Living Off-Campus Medicare Payment for Hospital Services in

Living Off-Campus Medicare Payment for Hospital Services in Provider-Based Departments December 2, 2016 1

Goals for Presentation § Investigate hospital payment matters leading to current situation § Review site-neutral payment provisions of Section 603 of the Bipartisan Budget Act of 2015 § Discuss issues arising out of Proposed Rule § Analyze Final Rule § Consider issues requiring hospital planning due to law and rules 2

Vertical Consolidation in Health Care Industry § Number of vertically consolidated physicians increased from 96, 000 to 182, 000 from 2007 to 2013 (GAO 16 -189, Dec. 2015) § Hospital ownership of physician practices increased by 86%, and hospital employment of physicians increased by almost 50%, from 2012 to 2015 (81 Fed. Reg. 79712, citing Avalere Health Study, Sept. 2016) § Many off-campus provider-based departments were initially enrolled in Medicare as freestanding physician offices 3

Payment for Hospital Outpatient Services § When services are rendered in off-campus department of hospital, total Medicare payment generally more than when same services are rendered in a physician’s office § Medicare pays two separate claims: • One under Outpatient Prospective Payment System (OPPS) for technical services • One under Physician Fee Schedule (MPFS) for professional services • Reduced payment since practice expense RVU is reduced § Patients responsible for cost-sharing liability for both claims, resulting in higher total out-of-pocket expense 4

Provider-Based Rules § Provider-based status generally applies if main provider exercises required level of financial and clinical control over facility § Advantage is that hospital can treat facility as part of hospital for payment purposes • Medicare coverage (with related facility fee) • Third-party payer contracts apply • 340 B drug discount program eligibility • Disproportionate share payments apply • Residents working in facility count for medical education payments § Found at 42 C. F. R. § 413. 65 5

Section 603 of Bipartisan Budget Act of 2015 § Enacted November 2, 2015 § Beginning January 1, 2017, items and services furnished in an offcampus provider-based department are not considered covered outpatient department services for purposes of OPPS payment § Instead, payable under the “applicable payment system” (other than OPPS) under Medicare Part B if requirements are otherwise met § Congressional Budget Office estimated savings of approximately $9. 3 billion over 10 years 6

Governmental Concerns Leading to New Law § No legislative history on Section 603 § Med. PAC urged Congress on multiple occasions to reduce or eliminate payment differences for same services delivered in different settings § OIG recommended reducing hospital outpatient department rates to equal ambulatory surgery center payment rates (Mar. 2015) § CMS expressed concern about hospital acquisition of physician practices and increased delivery of physician services in hospital setting (CY 2014 OPPS Final Rule) 7

Affected Facilities § Law affects hospital departments that meet the requirements of the Provider-Based Rules that are not located on-campus or within 250 yards of a remote location of a hospital § Exceptions: • Dedicated emergency department • Off-campus provider-based department that was billing under the OPPS for covered outpatient department services furnished prior to November 2, 2015 (“excepted status”) 8

Facilities Not Affected § Provider-based department located on-campus • No change to definition of “campus” § Facilities not subject to Provider-Based Rules, e. g. : • Home Health Agencies • Hospices • Comprehensive Outpatient Rehabilitation Facilities § Critical Access Hospitals § Rural Health Clinics § Federally-Qualified Health Centers 9

Actions in Response to Section 603 § Helping Hospitals Improve Patient Care Act (H. R. 5273) • Extend “already billing” exception to Dec. 2, 2015 • Create exception for “mid-build” hospital outpatient departments • Binding construction agreement prior to Nov. 2, 2015 • Provider-based attestation by Dec. 31, 2016 • Passed by the House of Representatives on Jun. 7, 2016 • No action in the Senate § Proposed Rule issued (81 Fed. Reg. 45603, Jul. 14, 2016 ) • Raised three areas of concern and discussion 10

Proposed Rule - Relocation § CMS concerned that permitted relocation would allow hospitals to find larger facilities, purchase additional physician practices, move those practices into the larger facilities, and receive OPPS payments for services furnished by the physicians § Excepted off-campus provider-based departments determined by CMS-855 A as of Nov. 1, 2015 § If a department moves or expands, even to a new suite in the same building, it loses excepted status § Treatment of relocation due to circumstances beyond hospital’s control unclear 11

Proposed Rule – Expansion of Services § CMS sees intent of Section 603 as addressing conversion of services furnished in physicians’ offices to hospital provider-based services § Concern that physician practices acquired after Nov. 2, 2015 could be added to existing off-campus provider-based departments, and be paid under OPPS, if those departments were allowed to expand their services § CMS proposes creation of “clinical families” of services § Only those services that an off-campus provider-based department furnished prior to Nov. 2, 2015 would be paid under OPPS as of Jan. 1, 2017 § Department itself would maintain excepted status 12

Proposed Rule – Payment Issues § “No straightforward way” to pay for non-excepted items and services under payment system other than OPPS before Jan. 1, 2017 § CMS proposes that off-campus provider-based departments could enroll as different types of freestanding facilities if applicable requirements were met § CMS notes that most non-excepted items and services would be paid under MPFS at higher non-facility rate • Physician could submit claim and receive payment • Hospital and physician would enter into arrangement under which hospital would capture some portion of fee related to value of technical services 13

Final Rule § Main Issues: • Relocation of an excepted location • Treatment of expanded services at an excepted location • Change of ownership of an excepted location • Payment for technical services in a non-excepted location • Interim final rule with comment period § CMS estimates reductions in payments: • $500 million reduction in OPPS payments in CY 2017 • $50 million reduction in Part B payments in CY 2017 § 81 Fed. Reg. 79562 (Nov. 14, 2016) (See pp. 79699 – 79729) 14

Relocation of Department § Proposed Rule – No change in physical address, including suite number, in order to maintain excepted status of off-campus providerbased department § CMS adopts this proposal in the Final Rule § Intent of the law is to allow for payment under OPPS for departments as they existed on Nov. 2, 2015 § Allowing hospitals to relocate and continue to be paid under OPPS would allow practices that the law was intended to prohibit 15

Exceptions to Relocation Prohibition § Temporary or permanent relocations may be allowed for extraordinary circumstances outside hospital’s control, e. g. : • Natural disasters • Significant seismic building code requirements • Significant public health and public safety issues § Evaluated on a case-by-case basis by CMS Regional Office § CMS anticipates these exceptions to be limited and rare § CMS will issue sub-regulatory guidance on process 16

Expansion of Services § Proposed Rule would have limited claims for items and services furnished as of Jan. 1, 2017 in excepted off-campus provider-based departments to those in the same “clinical families” as those furnished prior to Nov. 2, 2015 • Clinical families defined by Ambulatory Payment Classification (APC) codes § CMS abandoned this proposal in Final Rule § Excepted off-campus provider-based department may change service mix after Jan. 1, 2017 and maintain excepted status 17

Rationale for Allowing Service Expansion § CMS recognizes that proposal could be operationally complex and administratively burdensome § CMS notes that community needs may evolve over time § Commenters note that Section 603 exception for locations operating prior to Nov. 2, 2015 relates to departments, not particular services § Provider-Based Rules themselves apply to facilities in their entirety, not to specific services (67 Fed. Reg. 50088) § CMS intends to monitor for potential shifting of services to excepted off-campus provider-based departments or on-campus provider-based departments § May adopt rules in the future to limit expansion of services or volumes 18

Change of Ownership § Provider-based status is a relationship between the department and the main provider § If a hospital is sold or merges with another hospital, a department’s provider-based status generally transfers if new ownership accepts Medicare provider agreement • Under this scenario, excepted off-campus provider-based department would maintain excepted status • But, if provider agreement is terminated, all excepted off-campus provider-based departments lose their excepted status § An individual excepted off-campus provider-based department cannot be transferred from one hospital to another and maintain excepted status 19

Payment in Non-Excepted Facilities § Section 603 does not state that a non-excepted off-campus providerbased department is no longer a provider-based department of the hospital, just that items and services are not covered under OPPS § Payment for items and services in non-excepted off-campus providerbased department may be made under “applicable payment system” § Law does not define a specific applicable payment system 20

Applicable Payment System § MPFS is the applicable payment system • Off-campus provider-based departments required to use “PO” modifier beginning CY 2016 • Preliminary data show that most items and services furnished there are the types commonly furnished in the physician office setting • Most commonly billed are: • E/M visit • Diagnostic and imaging services • Drugs or biologicals • Drug administration 21

Payment for Technical Services § New MPFS rates for non-excepted items and services provided in an off-campus provider-based department § Hospitals will bill on institutional claim form using “PN” modifier § Rates are site-of-service specific rates for technical component of MPFS services § Interim rate is 50% of OPPS rate for each non-excepted item or service • Based on analysis of 2016 off-campus provider-based department payment data and comparison to MPFS rates 22

Other Payment Rules § Since separately payable Part B drugs are paid at same rate under OPPS and MPFS, no payment reductions for separately payable drugs § No reduction for services currently paid MPFS rate under OPPS • Majority of therapy and preventive services § Separately payable laboratory services will continue to be paid under Clinical Laboratory Fee Schedule § Physicians will be paid for professional services at facility rate for services furnished in a non-excepted off-campus provider-based department 23

Issues for Consideration (1) § Determine whether existing provider-based departments meet exception requirements § Implement policies to avoid changes in location or ownership of excepted off-campus provider-based departments without legal review § Ensure that non-excepted off-campus provider-based departments are still operated to meet Provider-Based Rules, Conditions of Participation, and other applicable rules § Train staff to code non-excepted services accurately using “PN” modifier 24

Issues for Consideration (2) § Consider effect on excepted status of off-campus provider-based departments in structuring merger/acquisition transactions § Analyze impact of possible enrollment of non-excepted off-campus provider-based department as a different institutional provider or a physician office § Stay tuned – payment rules may change in CY 2018 and beyond 25

Living Off-Campus: Medicare Payment for Hospital Services in Provider-Based Departments Michael P. Davidson mdavidson@lewisrice. com; (314) 444 -7873 St. Louis Area Health Lawyers Association December 2, 2016 26