Bipartisan Budget Act materially impacts hospital outpatient services reimbursement

On November 2, 2015, President Obama signed the Bipartisan Budget Act of 2015 (the Act) into law. The Act contains provisions that, among other things, will have a material impact on reimbursement for many hospital outpatient services. In particular, Section 603 of the Act changes Medicare reimbursement for outpatient services furnished in off-campus provider-based departments (Off-Campus PBDs) from the Hospital Outpatient Prospective Payment System (OPPS) to the lower rates set forth in the Medicare Physician Fee Schedule (MPFS) or the ambulatory surgery center (ASC) payment system. This change will become effective on January 1, 2017.

Off-Campus PBDs that provided outpatient services as of November 2, 2015, will be “grandfathered”; in the absence of further legislation, outpatient services furnished at such grandfathered Off-Campus PBDs will continue to be paid under the OPPS even after January 1, 2017.

Given that reimbursement will not change until January 1, 2017, any facility that begins billing as an Off-Campus PBD on or after November 3, 2015 will be reimbursed under the OPPS until December 31, 2016. Thereafter, that same Off-Campus PBD will receive the lower MPFS or ASC payment system rates, as applicable.

Importantly, this change does not apply to off-campus dedicated emergency departments, which is a growing area of expansion for many health systems. It also does not apply to on-campus provider-based departments, provider-based entities (i.e., entities that provide services different than the main provider, such as rural health clinics) and satellite facilities. Finally, the Act also expands the current definition of an on-campus provider-based department (previously defined as any department within 250 yards of the main buildings) to include any remote location of a hospital. As such, beginning January 1, 2017, remote hospital locations will now be considered “on-campus” regardless of distance from the main campus.

Section 603 addresses the long-held reservations of certain policymakers regarding Medicare’s payment of higher OPPS rates for services provided in a hospital’s Off-Campus PBD when a similar—or even identical—service is paid under the MPFS or ASC payment system when provided in a freestanding clinic, physician office or an ASC. The common refrain of such policymakers has been to express outrage over hospital acquisitions of private physician practices, which are then transformed into hospital departments under the provider-based regulations (42 C.F.R. § 413.65) in order to receive higher OPPS-based Medicare reimbursement. Indeed, there have been many MedPAC reports, which have criticized this payment discrepancy and have called for reimbursement “site neutrality”—i.e., the same reimbursement for a service, regardless of setting. (Although legislation has been introduced to impose site neutrality on a broader scale over the years, such legislation has never been enacted.) Hospitals take the position that such increased reimbursement is appropriate given the implementation and ongoing integration required to treat the space as provider-based (e.g., upgrades to space to meet state hospital life safety code, clinical and financial integration, advance notice of anticipated beneficiary copayment and so forth).

We foresee many issues arising from this new law, including (among others) the following:

  1. Will hospitals expand on-campus sites instead of creating Off-Campus PBDs?
  2. Can an existing Off-Campus PBD that expands substantially retain payments under the OPPS? and
  3. Can an Off-Campus PBD move to a new location and retain payments under the OPPS?