CMS Issues Final Rule For Payment and Policy Changes to Hospital Outpatient Departments and Ambulatory Surgical Centers

The Centers for Medicare & Medicaid Services (CMS) issued a final rule with comment period that updates payment policies and rates for both hospital outpatient departments (HOPDs) and ambulatory surgical centers (ASCs) for calendar year (CY) 2010. The final rule adopts improvements to the Hospital Outpatient Quality Data Reporting Program (HOP QDRP) and establishes procedures to make the data collected through the HOP QDRP publicly available.

CMS projects that total payments for services furnished to people with Medicare in HOPDs during CY 2010 under the Outpatient Prospective Payment System (OPPS) will be $32.2 billion, while total projected CY 2010 payments under the ASC payment system will be approximately $3.4 billion.

Most hospitals will receive an inflation update of 2.1 percent in their payment rates for services furnished to Medicare beneficiaries in outpatient departments. As required, CMS will reduce the update by 2.0 percentage points for hospitals that did not participate in quality data reporting for outpatient services or did not report the quality data successfully, resulting in a 0.1 percent update for those hospitals.

CMS also announced that ambulatory surgical centers (ASCs) will receive a 1.2 percent inflation update beginning Jan. 1, 2010. CMS projects that the aggregate Medicare payments to more than 4,000 hospitals and community mental health centers in CY 2010 will be approximately $32.2 billion, while aggregate Medicare payments to approximately 5,000 ASCs will total $3.4 billion.

The final rule with comment period implements provisions of the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA) that extend Medicare coverage to important rehabilitative and educational services intended to improve the health of patients diagnosed with certain respiratory, cardiac and renal diseases. Beginning Jan. 1, 2010, hospitals will be able to bill Medicare for new pulmonary and intensive cardiac rehabilitation services furnished in hospital outpatient departments to Medicare beneficiaries. The final rule with comment period also provides payments to rural hospitals for kidney disease education services furnished in outpatient departments to Medicare beneficiaries with Stage IV chronic kidney disease.

The following is a breakdown of some of the specific changes for 2010:


Strengthening Ties Between Payment and Quality:

  • Payment reduction for failure to report quality measures - MS will reduce the CY 2010 annual
    inflation update factor by 2.0 percentage points for most services furnished by hospitals that
    failed to meet the CY 2009 reporting requirements of the HOP QDRP. The reduction will not apply to payments for separately payable pass-through drugs, biologicals and devices, separately payable non-pass-through drugs and non-implantable biologicals, separately payable therapeutic radiopharmaceuticals and services assigned to New Technology APCs.
  • Quality measures to be reported - CMS will continue to require hospitals subject to HOP QDRP requirements to provide quality data for the current seven chart-abstracted emergency department and surgical care measures and four claims-based imaging efficiency measures for CY 2011 payment determinations.
  • Validation of quality reporting - CMS will be implementing a HOP QDRP validation requirement to ensure that hospitals are accurately reporting measures using chart-abstracted data. Under this requirement, CMS will select a sample of reported cases, request the corresponding medical records, re-abstract the HOP QDRP chart-abstracted measures and compare the results with the measures reported by the hospital. Hospitals will be required to return paper copies of requested medical records for this CY 2011 requirement within a 45-calendar-day timeframe. The validation results, however, will not affect a hospital's CY 2011 OPPS payment. This initial validation requirement for CY 2011 will provide hospitals an opportunity to become familiar with the process for future years.
  • Public reporting of quality data - CMS is establishing procedures to make HOP QDRP quality measure data publicly available as early as June 2010.

      Supervision of Hospital Outpatient Services

      • Supervision requirements for outpatient services - CMS is revising or further defining several current policies for the supervision of outpatient services. First, in CY 2010, CMS will allow certain nonphysician practitioners (physician assistants, nurse practitioners, clinical nurse specialists, certified nurse-midwives and licensed clinical social workers) to provide direct supervision for all hospital outpatient therapeutic services that they are authorized to personally perform according to their state scope of practice rules and hospital-granted privileges. Under current policy, only physicians may provide the direct supervision of these services.

      For purposes of on-campus hospital outpatient therapeutic services, CMS is defining "direct supervision" to mean that the physician or nonphysician practitioner must be present anywhere on the hospital campus and immediately available to furnish assistance and direction throughout the performance of the procedure. For services furnished in an off-campus provider-based department, "direct supervision" would continue to mean that the physician or nonphysician practitioner must be present in the off-campus provider-based department and immediately available to furnish assistance and direction throughout the performance of the procedure.

      CMS also will require that all hospital outpatient diagnostic services furnished directly or under arrangement, whether provided in the hospital, in a provider-based department or at a nonhospital location, follow the MPFS physician supervision requirements for individual tests.

      Payment for Drugs, Biologicals and Radiopharmaceuticals:

      • Drugs and pharmacy overhead - CMS will pay for the acquisition and pharmacy overhead costs of separately payable drugs and biologicals without pass-through status at the average sales price (ASP) plus 4 percent in CY 2010. The payment rate of ASP plus 4 percent is based on the cost of separately payable drugs and biologicals calculated from hospital claims and cost reports (ASP minus 3 percent), with an adjustment for pharmacy overhead cost that reflects the redistribution of $200 million of the pharmacy overhead cost currently attributed to packaged drugs and biologicals (both coded and uncoded) to separately payable drugs and biologicals without pass-through status.
      • Therapeutic radiopharmaceuticals - Beginning Jan. 1, 2010, CMS will provide payment for separately payable therapeutic radiopharmaceuticals with ASP data at ASP plus 4 percent. If ASP data are not available, payment will be based upon mean unit cost from hospital claims data.

      Payment for Brachytherapy Sources:

      CMS is adopting the proposal to pay for brachytherapy sources based on median unit costs in CY 2010, as calculated from claims data according to the standard OPPS rate-setting methodology.

      Ambulatory Surgical Centers

      ASC Payment Rate Updates:

      The revised ASC payment rates were established to reflect the same relativity of resource use among procedures as under the OPPS, taking into consideration the lower costs of surgical procedures performed in ASCs and maintaining budget neutrality in the payment system. By law, CY 2010 is the first year that CMS may provide an inflation update under the revised ASC payment system. The percentage increase in the Consumer Price Index for All Urban Consumers that updates the ASC conversion factor for CY 2010 is 1.2 percent.

      Changes to ASC Covered Surgical Procedures and Covered Ancillary Services:

      CMS is adding 26 surgical procedures to the list of procedures for which Medicare would pay when performed in an ASC. CMS also is newly designating six procedures as office-based procedures (subject to payment at the lesser of the national office practice expense payment to the physician or the national ASC rate) and temporarily designating an additional 16 procedures as office-based procedures based on coding changes for CY 2010. The final rule with comment period also updates the list of device-intensive procedures and covered ancillary services and their rates, consistent with the OPPS update.

      The CY 2010 OPPS/ASC final rule with comment period will be officially published in the November 20 edition of the Federal Register. Comments are due by 5:00 p.m. Eastern on Dec. 29, 2009.

      CMS Announces Payment, Policy Changes for Physician Services to Medicare Beneficiaries in 2010

      The Centers for Medicare & Medicaid Services (CMS) issued final changes to policies and payment rates for services to be furnished during calendar year (CY 2010) by physicians and nonphysician practitioners paid under the Medicare Physician Fee Schedule (MPFS). The MPFS sets payment rates for more than 7,000 types of services in physician offices, hospitals and other settings.

      Current law requires CMS to adjust the MPFS payment rates annually based on an update formula, which requires application of the Sustainable Growth Rate (SGR) that was adopted in the Balanced Budget Act of 1997. This formula has yielded negative updates every year for the past seven years, although Congress took a series of legislative actions to prevent reductions in CYs 2004-2009. Absent action from Congress, the CY 2010 physician update will reduce the conversion factor for services on or after Jan. 1, 2010, by 21.2 percent.
      CMS is also adopting several refinements to Medicare payments to physicians. For purposes of establishing the practice expense (PE) relative value units (RVUs), CMS proposes to include data about physicians' practice costs from a new survey, the Physician Practice Information Survey (PPIS), designed and conducted by the American Medical Association. CMS is finalizing the proposal but it will be phased in over a four-year period. In addition, CMS will not use the PPIS data to determine the practice expenses for medical oncology, but instead will continue to use specialty supplemental survey data, as indicated by the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA).

      The final rule with comment period also implements a number of provisions in the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA) including:

      • Adding new Medicare benefit categories for cardiac and pulmonary rehabilitation services and for chronic kidney disease (CKD) education beginning Jan. 1, 2010. The final rule with comment period outlines what these programs will entail, how they will be paid under the MPFS and the criteria for covering these services. 
      • Increasing the Medicare share of payments for outpatient mental health services to 55 percent from 50 percent, beginning a gradual transition to bring payment parity for mental health and medical services furnished to Medicare beneficiaries.
      • Implementing a requirement that suppliers of the technical component of advanced imaging services be accredited beginning Jan. 1, 2012. The accreditation requirement will apply to mobile units, physicians' offices and independent diagnostic testing facilities that create the images, but will not apply to the physician who interprets them. CMS will address suppliers' accountability, business integrity, physician and technician training, service quality and performance management through additional guidance.

      The final rule with comment will appear in the Nov. 25, 2009, Federal Register. CMS will accept comments on designated provisions of the final rule with comment period until Dec. 29, 2009.

      House Passes Comprehensive Bill

      The House of Representatives passed H.R. 3962, the Affordable Health Care for America Act, which will now move to the Senate where it could face stiff opposition. The House bill includes: 1) a modified "public option," a new government-run insurance plan that would be available to people under age 65 who cannot get insurance through employers; 2) a proposal to levy a fee on manufacturers of medical devices; and 3) a provision to immediately create a new federally subsidized "high-risk pool" for people excluded from buying private insurance due to pre-existing conditions. Some of the significant provisions of the House bill are summarized below:


      The bill would impose a surcharge on taxpayers with adjusted gross income in excess of $1 million (married filing a joint return) and $500,000 (single) at a rate of 5.4 percent. The bill also: delays implementation of worldwide interest allocation until 2020; limits eligibility for reduced treaty withholding rates; codifies economic substance doctrine; provides information reporting for payments made to corporations; eliminates nontaxable reimbursements of over the counter medications from HSAs, HRAs and health FSAs; limits contributions to health FSAs to $2,500; increases the penalty for non-health related distributions from HSAs (from 10 percent to 20 percent); eliminates the tax deduction for employers who receive a government subsidy for providing retiree prescription drug coverage; imposes an excise tax of 2.5 percent on medical devices used in the United States; and ensures tax parity for employer-provided coverage for domestic partners and other non-dependents. The bill also clarifies that an employee's share of premiums for employer-provided coverage offered through the Exchange may be paid on a pre-tax basis through a cafeteria plan, but Exchange coverage that is not employer-offered is not eligible to be offered through a cafeteria plan.


      The Affordable Health Care for America Act proposes major improvements and investments in the Medicare program. It closes the donut hole while providing discounted drugs to beneficiaries; protects the doctor-patient relationship for Medicare patients by promoting primary care, care coordination and other payment reforms; and promotes wellness by eliminating cost-sharing for preventive services and increasing access to vaccines. In addition, the Affordable Health Care for America Act strengthens Medicare by extending solvency of the Trust Fund for five years through its provisions that attack waste, fraud and abuse, and reform the payment and delivery systems.

      Part A:

      Hospitals. Substantial delivery and payment system reforms, including productivity adjustments and reductions in market basket updates for most providers, per recommendations from MedPAC, OIG, GAO and others.

      Skilled nursing facilities. Follows recommendations from MedPAC and others to encourage payment accuracy that more accurately reflects the costs of services provided. Nursing home transparency provisions provide regulators and families with additional information on nursing home ownership and control and more information on nursing home staffing and quality through Nursing Home Compare. Tougher penalties on nursing homes that fail to provide adequate care to their residents and improved training for nursing home staff to increase quality of care. See Medicaid section for additional nursing facility-related policies.

      Medicare DSH payments. Directs the Secretary of HHS to study Medicare DSH payments and report to Congress with recommendations on how best to ensure that DSH is properly targeted to adequately reflect the higher costs of care associated with treating low-income patients. Reduces Medicare DSH payments starting in 2017 if the uninsured rate drops by a certain number of percentage points between 2012 and 2014.

      Graduate medical education. Provides incentives for the training of primary care physicians. Encourages medical residency training in non-hospital settings so that the future physicians of America will be able to provide coordinated care across the spectrum of provider settings.

      Hospice moratorium. Extends a one-year moratorium on regulatory changes that would phase out the budget neutrality adjustment factor for Hospice providers to ensure that hospices continue to receive the same reimbursement rate for wages for fiscal year 2010.

      Parts A & B:

      Reducing potentially preventable hospital readmissions. Changes payment incentives to hospitals and post-acute care providers to discourage preventable hospital readmissions.

      Post-acute care bundling. Promotes bundled payments that encourage providers to coordinate a patient's care across the entire spectrum, from the doctor's office, to the hospital, through a rehabilitative or nursing facility stay, and back to home.

      Center for Medicare & Medicaid Innovation. Establishes a Center for Medicare & Medicaid Innovation to empower CMS to pursue additional payment and delivery system reforms.

      Healthcare-associated infections. Requires hospitals and ambulatory surgical centers to report public health information on healthcare-associated infections to the Centers for Disease Control and Prevention.

      IOM study of the appropriateness of Medicare payment rates based on geography. Within one year of enactment, the Institute of Medicine is required to report to CMS on the validity of the geographic adjusters that apply to Medicare physician and hospital payments and include any recommendations for improvements. CMS is instructed to respond to such recommendations and may spend up to $4 billion per year, for two years, to increase payment rates as appropriate.

      IOM study of the extent of geographic variation in health spending. Instructs the IOM to study the extent and cause of geographic variation in spending on health care (including all payers). The study will focus on major contributors to that variation such as input prices, health status, socioeconomic factors and access to services. The IOM will make recommendations for addressing such variation in Medicare, which will take into account the need to maintain beneficiary access to services. CMS will implement changes to Medicare payment systems unless Congress votes to disapprove the planned changes.

      Home health study. Requires MedPAC to undertake a study to examine the significant variation in Medicare margins among home health agencies. Factors considered will include patient characteristics (including health and socioeconomic factors), agency characteristics and the types of services provided by different agencies. 
      Part B:

      Productivity adjustments. Expands productivity adjustments to Medicare providers who receive CPI updates in addition to those that receive market basket updates. These providers include ambulatory surgical centers, ambulances, clinical laboratories and durable medical equipment not competitively bid.

      Hospital outpatient department updates. Expands productivity adjustments to hospital outpatient departments.

      Accountable Care Organization program. Establishes a new program that allows providers to share in the Medicare savings they help create through care coordination and quality improvement initiatives. Ensures that doctors can join with hospitals and others when forming these organizations.

      Telehealth. Expands Medicare's telehealth benefit to beneficiaries who are receiving care at freestanding dialysis centers. Also establishes a Telehealth Advisory Committee to provide HHS with additional expertise on the telehealth program.

      Quality measures. Creates a timely process to allow for a multi-stakeholder group to provide the Secretary with input into the selection of quality measures and provides for consultation by the Secretary of a consensus-based entity in the use of quality measures. Demonstration program on shared decision-making. Uses decision aids and other technologies to help patients and consumers improve their understanding of the risks and benefits of treatment options and make informed decisions about medical care.

      Medical home pilot program. Creates a pilot program to reward providers who agree to provide services necessary to make their practice a "medical home" by ensuring full access to patients and providing for coordinated and comprehensive care.

      Cost sharing for preventive services. Eliminates deductibles and co-payments for all preventive services covered by the Medicare program.

      Improved access to vaccines. Makes it easier for Medicare beneficiaries to get access to needed vaccinations by covering all vaccines under Part B of the program, rather than Part D.

      Extend Qualified Individuals (QI) program. Extends the QI program two years to help low-income beneficiaries pay their Part B premiums.

      Extends months of coverage of immunosuppressive drugs for kidney transplant patients. Lifts the current 36-month limitation on Medicare coverage of immunosuppressive drugs for kidney transplant patients who would otherwise lose this coverage on or after Jan. 1, 2012.

      Part B premium clarification. Allows capital gains from the sale of a primary residence to count as a life-changing event for purposes of using a more recent tax year for determination of the Part B income-related premium so that the use of a nest egg doesn't increase the Part B premium owed.

      Durable medical equipment in Medicare. Provides protections for beneficiaries receiving oxygen therapy in the event an oxygen supplier goes out of business. Exempts certain pharmacies from the surety bond requirement and the need to be accredited to sell diabetic testing supplies and certain other items.

      Payment for imaging services. Instructs CMS to pay more accurately for imaging services in Medicare. Excludes low-tech imaging devices (such as ultrasound, mammograms, EKGs and x-rays) from the adjustment in payment.

      Reducing Waste, Fraud and Abuse

      Increases funding by $100 million annually for the Healthcare Fraud and Abuse Control Fund to fight Medicare and Medicaid fraud; improves provider and payment screening to prevent fraud and abuse before it occurs; creates enhanced oversight for Medicare and Medicaid programs at risk of fraud and abuse; creates new penalties for providers and suppliers that defraud federal health care programs; and partners with the private sector to reduce waste and abuse by requiring that all Medicare and Medicaid providers establish compliance programs to reduce waste, fraud and abuse.

      Prevention & Wellness

      Creates a grant program to help small and mid-sized employers begin or strengthen workplace wellness programs. These grants will assist in improving the health of our nation's workforce and will reduce employer health care costs. Participating employers must offer the programs to all employees and cannot mandate participation nor use participation as a condition to receive any financial incentive.

      Insurance Reforms

      Insurance reforms. Prohibits insurance rating based on health status or pre-existing conditions and limits age rating to 2:1. Prohibits annual or lifetime limits on medical spending and grandfathers current individual policies. Applies these reforms to the entire market (inside and outside the Exchange), although employers have a five-year grace period to come into compliance. Establishes important consumer protections, including internal and external appeal requirements, provider network adequacy requirements and greater transparency by insurance companies.

      Exchange. Creates a new marketplace called the national "Health Insurance Exchange" with an option for states that agree to meet federal standards to run their own exchange. U.S. Territories will also have the option of operating an exchange if they meet all of the insurance reforms and requirements as established by this Act.

      Eligibility. People are eligible to enter the Exchange and purchase health insurance on their own as long as they are not enrolled in employer-sponsored insurance, Medicare or Medicaid. The Exchange is also open to businesses, starting with small firms and growing over time. Firms with 25 or fewer employees are permitted to buy in the Exchange in 2013, firms with 50 or fewer employees in 2014, and firms with at least 100 employees in 2015 with discretion to the Commissioner to open the Exchange to larger businesses in that year and the future.

      Benefits. Outlines broad categories of covered services in the law and creates a Health Benefits Advisory Commission, with physicians and other expert members, to help the Secretary of HHS define the essential benefit package. Cost-sharing varies by four tiers ranging in actuarial value (AV) from 70 percent to 95 percent ("basic," "standard," "premium" and "premium plus"). In other words, in a 70 percent plan, the plan pays 70 percent of the costs and an individual would pay the other 30 percent of expenses on average. The fourth-tier plan ("premium plus") will offer additional benefits such as adult dental or vision, gym memberships or private hospital rooms. All plans will limit annual out-of-pocket expenses for enrollees at a maximum of $5,000 for an individual and $10,000 for a family, with lower levels for lower- and middle-income families.

      Public health insurance option. The bill establishes a public health insurance option available within the Exchange to ensure choice, competition and accountability. Like other private plans, the public option must survive on its premiums. The Secretary of Health and Human Services will administer the public option and negotiate rates for providers that participate in the public option. The public health insurance option is provided startup administrative funding, but it is required to amortize these costs into future premiums to ensure it operates on a level playing field with private insurers.

      New health insurance options. The legislation authorizes start-up loans to assist states with the creation of health insurance co-operatives as an additional option. It also permits states to enter into agreements to allow for the sale of health insurance across state lines when the state legislatures agree to such compacts. Grants are also awarded to help states with this endeavor.

      You may view the entire bill here.

      U.S. District Court for the Eastern District of Tennessee Awards Attorneys Fees and Costs to Defendant Physician After Plaintiff Failed to Rebut Defense of HCQIA Immunity

      In Mazen Abu-Hatab, M.D. v. Naseem Siddiqi, M.D., Extracorporeal Technologies, Inc. & Blount Memorial Hospital, Inc. (E.D. Tenn. 2009), Dr. Mazen Abu-Hatab filed a multi-count lawsuit against Dr. Naseem Siddiqi, Dr. Siddiqi's dialysis clinic, Extracorporeal Technologies, Inc. (ETI) and a hospital in Knoxville, Tenn., asserting claims under 42 U.S.C. § 1983 for first amendment retaliation and procedural due process deficiencies stemming from the suspension and revocation of his medical staff privileges, as well as state law claims for breach of contract, defamation and tortious interference with contract. Plaintiff alleged that as a result of his efforts to allegedly obtain a "neutral" dialysis unit at the hospital, Dr. Siddiqi, a prominent nephrologist in the Knoxville area, who had the exclusive contract to provide dialysis services at the hospital, conspired with the leadership of the hospital in "retaliation" to effectuate the revocation of his medical privileges and thereby suppress the competitive challenge that Dr. Abu-Hatab represented.

      Defendant was able to obtain the dismissal of several counts against Dr. Siddiqi at the pleading stage. Plaintiff was later granted leave to amend to assert additional claims against ETI. Following extensive discovery, defendants Dr. Siddiqi and ETI filed for summary judgment and argued that, in addition to the lack of any evidence establishing a conspiracy, judgment was warranted on Dr. Abu-Hatab's constitutional claims under the immunity accorded health care providers from damages liability for participation in professional peer review activities under The Health Care Quality Improvement Act of 1986, 42 U.S.C. § 11101, et seq. (HCQIA).

      In April 2009, the court granted summary judgment on all remaining claims against Dr. Siddiqi and ETI. The court found that no genuine issue of material facts existed as to Plaintiff's § 1983 claims against Dr. Siddiqi and ETI, and therefore entered judgment in their favor (dismissing the remaining state law claims for lack of subject matter jurisdiction). Thereafter, under authority the courts have previously been reluctant to endorse, the defendants Dr. Siddiqi and ETI sought recovery of attorney's fees and costs incurred in defending the lawsuit pursuant to HCQIA and 42 U.S.C. § 1988. The court again agreed with the