On July 13, 2017, the Centers for Medicare and Medicaid Services (CMS) released its 664-page Calendar Year 2018 Hospital Outpatient Prospective Payment (OPPS) and Ambulatory Surgical Center (ASC) Payment Systems proposed rule. CMS’ CY 2019 proposals aim to improve the quality, accessibility, and affordability of care as a part of their broader strategy to relieve regulatory burdens for providers; promote transparency, flexibility, and innovation in the delivery of care; and support the patient-doctor relationship in healthcare. The most significant proposal outlined changes how Medicare pays hospitals for drugs that are acquired under the 340B Drug Discount Program. Another proposed provision aims to alleviate some of the burdens rural hospitals experience in recruiting physicians by placing a two-year moratorium on the direct supervision requirement currently in place at rural hospitals and critical access hospitals. In addition to the payment and policy proposals, CMS is releasing a Request for Information (RFI) to welcome feedback on positive solutions to better achieve transparency, flexibility, program simplification, and innovation. This will inform the discussion on future regulatory action related to the hospital outpatient services. Overall, CMS estimates that its proposals would increase OPPS payments by 2.0 percent and ASC payments by 1.9 percent in 2018.

The rule is scheduled to be published in the Federal Register on July 20, 2017.  Public Comments are due by 5:00 pm EST on September 11, 2017.

Please leave us a comment below, call us at 202-558-5272 or email me directly at jgeorgi@appliedpolicy.com if you have questions or would like assistance determining the potential effects of these policies on your organization and in drafting and submitting comments to CMS.

$900 Million Cut to Payment Rates for 340B-Discounted Drugs Proposed

As the 340B drug discount program has grown exponentially in the past several years, concerns have been raised that Medicare payment rates for 340B-discounted drugs were too high. A 2015 analysis by the Medicare Payment Advisory Commission (MedPAC) estimated that the average 340B covered entity was able to acquire covered drugs at an average 22% discount off of average sales price (ASP), yet Medicare paid the facility 106% of ASP, resulting in a large margin. In some cases, beneficiary coinsurance, which is based on the Medicare payment rate, not acquisition cost, were higher than the 340B-discounted rate.

In response, stakeholders have urged Medicare to reconsider the payment methodology for 340B hospitals, which numbered 2,140 in 2014 (up from 583 in 2005). CMS is proposing to implement a drastic change to the payment methodology for drugs purchased with a 340B discount. Instead of payment at 106% of ASP, the drug would be paid at ASP-22.5% (22.5% less than ASP). The agency selected this rate based on the MedPAC analysis, and an analysis by the Government Accountability Office (GAO) that estimated 340B discounts to range between 20% and 50%. The proposed rule includes an extensive report of various studies that CMS relied upon when drafting the proposal.

In the regulatory impact analysis, CMS estimates that the proposal would reduce spending on 340B-discounted drug by approximately $900 million. However, the agency intends to implement the proposal in a “budget neutral” manner. Therefore, payment for other items and services under OPPS would be increased by $900 million. Affected hospitals may see higher payment rates for other items and services at the same time that they see lower payment rates for 340B-discounted drugs.

If implemented, the change would become effective January 1, 2018. CMS would also introduce a billing modifier for hospitals to identify which drugs were purchased through the 340B program and which were not. The new payment methodology would only apply to separately paid drugs, with the exception of drugs with pass-through status, which would continue to be paid at 106% of ASP. Vaccines would also be exempt, since they are not subject to 340B discounts.

CMS is sure to hear comments from stakeholders concerned that such a drastic reduction in payment will harm 340B hospitals, which by definition treat vulnerable populations. It could also be argued that the proposal is counter to Congressional intent when establishing the 340B program; the program was intended to help facilities “stretch scarce federal resources” to provide care to vulnerable populations. This proposal would reduce the savings realized by the hospital under the 340B program. However, critics of the 340B program state that the rapid proliferation of 340B entities over the past 5 years and the growth in the program, which delivered $3.8 billion in savings in 2013, requires a moderation in payments to protect Medicare financial resources.

New APC for Complex Cataract Procedures Considered

Under current payment policy, both routine and complex cataract procedures are assigned to the same APC payment code. However, CMS notes that the American Medical Association (AMA) recently updated the descriptor for the CPT code describing complex cataract procedures (66982) to include that the procedures require “devices or techniques not commonly used in routine cataract surgery.” Due to this change, the agency is considering establishing a new APC code to identify complex cataract surgeries.

Currently, both cataract CPT codes are mapped to APC 5491, which has a proposed payment rate of $1,868 for 2018. If CMS were to establish a new APC for complex cases, it would be between APC 5491 and APC 5492, which has a proposed payment rate of $3,495 in 2018. In other words, a new complex cataract surgery APC would have a payment higher than $1,868, but less than $3,495.

CMS is actively seeking comment on this consideration.

Modifications to Laboratory Date of Service Policy Proposed

Because laboratory tests can span several days between test ordering, specimen collection, processing, and reporting, CMS has established parameters to determine the appropriate date of service (DOS) to use when billing for a lab test. Generally, the DOS is the day the specimen is collected. However, some tests are exempt from this rule, namely tests in which specimens are collected during a hospital stay, but are not ordered or analyzed until after patient discharge.

For these situations, CMS implemented what is called the “14-Day Rule.” Under this rule, if a specimen is collected during a hospital stay, but the test is ordered and analyzed at least 14 days after discharge, and is not used to guide treatment while the patient is in the hospital, and in which it would be medically inappropriate to collect the specimen at another time, the test may be billed separate from the hospital stay.

With the introduction of molecular pathology tests and advanced diagnostic laboratory tests (ADLTs), there is growing concern that the 14-Day Rule needs to be amended to account for these newer tests, some of which must be performed sooner than 14 days after discharge. Additionally, ADLTs are performed by a single lab, which may be in a different area of the country than the hospital in which the specimen was collected.

CMS is proposing to modify the 14-Day Rule to exempt molecular pathology and ADLTs; tests that meet the following criteria would have a DOS tied to the test performance:

  • Physician ordered test following the patient’s discharge date;
  • Specimen collected during hospital outpatient encounter;
  • It would be medically inappropriate to collect the specimen at another time;
  • The test results did not guide treatment during the hospital outpatient stay; and
  • The test is reasonable and necessary for the treatment of illness and injury.

CMS is also considering limiting the exception only to ADLTs, not molecular pathology tests. Additionally, the agency solicited comments on other ideas for exemption criteria.

Biosimilar Payment to Continue at Current Policy

CMS is not proposing any changes to payment policies for biosimilars. Under current policy, payment for non-pass-through biosimilars is packaged into the payment for the overall service.

Pass-Through Drugs and Devices Begin 3 Year Cycle, 38 Drugs Will Continue to Have Pass-Through Status in 2018

In last year’s rule, CMS modified agency policy to extend pass-through status to all applicants for a full three years. Under previous agency policy, applicants were awarded pass-through status on a quarterly basis, but CMS terminated pass-through status at the end of a calendar year. This meant that some applicants had longer pass-through periods than others. To equalize this, CMS modified the pass-through expiration schedule from a calendar year to a quarterly basis, meaning that all applicants would have a full three years (12 quarters) of pass-through status. New 2017 applicants were the first applicants eligible for this treatment.

Pass-through status for 19 drugs will terminate on December 31, 2017, while 38 drugs will continue to have pass through status. The drugs are located in Table 21 and Table 22 of the proposed rule.

Drug Packaging Threshold Increased to $120

Payment for drugs administered in conjunction with hospital outpatient services is packaged into the payment for the service itself, as long as the per-day cost of the drug does not exceed the annual “packaging threshold.” For 2018, CMS is proposing to increase the packaging threshold to $120, up from this year’s threshold of $110. Drugs with a per-day cost of more than $120 would be paid separately at 106% of ASP (or ASP-22.5% for 340B-discounted drugs, if that proposal is finalized).

Three Years After It Was First Proposed, OPPS’ Packaging Trend Comes For Drug Administration
In the CY 2014, OPPS Final Rule, CMS established their policy that all procedures described by an add-on code would be packaged into a single payment with the primary procedure. However, in response to comments at that time, drug administration add-on codes were excluded from this packaging. In 2015, ancillary services assigned to ambulatory payment classifications (generally minor diagnostic tests and procedures performed alongside a primary service) with a mean cost of $100 or less were packaged as well. Again, drug administration was excluded from packaging until a future date.

In the proposed rule, CMS proposes that drug administration’s day has finally come. The proposed rule explains that separate payment for drug administration violates CMS’ philosophical position that ancillary services should be packaged together with primary services to promote a prospective, rather than per-service fee schedule. Specifically, CMS is proposing to package those Level 1 and Level 2 drug administration services with a mean cost of $100 or less with APCs 5691 and 5692, with the significant exception of vaccine administration, which is classified as preventive and thus excluded from packaging. CMS also asks if this would be preferable to packaging all drug-administration add-ons, and how infusion times could be incorporated through add-on codes if drug administration were packaged unconditionally.

CMS Receives, and Proposes to Reject, Five Applications for Device Pass-Through Payments

Generally, OPPS packages payment for devices used in outpatient procedures together with payment for the procedure itself. A notable exception exists in order to facilitate access to certain newly-available devices that offer substantial clinical improvement for which payment can be made separately for a period of two to three years. There are currently three such categories of devices, pass-through payment for which will expire on December 31, 2017. For 2018, CMS received five new applications, which they assessed based on their novelty, cost, and clinical value.

  • Architect Px (skin substitute) – CMS does not believe that Harbor MedTech, Inc. has presented sufficient evidence showing that Architect Px meets the substantial clinical improvement criterion.
  • Dermavest and Plurivest Human Placental Connective Tissue Matrix (skin substitutes) – CMS states that Aedicell, Inc. has not provided enough evidence to show significant clinical improvement over existing treatments.
  • FlōGraft/Flōgraft Neogenesis (injectable amniotic fluid) – CMS did not believe that Applied Biologics, Inc. submitted sufficient data to show substantial clinical improvement over current wound care treatments.
  • Kerecis™ Omega3 Wound (skin substitute) – While acknowledging the general efficacy of this piscine-derived skin substitute, CMS stated that there was no evidence that it represented a substantial clinical improvement over existing treatments.
  • X-WRAP (skin substitute) – CMS expressed concern that they could not determine whether this Applied Biologics, Inc. product met the newness criteria for pass-through payment, and does not believe that sufficient evidence was submitted to demonstrate clinical improvement.

CMS solicits comments on all of these proposed rejections.

Proposal Adds Three Arthroplasty Procedures to Ambulatory Surgical Centers List of Procedures

Some procedures are covered only in the outpatient setting and not within ambulatory surgical centers. Annually, CMS reviews the list of covered surgical procedures for Ambulatory Surgical Centers (ASCs). This year CMS is proposing to add total knee arthroplasty, partial hip arthroplasty, and total hip arthroplasty to the ASC covered procedures list (CPL). It was determined that these three procedures would not be expected to pose a significant risk to beneficiary safety when performed in an ASC given their set of resources available and would not be expected to require active medical monitoring and care of the beneficiary at midnight following the procedure. Additionally, CMS is soliciting comments on whether these procedures meet the criteria to be added to the CPL and whether there are codes outside the CPT surgical code range that should be considered a surgical procedure.

Focus on Reducing Provider Burden Results in Proposal to Remove 6 Measures from Quality Reporting Program

CMS proposes to remove 6 measures, resulting in a burden reduction of 152,680 hours and $5.6 million for the CY 2020 payment determination and 304,810 hours and $11.1 million for the CY 2021 payment determination.

Thank you to Melissa AndelGreg Pugh, and Giana Mandel for their analysis and contributions to this post.

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