also to the beneficiaries it serves.

*     Estimates significantly higher payment for two key preventive screening tests - mammography and colonoscopy. Final payment rates for these and other services will be set in the final rule, based on the best data available and the requirements in the law.

The proposed rule will be published in the August 9 Federal Register. CMS will accept public comments on the rule until October 7 and will publish a final rule later in the fall.