CMS recently put on display its annual final rates and policy changes for the CY 2008 Outpatient Prospective Payment System (OPPS). Key issues in the final rule include:

OPPS Payment Bundles: APCs now will include a larger package of services.

Enlarged Payment Bundles. CMS adopted its proposal to enlarge the size of OPPS payment bundles by packaging the following 7 categories of supportive ancillary services into the primary diagnostic or treatment procedures with which they are used: guidance services, image processing services, intraoperative services, imaging supervision and interpretation services, diagnostic radiopharmaceuticals, contrast agents and observation services, irrespective of the duration and nature of patient conditions.
Composite APCs: New “super-sized” APCs. CMS has created one larger bundled payment for four services that patients experience as one encounter, instead of paying several APCs for the various services provided.
- CMS adopted its proposal to create two composite APCs for low dose rate prostate brachytherapy (with continued separate payment for brachytherapy sources) and cardiac electrophysiologic evaluation and ablation.
- In response to comments, CMS added two additional composite APCs for observation services: Level I Extended Assessment and Management Composite for an encounter that includes a Level 5 clinic visit or direct admission, 8 or more hours of observation services and no status indicator T; and Level II Extended Assessment and Management Composite for an encounter that includes a Level 4 or 5 emergency department visit or critical case services, 8 or more hours of observation services and no status indicator T.

Brachytherapy Sources: As of January 1, 2008, CMS will pay for brachytherapy sources on a prospective basis, using median costs from CY 2006. Stranded and un-stranded sources will be differentiated in the payment methodology.

Hospital Coding and Payment for Visits: In the clinic setting, CMS will continue to recognize CPT codes for new and established patient clinic visits but will no longer recognize consultation codes. In the emergency department setting, CMS will continue to require the separate billing requirements for Type A (incur EMTALA obligations and meet CPT code definition of emergency department, including being open 24 hours) and Type B (incur EMTALA obligations but do not meet CPT code definition) emergency departments, while collecting data to assess whether to change the current payment methodology that distinguishes between the two types. Until national guidelines are established, hospitals should continue using their own internal guidelines to determine the appropriate reporting of different levels of clinic and emergency department visits.

Hospital Services Obtained Under Arrangements: CMS clarified its coverage rules applicable to hospital services provided "incident to" a physician's service, which mostly consist of therapeutic services ordered by or performed by a physician, such as surgeries. CMS stated that, while those services may be performed for the hospital "under arrangements" and, thus, billed by the hospital, the "under arrangement" services must be performed in a provider-based department of the hospital. Thus, hospitals may not bill Medicare for therapeutic services provided to hospital outpatients "under arrangements" in locations that are not part of a provider-based, hospital department -- locations such as physicians' offices, co-located clinics and ASC's. This limitation, notably, does not apply to diagnostic services, which may be furnished "under arrangements" in nonhospital locations.

Quality Data Reporting: As required by statute, hospitals that fail to report outpatient quality data for CY 2008, as established by CMS, will incur a 2.0 percentage point reduction in their annual payment rates, beginning in CY 2009.

Of the ten quality measures initially proposed, CMS has determined that reporting will be required on only seven:
- Five emergency department measures for acute myocardial infarction and
- Two surgical care measures for perioperative care.
CMS anticipates future expansion of the measures that must be reported and continues to seek public input on such measures. CMS decided not to adopt any of the 30 additional quality measures it sought comment on in its proposed rule.
The procedures for submission of hospital outpatient quality information will mirror the procedures for submission of inpatient quality information, which are identified on the QualityNet Web site, at http://www.qualitynet.org.
Hospitals must identify a QualityNet Exchange administrator who follows the registration process and submits the information through the CMS-designated contractor. CMS adopted a later deadline, January 31, 2008, for submission of the Notice of Participation form, which CMS will make available on its website.
CMS has adopted changes to the effected time periods. The initial submission for services covers services beginning on or after April 1, 2008. The data submission deadline for April to June 2008 discharges is November 1, 2008, four months from the last day of the calendar quarter. Thereafter, participating hospitals are required to submit quarterly data on finalized measures four months from the last day of the calendar quarter. The subsequent data submissions deadlines for CY 2008 services will be February 1, 2009 for July to September 2008 services and May 1, 2009 for October to December 2008 services.
In order to receive the update payment, CMS proposed that hospitals must pass a validation requirement of a minimum of 80 percent reliability, based upon a chart audit. However, CMS has decided not to implement a validation requirement for purposes of the CY 2009 payment update. CMS does intend to use validation requirements for determining the payment updates for CY 2010 and later years.
CMS intends to implement a reconsideration process for payment denials that will be modeled after the inpatient quality measures reconsideration process and be applicable for CY 2009 and subsequent years.

Alcohol and Substance Abuse Services: Medicare will not cover reporting and payment for alcohol and substance abuse assessment and intervention services that are provided as screening services, but will cover these services performed in the context of the diagnosis or treatment of illness or injury.

Device-dependent Procedures: CMS finalized its proposal to reduce payment for certain device-dependent APCs when a hospital receives a partial credit from the manufacturer for the cost of a replacement device that is implanted.

Critical Access Hospitals: CMS has limited the ability of CAHs to co-locate and have provider-based facilities.

CMS will no longer allow a necessary provider CAH to enter into co-location arrangements between the CAH and a hospital unless such arrangements were in effect on or before January 1, 2008 and the type and scope of services offered by the facility that is co-located with the necessary provider CAH do not change.
CMS clarified that when a new owner acquires a CAH and assumes the original provider agreement, that does not constitute a new co-location arrangement and continues to be grandfathered.
CMS clarified that all CAHs, including necessary provider CAHs, may not acquire or create an off-campus provider-based facility (including psychiatric or rehabilitation distinct part unit) on or after January 1, 2008 that is within 35 miles of another hospital or CAH (15 miles if mountainous terrain or if accessible only by secondary roads). RHCs that are provider-based at a CAH are excluded from this requirement.
If a CAH enters into a co-location agreement after January 1, 2008 or acquires or creates an off-campus facility after January 1, 2008 that does not satisfy the CAH distance requirements, the CAH’s provider agreement will be terminated.

Hospital Conditions of Participation:

CMS revised the CoPs for Medical Staff (42 C.F.R. § 482.22), Medical Record Services )§ 482.24), and Surgical Services (§ 482.51) to require an updated examination, including any changes in a patient’s condition, to be completed and documented for each patient after admission or registration and prior to surgery or a procedure requiring anesthesia services (except minor procedures requiring local anesthetics). This change applies to inpatients and outpatients.
In response to comments that its proposed change to Anesthesia Services (§ 482.52(b)(3)) did not reflect current and safe anesthesia practice and was burdensome to hospital, CMS revised its proposal. The final CoP requires that the postanesthesia evaluation be completed and documented by an individual qualified to administer anesthesia no later than 48 hours after surgery or a procedure requiring anesthesia services, and that the evaluation for anesthesia recovery be in accordance with State law and hospital policies sand procedures that have been approved by the medical staff and reflect current standards of anesthesia care.

IME/GME Provisions:

The rule provides further relief for hospitals that were affected by Hurricane's Katrina and Rita by extending some of the emergency relief provisions.
In prior rulemaking, CMS relaxed its rules regarding Medicare affiliation agreements and provided that hospitals in an emergency area (principally New Orleans and the surrounding area), whose hospitals or programs were adversely affected by the hurricanes, could enter into affiliation agreements with hospitals, including those well outside the hurricane-affected area, to provide for the training of the affected facilities' residents under circumstances that previously would not have qualified. This relief, however, was time limited, extending up to three years.
In an interim final rule with comment, CMS has farther extended its relief. First, for training that takes place at a host hospital located in a different state than the adversely affected "home" hospital, the period is extended to up to five years if, for years 4 and 5, the training involves the actual residents who were displaced from training in one of the affected hospitals. Second, for training that takes place at a host hospital located in the same state as the "home" hospital, the period is extended for up to five years for any resident, including those who were not displaced at the time of the hurricanes. CMS is doing this to encourage more training in the "home" hospitals' region, anticipating that residents in those areas will tend to go into practice where they train.
CMS further allows the home and host hospitals to train residents in nonhospital settings and either (1) to enter into written agreements by which they incur all or substantially all of the costs or the training or (2) not enter into an agreement but pay the costs of that training within a specified period, just as is the case with hospitals not operating under the emergency rules. For home or host hospitals operating under the emergency rules, however, CMS has relaxed the timing requirements related to agreements and payments. In the rules, CMS requires that, if a nonhospital agreement is used, that agreement be submitted to the hospital's Medicare contractor by 180 days after the first day the residents begins training at the site. If payment is made in lieu of an agreement, that payment must be made within 6 months following the month in which the training takes place.

Changes to the FY 2008 Hospital Inpatient Prospective Payment System (IPPS) Payment Rates: In the proposed rule, CMS set a payment reduction of 1.2% for the FY 2008 IPPS rates, to account for anticipated coding improvement by hospitals due to new diagnosis-related groups (DRGs), the so-called behavioral offset. On September 29, 2007, Congress enacted the TMA, Abstinence Education and QI Programs Extension Act of 2007, requiring that the behavioral offset be limited to a .6% reduction, which the final rule implemented, effective retroactively to October 1. CMS further eliminated the behavioral offset altogether for sole community hospitals and Medicare dependent hospitals.

Ambulatory Surgical Center Payment: CMS also updated and revised the Ambulatory Surgical Center Payment System.