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From Health Law Daily, July 2, 2015

Two midnight rule, policy changes in OPPS and ASC CY 2016 proposal

By Anthony H. Nguyen, J.D.

CMS would keep the controversial "two midnight" rule governing short hospital stays but allow physicians some leeway for patient admissions, despite pleas from providers to abandon the policy. The softened stance is one of many CMS proposals addressed in an advance release of changes for the hospital Outpatient Prospective Payment System (OPPS) and Ambulatory Surgical Center (ASC) Payment System in calendar year (CY) 2016. Under the Proposed rule, physicians would be allowed to exercise judgment to admit patients for short hospital stays on a case-by-case basis. CMS would remove oversight of those decisions from its administrative contractors and instead ask quality improvement organizations to enforce the policy. Recovery audit contractors, instead, would be directed to focus only on hospitals with unusually high rates of denied claims. The Proposed rule includes a reduction in total outpatient payment rates, as well as an update to Medicare’s conversion rate in the physician payment schedule. CMS would also continue to implement the 2.0 percent reduction in payments for hospitals failing to meet hospital outpatient quality reporting requirements.

The Proposed rule is scheduled to be published in the Federal Register on July 8, 2015. CMS is accepting comments on the Proposed rule until August 31, 2015. The Final rule is expected to be issued on or around November 1, 2015.

Two midnight rule. The two midnight rule was designed to address an increase in observation stays inspired by hospital fears that Medicare’s recovery audit contractors would challenge their admissions. The policy has been repeatedly delayed by legislative and regulatory action. Hospitals have claimed that the policy undermines their professional judgment to admit a patient for less than two midnights (see Whether two midnights or more, observation is costly for patients, September 9, 2014).

Under the two midnight rule in place, an inpatient admission is generally appropriate for Medicare Part A payment if the physician or other qualified practitioner admits the patient as an inpatient based upon the expectation that the patient will need hospital care that crosses at least two midnights. In assessing the expected duration of necessary care, the physician may take into account outpatient hospital care received prior to inpatient admission. If the patient is expected to need less than two midnights of care in the hospital, the services furnished should generally be billed as outpatient services.

CMS’ proposal would modify the existing “rare and unusual” exceptions to the rule to allow exceptions to be determined on a case-by-case basis by the physician responsible for the beneficiary’s care, all subject to medical review. CMS noted in the Proposed rule that it would expect stays under 24 hours to rarely qualify for the exception. In addition, starting no later than October 1, 2015, quality improvement organizations (QIO) would be responsible for the medical review of short inpatient stays instead of Medicare administrative contractors (MAC).

Physicians who admit patients for what are expected to be short stays would be required to document factors that support the decision, such as the severity of symptoms or the risk of an adverse medical event that might occur during the hospitalization.

OPPS total payment reduction. For CY 2016, CMS would increase the payment rates under the OPPS by the hospital outpatient department (HOPD) fee schedule increase factor of 1.9 percent. The increase is based on the proposed hospital inpatient market basket percentage increase of 2.7 percent for inpatient services paid under the hospital inpatient prospective payment system (IPPS), minus the proposed multifactor productivity (MFP) adjustment of 0.6 percentage point, and minus a 0.2 percentage point adjustment required by the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148). CMS would also apply a 2.0 percent reduction to the conversion factor to redress the inflation in OPPS payment rates resulting from excess packaged payment under the OPPS for laboratory tests that are excepted from the final CY 2014 laboratory packaging policy.

As a result, under this proposed rule, CMS estimated that total payments for CY 2016, including beneficiary cost-sharing, to the approximate 3,800 facilities paid under the OPPS (including general acute care hospitals, children’s hospitals, cancer hospitals, and community mental health centers (CMHCs)), would decrease by approximately $43 million compared to CY 2015 payments.

Ambulatory payments. A comprehensive ambulatory payment classification (C-APC) is an APC that provides for an encounter-level payment for a designated primary procedure and generally, all adjunctive and secondary services provided in conjunction with the primary procedure. Section 1833(t)(9)(A) of the Social Security Act requires CMS to review certain components of the OPPS, not less often than annually, and to revise the groups, relative payment weights, and other adjustments that take into account changes in medical practices, changes in technologies, and the addition of new services, new cost data, and other relevant information and factors.

As a result, for CY 2016, CMS’ comprehensive review has led the agency to propose a restructuring of the OPPS APC groupings for 9 APC clinical families based on the following goals: (1) improved clinical homogeneity; (2) improved resource homogeneity; (3) reduced resource overlap in longstanding APCs; and (4) greater simplicity and improved understandability of the OPPS APC structure.

CMS also has proposed developing a C-APC for an observation service categorized as “non-surgical encounter with a high level outpatient hospital visit and 8 or more hours of observation.” In CY 2016, CMS would create 9 new C-APCs meeting the previously established criteria, in addition to the 25 C-APCs established previously.

As for payment rate updates, for CY 2016, CMS would increase the ASC payment rate by 1.1 percent. Based on the proposed update, CMS estimated that proposed total payments to ASCs, including beneficiary cost-sharing and estimated changes in enrollment, utilization, and case-mix, for CY 2016 would be approximately $4.293 billion, an increase of approximately $186 million compared to estimated CY 2015 Medicare payments.

Hospital quality reporting. In the OPPS Proposed rule, CMS also proposed payment determinations related to the hospital outpatient quality reporting (HOQR) program for CY 2017 through 2019. Some changes for CY 2017 and subsequent years included (1) a change to the deadline for withdrawing from the HOQR program from November 1 to August 31; (2) a shift in the quarters on which CMS based payment determinations; (3) a change to the deadline for submitting a reconsideration request from the first business day in February of the affected payment year to the first business day on or after March 17 of the affected payment year; and (4) amendment of 42 CFR Secs. 419.46(f)(1) and 419.46(e)(2) to replace the term “fiscal year” with the term “calendar year.”

Rural adjustments. CMS would continue with its 7.1 percent adjustment to OPPS payments to rural sole community hospitals (SCHs), including essential access community hospitals. The adjustment would apply to all services paid under the OPPS, excluding separately payable drugs and biologics, devices covered by the pass-through payment policy (see next), and items paid at charges reduced to cost.

Device pass-through. CMS would also continue to review pass-through payment for new medical devices four times each year and also proposed a “newness criterion” for device applications. Specifically, CMS would supplement the quarterly review process by including a description of applications received (whether they are approved or denied), as well as its rationale for approving or denying the application in the next applicable OPPS proposed rule. According to CMS, this proposal would help achieve the goals of increased transparency and stakeholder input.

The OPPS Proposed rule would align a portion of the OPPS device pass-through payment application process with the already established IPPS application process for new medical services and new technology add-on payments. As such, under the “newness criterion,” a device that requires FDA premarket approval or clearance is eligible to apply for device pass-through payment only if it is “new,” meaning that the pass-through payment application is submitted within 3 years from the date of the applicable FDA premarket approval, clearance, or investigational device exemption.

Drug and biologic payments. For CY 2016, proposed payment for the pharmacy overhead costs of separately payable drugs and biologics that do not have pass-through payment status are set at the statutory default of the average sales price (ASP) plus 6 percent. Biosimilar biological products would be paid based on the payment allowance of the product as determined under Section 1847A of the Social Security Act. The pass-through payment eligibility would be extended to biosimilar biological products and the payment set at the difference between the amount paid under Section 1842(o) of the SSA and the HOPD fee schedule amount.

Partial hospitalization programs. CMS would implement a new payment method to address what it considers “aberrant costs” and rates for outpatient programs that provide mental health services, also known as partial hospitalization programs, in lieu of inpatient psychiatric hospitalization or as a transition option to reduce inpatient visits.

Other proposed changes. In 2015, CMS packaged many ancillary services into primary care. For CY 2016, CMS is considering "conditionally packaging" a few more ancillary services, such as minor procedures and pathology services, into primary care. For the ambulatory surgical center quality reporting (ASCQR) program, CMS would align data submission end dates for data submitted using a web-based tool, as well as align policies regarding paid claims to be included in the calculation for all claims-based measures. The ASCQR would also see changes modifying the submission date for reconsideration requests.

MainStory: TopStory ReimbursementNews OPPSNews ASCNews BillingNews PaymentNews PartANews PartBNews MedicareContractorNews QualityNews PhysicianNews RACNews DrugBiologicNews MDeviceNews

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