The Bipartisan Budget Act of 2015 (the “Budget Act”), signed into law by President Obama today, November 2, 2015, prohibits newly created off-campus hospital outpatient departments from receiving provider-based Medicare reimbursement for non-emergency services beginning January 1, 2017.1  The Budget Act is a significant step toward aligning payment rates across different ambulatory settings, a controversial move expected to reduce overall Medicare spending but which could discourage hospitals from opening new outpatient facilities in underserved areas.

The Budget Act revises the hospital Outpatient Prospective Payment System (“OPPS”) to prohibit reimbursement under the OPPS for services furnished in off-campus facilities, instead providing that such services shall be reimbursed under the Medicare physician fee schedule or other applicable reimbursement methodology. The prohibition applies only to new hospital outpatient departments, however – facilities that are billing as hospital outpatient departments as of the date of the Budget Act’s enactment (i.e., November 2, 2015) may continue to receive provider-based payments under a grandfather clause included in the Budget Act.2 In addition, facilities that meet the requirements of a “dedicated emergency department” under existing regulations are excluded from the prohibition and may continue to receive provider-based reimbursement.3

Since the beginning of the Medicare program, some providers, which the Centers for Medicare & Medicaid Services (“CMS”) refers to as “main providers,” have functioned as single entities while owning and operating multiple provider-based departments, locations and facilities that are treated (and paid) as part of the main provider for Medicare purposes.4 Currently, provider-based departments of a hospital, whether located on or off the hospital’s campus, may receive reimbursement under Medicare as a hospital under the hospital OPPS rather than as a freestanding clinic or physician office under the Medicare Physician Fee Schedule.5 Total Medicare reimbursement available for services furnished in a hospital outpatient department is generally higher than the reimbursement available for equivalent services furnished in a physician office or freestanding clinic.6 The higher reimbursement is intended to defray the costs incurred by hospitals in complying with additional rules that do not apply to physician offices. In addition, because Medicare cost-sharing obligations are often based on the total Medicare-allowed amount, beneficiaries typically must pay more for services they receive in provider-based departments than they would pay if they received those services in a physician office.

Due to the recent trend of hospitals acquiring physician practices and converting the practices to outpatient departments—resulting in higher Medicare spending and increased beneficiary cost-sharing – the Medicare Payment Advisory Commission (“MedPAC”) has been advocating better alignment between “freestanding” and “provider-based” reimbursement for several years.7 The American Hospital Association (“AHA”), on the other hand, has consistently opposed MedPAC’s recommendations to equalize payment rates for physician services between hospital outpatient departments and freestanding physician offices, noting that “[h]ospital-based clinics provide services that are not otherwise available in the community to vulnerable patient populations.”8 According to the AHA, as compared to physician offices, provider-based clinics serve a more complex, sicker patient population that includes more minority patients and patients with disabilities.9

Impact on Current Rules
Current CMS regulations set forth requirements for qualifying as a “provider-based entity,” including additional requirements applicable only to off-campus facilities.10 These additional standards for off-campus facilities require the main provider to demonstrate control over the off-campus location and ensure that any off-campus department of a hospital is subject to the same requirements as all other parts of the hospital.

CMS likely will revise its rules to conform them to the new statutory language enacted by the Budget Act. The existing rules for off-campus facilities will presumably remain relevant after December 31, 2016 for the two categories of off-campus facilities that may continue to receive provider-based reimbursement: (1) “dedicated emergency departments” and (2) “grandfathered” off-campus locations. CMS may also provide additional guidance on determining which locations meet these requirements and implementing the slightly revised “on campus” definition, as discussed below.

“Grandfather” Provision
As noted above, the Budget Act exempts existing off-campus hospital departments from the prohibition on receiving provider-based reimbursement. Specifically, the language of the Budget Act exempts from the definition of “off-campus” a department of a provider “that was billing under [the hospital OPPS] with respect to covered [outpatient department] services furnished prior to the date of the enactment of this paragraph.” Based on the quoted language, for the exception to apply, a hospital must bill outpatient services furnished prior to November 2, 2015 as hospital outpatient services. The relevant date appears to be the date the services were furnished, not the date that such services were actually billed, leaving open the potential for a hospital to bill services furnished while an enrollment application is pending.

In addition, because the relevant date for the grandfathering provision is not the same as the date when the reimbursement prohibition goes into effect, the law appears to permit facilities that become hospital outpatient departments after the enactment of the Budget Act to bill as hospital departments until 2017.

CMS regulations and guidance will likely provide additional information for hospitals seeking to understand how the Budget Act grandfather provisions will be implemented.

Facilities Located Within 250 Yards of “Remote Locations” of Hospitals
The definition of “off-campus” in the Budget Act varies slightly, but with potentially significant effect, from the definition in the current CMS regulations. The current regulations distinguish between a facility “located on the campus of a potential main provider” and those located off-campus.11 Thus, only a “main provider” has a campus for purposes of the current regulations. The Budget Act, on the other hand, defines as on-campus both facilities under the current regulations (i.e., those located on the campus of the main provider) and facilities within 250 yards of a “remote location of a hospital.” A “remote location of a hospital” is a facility “furnishing inpatient hospital services under the name, ownership, and financial and administrative control of the main provider” – in other words, a second inpatient hospital owned and operated by a main provider hospital.12

Under the current regulations, if a hospital offers inpatient services at a “remote location” under its existing enrollment, it is not entirely clear whether separate outpatient facilities on the campus of that remote location fall within the technical definition of “on campus” because they are not on the campus of the “main provider.” While CMS has stated in commentary in the 2010 hospital OPPS final rule that it may consider certain hospital systems as having more than one “main campus,” the lack of official guidance on this issue has created a gray area for hospitals trying to ensure compliance with provider-based rules.13 The Budget Act’s inclusion of facilities located on the campus of a remote location within the definition of “on-campus facilities” may provide welcome clarity in this area in the event that CMS issues new regulations to ensure that its provider-based rules are consistent with the Budget Act.

1 See Bipartisan Budget Act of 2015, House Amendment to Senate Amendment to H.R. 1314 (passed Senate Oct. 30, 2015).
2 H.R. 1314, § 603 (creating new 42 U.S.C. § 1395l(t)(21)(B)(2)(ii)).
3 See H.R. 1314, § 603 (creating new 42 U.S.C. § 1395l(t)(21)(A)); 42 C.F.R. § 489.24 (defining “dedicated emergency departments”). Dedicated emergency departments are those subject to the Emergency Medical Treatment and Labor Act (“EMTALA”).
4 See CMS, Program Memorandum, Transmittal A-03-030, CMS-Pub. 60A (Apr. 18, 2003).
5 See 42 C.F.R. § 413.65.
6 Medicare often reimburses services under the Hospital OPPS at a rate that is higher than the rate available under the Medicare Physician Fee Schedule for equivalent services. Even where the reimbursement rate for the same service is not higher under the Hospital OPPS, because that reimbursement is not intended to cover the cost of physician services, physicians (or their employers) may submit a second claim to Medicare. Thus, for services provided to beneficiaries in provider-based departments, Medicare typically pays both a professional service claim under the Medicare Physician Fee Schedule and a separate facility service claim under the Hospital OPPS. In certain areas, such as with respect to diagnostic imaging, CMS has previously moved to equalize available reimbursement between provider-based and freestanding facilities.
7 See MedPAC, Letter to Marilyn Tavenner, Administrator, CMS, commenting on CMS-1612-P, pps. 2-3 (dated Aug. 28, 2014) (“There has been a trend in recent years for hospitals to acquire physician practices, which has resulted in the billing of services shifting from freestanding physician offices to hospital outpatient departments (HOPDs). MedPAC has discussed this issue in three recent reports and recommended ways to align payment rates across ambulatory settings for certain services.”).
8 See American Hospital Association, Fact Sheet, Outpatient Evaluation & Management Services (Jan. 2013).
9 See id.
10 See 42 C.F.R. § 413.65.
11 “Campus” is defined as “the physical area immediately adjacent to the provider’s main buildings, other areas and structures that are not strictly contiguous to the main buildings but are located within 250 yards of the main buildings, and any other areas determined on an individual case basis, by the CMS regional office, to be part of the provider’s campus.” See 42 C.F.R. § 413.65(a)(2).
12 See 42 C.F.R. § 413.65(a)(2) (“Remote location of a hospital means a facility or an organization that is either created by, or acquired by, a hospital that is a main provider for the purpose of furnishing inpatient hospital services under the name, ownership, and financial and administrative control of the main provider, in accordance with the provisions of this section. A remote location of a hospital comprises both the specific physical facility that serves as the site of services for which separate payment could be claimed under the Medicare or Medicaid program, and the personnel and equipment needed to deliver the services at that facility. The Medicare conditions of participation do not apply to a remote location of a hospital as an independent entity. For purposes of this part, the term “remote location of a hospital” does not include a satellite facility as defined in §§412.22(h)(1) and 412.25(e)(1) of this chapter.”).
13 In the 2010 Hospital OPPS Final Rule, CMS responded to commenters requesting clarification of the meaning of “on the same campus,” stating that “‘[o]n the same campus’ was used to denote that the supervising physician or nonphysician practitioner must be physically located on the same campus as the services being furnished by the hospital because it is possible for some hospitals to have more than one main campus, as well as off-campus [provider-based departments].” 74 Fed. Reg. 60,316, 60,585 (Nov. 20, 2009) (emphasis added).