On August 4, 2020, CMS proposed its annual rule adjusting the Medicare Hospital Outpatient Prospective Payment System (OPPS) and Ambulatory Surgical Center (ASC) Payment System, as well as changes to quality reporting programs and other important policies described in detail below (the Proposed Rule). Overall, CMS proposes to increase OPPS and ASC payments by 2.6%, reflecting an increase of nearly $7.5 billion and $160 million, respectively, over CY 2020 figures. Comments are due to CMS by 5:00 p.m. EST on October 5, 2020.

The thrust of the policies in the Proposed Rule further highlights CMS’s trend of increasing the amount of services available in varying sites of service, part of CMS’s “site neutrality” focus. The Proposed Rule proposes several significant site-of-service-focused changes, including the elimination of the Inpatient Only list over a three-year period. The Proposed Rule’s policies take effect January 1, 2021 following the comment period ending on October 5, 2020.

Adjustments to OPPS and ASC Payments

For OPPS generally, the Proposed Rule seeks, among other things, to “recalibrate” the ambulatory payment classification (APC)-relative payment weights for services furnished on or after January 1, 2021 and before January 1, 2022, using the same methodology described in the CY 2020 OPPS/ASC final rule using the updated CY 2019 claims data. CMS would therefore recalibrate the relative payment weights for each APC based on claims and cost report data for hospital outpatient department services with the most recent available data for APC group weight calculations. CMS also proposes to continue using hospital-specific overall ancillary and departmental cost-to-charge ratios (CCRs) to convert charges to estimated costs through application of a revenue code-to-cost center crosswalk. (The Proposed Rule offers other detailed proposals affecting OPPS payments, and readers should consult the full text of the Proposed Rule for specific inquiries.)

As to OPPS payment rates, CMS proposes for CY 2021 to increase its payment rates by an outpatient department fee schedule increase factor of 2.6%. CMS expects the result of this 2.6% increase will be total payments to OPPS providers of approximately $83.9 billion, which is an increase of almost $7.5 billion from CY 2020.

CMS arrived at the 2.6% figure by subtracting a multifactor productivity adjustment (required by the ACA) of 0.4% from a 3.0% hospital inpatient market basket percentage increase for inpatient services (paid under the hospital Inpatient Prospective Payment System, or IPPS). The Proposed Rule also proposes to continue implementation of the 2.0% reduction in hospital payments when hospitals fail to meet outpatient quality reporting requirements.

As to the ASC Payment System updates, CMS also proposes to increase payment rates by 2.6% and continues its policy of updating ASC rates using the hospital market basket update. The increase is proposed to apply only to ASCs that meet the quality reporting requirements of the ASC Quality Reporting (ASCQR) program. CMS calculated the proposed increase based on a market basket percentage increase of 3.0% minus a 0.4% proposed multifactor productivity adjustment.

The ASC payment increase will result in estimated total payments in CY 2021 of approximately $5.45 billion, representing an increase over CY 2020 of nearly $160 million.

Proposed Elimination of the Inpatient Only (IPO) List

The Proposed Rule seeks to eliminate the IPO list in a three-year transitional period, phasing it out by CY 2024, to allow certain services to take place in the outpatient setting. The procedures removed from the list would ultimately become subject to the 2-midnight rule, following the two-year exemption from medical review activities put in place by the CY 2020 OPPS/ASC final rule and proposed for continued implementation by this Proposed Rule.

Approximately 300 musculoskeletal-related services will be eliminated from the IPO list in the initial tranche if the proposals are finalized. The Proposed Rule seeks comments on which additional services should be removed from the IPO list in CY 2021. The Proposed Rule also seeks comment on whether a three-year transition period away from the IPO list is appropriate and how the public would prefer CMS to remove clinical families or specific services from the IPO list.

ASC Covered Procedures List

The Proposed Rule also seeks to add 11 surgical procedures to the ASC covered procedures list, including, most notably, total hip arthroplasties (CPT 27130). Other proposed inclusions on the list include vaginal colpopexy, transcervical uterine fibroid ablation, intravascular lithotripsy, and certain mastectomies, among others. Beyond these proposed additions, CMS has since 2018 added 28 procedures to the covered procedures list.

CMS also proposes two alternative methods for adding further procedures to the ASC covered procedures list. First, CMS proposes to establish a public nomination process beginning in CY 2021 so that various stakeholders (such as professional specialty societies) can suggest (under certain parameters) procedures that can be safely performed in the ASC setting. CMS would review the suggestions and propose them for addition through annual rulemaking. Under the second alternative, CMS proposes to revise the criteria for covered surgical procedures found at 42 C.F.R. § 416.166 by eliminating five of the general exclusions and keeping the general standards. This modification would result in approximately 270 surgery or “surgery-like” codes being added to the covered procedures list. As part of its proposal, CMS is also seeking comment on whether the conditions for coverage for ASCs should be revised if the second alternative is adopted.

Updates to Quality Reporting and Rating Programs

The Proposed Rule updates requirements for the Hospital Outpatient Quality Reporting (HOQR) Program, ASCQR Program, and the Overall Star Rating system. CMS noted in the Proposed Rule it intends to “revise and codify previously finalized administrative procedures and to propose and codify an expanded review and corrections process,” although it is “not proposing any measure additions or removals for” either the HOQR or ASCQR programs. Namely, the Proposed Rule would redesignate certain paragraphs related to HOQR program regulations and codify the program’s statutory authority under 42 C.F.R. § 419.46. The Proposed Rule also seeks to update HOQR annual submission deadlines, among other changes.

The Proposed Rule further proposes updates to the Overall Hospital Quality Star Rating system. CMS notes it proposes to “update and simplify” how the ratings are calculated, reduce the total number of measure groups, and stratify the Readmission measure group based on proportion of dual-eligible patients.

Specifically, CMS proposes to retain much of its current methodology, such as the annual refresh, included measures, measure score standardization, and use of k-means clustering for ratings assignments. However, CMS proposes updating other elements of the methodology, such as:

• Creating a new “Timely and Effective Care” group from three existing process measure groups (meaning the Overall Star Rating would now have five groups);
• Using a simple average methodology to calculate measure group scores, instead of the current statistical Latent Variable Model;
• Stratifying the Readmission measure group;
• Changing the reporting threshold to receive an Overall Star Rating by requiring hospitals to report at least three measures for three measure groups; and
• Applying a peer grouping methodology based on the number of measure groups.

Among other rating program updates in the Proposed Rule, CMS further proposes to include critical access hospitals (CAHs) and Veterans Health Administration (VHA) hospitals in the Overall Star Rating program.

Updated Policies for Physician-owned Hospitals

The Proposed Rule further seeks to permit expansion of physician-owned hospitals qualifying as “high Medicaid facilities” such as by altering the method for counting beds in a hospital’s baseline number of operating rooms, procedure rooms, and beds.

CMS proposes to remove what it views as “unnecessary regulatory restrictions” on high Medicaid facilities and include beds in a physician-owned hospital’s baseline, as allowed by state licensure laws. Specifically, the Proposed Rule seeks to remove the cap on the number of additional operating rooms, procedure rooms, and beds that can be approved in an expansion exception, as well as remove the restriction that the expansion must occur only in facilities on the hospital’s main campus.

The Proposed Rule also would permit a high Medicaid facility to apply for an exception more than once every two years.

Adjustments for Cancer Hospital Payments

The Proposed Rule also seeks to continue additional payments to cancer hospitals to equalize the cancer hospital’s payment-to-cost ratio (PCR) when measured against the weighted average PCR for other OPPS hospitals based on recent cost report data. Because the implementation of the 21st Century Cures Act requires the weighted average PCR to be reduced by 1.0%, CMS proposes a target PCR of 0.89 for use in CY 2021 for cancer hospitals’ payment adjustments at cost report settlement. The payment adjustments will be the cancer hospitals’ additional payments needed to result in a PCR of 0.89.

Updates to 340B Program

Following on the results of a hospital acquisition cost survey, the Proposed Rule also proposes to pay for drugs acquired under the 340B program at ASP minus 34.7%, plus an add-on of 6% of the product’s ASP, leading to a net payment rate of ASP minus 28.7%. CMS also proposes the alternative of continuing its current policy of paying ASP minus 22.5% for 340B-acquired drugs.

The Proposed Rule also proposes a policy much like that implemented in 2018 for the exemption of rural sole community hospitals (SCHs), PPS-exempt cancer hospitals, and children’s hospitals from the 340B payment policy to be effective starting in CY 2021.

As noted above, the Proposed Rule contains numerous other proposed policy changes not summarized in this article; readers should contact King & Spalding with specific questions.

The Proposed Rule is scheduled to be published in the Federal Register on August 12, 2020, and will be available online here. The full text of the Proposed Rule is available here. The CMS Fact Sheet summarizing the Proposed Rule is available here.