CMS boosts outpatient PPS rates 2.3 percent, reduces pass-through payments - Updata - Centers for Medicare and Medicaid Services, prospective payment system - Brief Article - Statistical Data Included

Healthcare Financial Management, Jan, 2002

On November 30, 2001, the Centers for Medicare and Medicaid Services (CMS) published a final rule in the Federal Register updating payment policies under the Medicare outpatient prospective payment system (PPS) for calendar year 2002. Overall, hospitals will see a 2.3 percent payment increase for services paid under the outpatient PPS in 2002. The changes in the payment rate will vary dramatically by the type of hospital, however. According to the final rule, urban and large rural hospitals will fare relatively well, with payment rate increases of 3.0 and 3.9 percent, respectively. Rural hospitals with fewer than 100 beds will suffer a 0.7 percent rate decrease.

The November 30 final rule is the second such rule to provide 2002 updates for the outpatient PPS; the first was published in the November 2, 2001, Federal Register. CMS opted to release its updates through these separate final rules because of the difficult budgeting issues associated with calculating outpatient PPS rates--particularly for those involving items eligible for pass-through payment. (CMS also published an interim final rule in the November 2, 2001, Federal Register outlining the criteria for establishing new categories of medical devices eligible for pass-through payments.)

In the November 2 final rule, CMS announced that 75 percent of the costs of certain particularly expensive, new technologies previously covered by separate transitional pass-through payments would be incorporated into the base rates of outpatient APCs for services that require the use of these devices. CMS projects that this change will yield additional payments of $900 million. To offset this increase, the pass-through payments for drugs and less-expensive pass-through devices will be reduced on a prorated basis. In the November 30 final rule, CMS confirmed that the separate payments for pass-through items will fall by 68.9 percent across the board.

Notably, the November 2 final rule includes elimination of the outpatient outlier pool, which is used to ameliorate hospitals' financial losses from administering unusually high-cost services. Further, payment rates will be reduced for APCs that do not include the use of expensive technologies, such as those involving preventive services. CMS notes, however, that it will work with Congress to develop various budget-neutral strategies for adjusting the rates.

The November 30 final rule also provides the annual update to all the wage indexes, tables for calculating the rates for particular services, and responses to comments from the outpatient PPS proposed rule, which was published in the August 24, 2001, Federal Register.

Many provider groups remain steadfastly opposed to CMS's approach to calculating the new rates, and rumors abound that implementation of the provisions of the 2002 outpatient PPS final rules will be delayed. The American Hospital Association (AHA), with support from the Federation of American Hospitals and the American Association of Medical Colleges, has threatened to sue for a delay because affected providers were denied "meaningful participation" in the rule-making process. The AHA claims, in part, that the rule could contain erroneous estimates--especially with respect to pass-through payment--causing CMS to set unnecessarily low rates in many areas in its efforts to stay below statutorily required budget caps. Nonetheless, CMS stands by its process and insists that it cannot lawfully institute an outright delay in the January 1, 2002, effective date without congressional authorization, which would be difficult to obtain given CMS's estimate that a six-month delay would cost the government $500 million.

Ironically, CMS has conceded that its own software systems may not be ready to implement the 2002 outpatient PPS update until April 1, 2002. While the new rates still are scheduled to take effect January 1, 2002, CMS has advised intermediaries to hold claims and has made arrangements for providers to request special payments. For more information on requesting special payments, go to Program Memorandum A-01-140 at http://www.hcfa.gov/pubforms/transmit/A01140.pdf.

The controversial outpatient PPS update comes only a short time after CMS's October 30 announcement that spending for both Medicare and Medicaid increased by 10 percent from FY00 to FY01, the largest growth rates for both programs in recent years. To read CMS's announcement, go to http://www.cms.gov/media/press/press_release.asp? Counter = 318.