On November 1, the Centers for Medicare & Medicaid Services (CMS) issued the Hospital Outpatient Prospective Payment and Ambulatory Surgical Center Payment Systems Final Rule with Comment Period, which finalizes updates to the outpatient prospective payment system (OPPS) and the Medicare ambulatory surgical center (ASC) payment system for calendar year (CY) 2023. See the press release here. CMS has provided a rule overview fact sheet and a Rural Emergency Hospital fact sheet relating to Medicare policies for the recently established Rural Emergency Hospital type. This rule finalizes:

• A payment update of 3.8 percent for CY 2023,
• A payment rate of average sales price (ASP) plus six percent for 340B drugs and biologicals,
• Elimination of 11 services from the inpatient only (IPO) list,
• Extension of behavioral health service flexibilities,
• Updates to the Hospital and ASC Quality Reporting Programs,
• Changes to organ acquisition payment policies,
• Approval of four applications for device pass-through payment,
• Continuation of non-opioid pain management drug and biological policy with modifications,
• Continuation of existing pass-through policy for certain drugs, biologicals, and radiopharmaceuticals,
• Current skin substitute terminology, and
• Rural emergency hospital (REH) payment policies.

As of this writing, this final rule has not yet been placed on public display or published in the Federal Register.

OUTPATIENT AND ASC RATES TO INCREASE BY 3.8 PERCENT

CMS finalizes an increase of 3.8 percent for OPPS payment rates in CY 2023, which is based on a market basket update of 4.1 percent reduced by a productivity adjustment of 0.3 percentage points.[1] This is an increase from the 2.7 percent update originally proposed for CY 2023. The agency estimates this will result in a total of approximately $86.5 billion in payments to OPPS providers ($6.5 billion more than CY 2022).

CMS finalizes an increase of 3.8 percent for ASC payment rates in CY 2023, which is consistent with CMS’ policy for CYs 2019 through 2023 to update the ASC payment system using the hospital market basket update.[2] CMS estimates this will result in a total of approximately $5.3 billion in payments to ASC providers ($230 million more than CY 2022).

Due to impacts of the COVID-19 pandemic, CMS finalizes its proposal to use CY 2021 claims data and cost report data (CY 2019) prior to the pandemic to set OPPS and ASC CY 2023 payment rates. Ordinarily, CMS would use the most recently available claims and cost report data for OPPS and ASC rate setting, which includes cost report data during the pandemic.

After accounting for budget neutral adjustments, outlier payments, pass-through payments, and other policies, CMS estimates that OPPS payments will increase by 4.5 percent overall, as compared to CY 2022.

In addition, CMS finalizes its proposal to:

• Continue the cancer hospital payment adjustment for CY 2023,
• Maintain outlier estimated payments at 1.0 percent of total OPPS payments for CY 2023,[3] and
• Continue the OPPS labor-related share at 60 percent of the national OPPS payment.

CMS INCREASES 340B ACQUIRED DRUG AND BIOLOGICAL PAYMENT RATES

For CY 2023, CMS will revert to a prior policy to pay 340B acquired drugs and biologicals at average sales price (ASP) plus 6 percent. The 340B Drug Pricing Program[4] was established to help vulnerable patients access medicine at safety net providers.[5] Under the program, certain eligible hospitals, called covered entities, can purchase certain covered outpatient drugs at a significant discount.

In the CYs 2018 and 2019 OPPS/ASC Final Rules, CMS finalized a policy that Medicare would reimburse hospital outpatient drugs purchased with a 340B discount at ASP minus 22.5 percent for physician-administered drugs, a departure from previous payment policy of ASP plus 6 percent. That policy prompted litigation, which was the subject of a recent Supreme Court decision in American Hospital Association v. Becerra.[6]

On June 15, 2022, the Supreme Court held, among other things, that absent a survey of hospitals’ drug acquisition costs, the U.S. Department of Health and Human Services (HHS) may not vary the reimbursement rates only for 340B hospitals. Therefore, the Court determined that CMS’s 2018 and 2019 reimbursement rates for 340B hospitals were unlawful because CMS did not conduct a survey for more than a decade after statutory provisions went into effect in 2006. While CMS conducted a survey of 340B drug acquisition costs in 2020, the agency is not taking these survey results into consideration for CY 2023.

While the focus of the Court’s decision was on CYs 2018 and 2019 payment rates, the decision impacted CY 2023 rates. CMS was unable to adjust the proposed payment rates in response to the Court’s decision prior to issuing the proposed rule. Therefore, while CMS formally proposed a payment rate of ASP minus 22.5percent for drugs and biologics acquired through the 340B program for CY 2023, the agency noted its intent to apply a rate of ASP plus 6percent to 340B drugs and biologics in the CY 2023 Final OPPS rule in consideration of the Supreme Court’s ruling.

However, CMS will apply this policy in a budget neutral manner by offsetting the 3.19 percent increase applied to the CY 2018 conversion factor accounting for decreased payment for 340B drugs. This is in response to comments urging CMS to adopt this policy instead of a negative 4.04 percent adjustment to the conversion actor. Specifically, this results a final CY 2023 conversion factor of $85.585, a 2.4 percent decrease from the initial proposed CY 2023 conversion factor of $86.785.[7] For informational purposes, CMS will also require the “JG” modifier to be used by hospitals, except for rural sole community hospitals, children’s hospitals, and PPS-exempt cancer hospitals to identify 340B drugs.

The vast majority of commenters supported the agency’s intent to increase 340B payment rates at a rate of ASP plus 6 percent, while some expressed concern that this amount was excessive. The agency continues to evaluate how to apply the Supreme Court’s ruling to address remedies for calendar years 2018 – 2022, and will address this in future rulemaking prior to the CY 2024 OPPS/ASC proposed rule.

CMS ELIMINATES 11 SERVICES FROM THE INPATIENT ONLY LIST

CMS established the IPO list in 2000 to designate procedures that, because of their invasive nature, expected recovery time, and/or underlying patient condition, would not be paid if performed in an outpatient facility. The Agency believed that performing certain procedures on an outpatient basis would not be safe or appropriate, and therefore not reasonable and necessary under Medicare rules.[8]

For CY 2021, CMS reversed this longstanding policy and decided to eliminate the IPO list over three years.[9]However, in the CY 2022 OPPS/ASC final rule, based on a clinical review by its internal physicians, CMS reversed its decision to eliminate the IPO list.

Additionally, in the CY 2022 OPPS/ASC final rule CMS finalized a proposal to codify five longstanding criteria for determining whether a service or procedure should be removed from the IPO list. The criteria for assessing procedures for removal from the IPO list are the following:

1. Most outpatient departments are equipped to provide the services to the Medicare population.
2. The simplest procedure described by the code may be furnished in most outpatient departments.
3. The procedure is related to codes that we have already removed from the IPO list.
4. A determination is made that the procedure is being furnished in numerous hospitals on an outpatient basis.
5. A determination is made that the procedure can be appropriately and safely furnished in an ASC and is on the list of approved ASC services or has been proposed by us for addition to the ASC list.

For CY 2023, CMS finalizes to remove eleven services from the IPO list, including several maxillofacial procedures. CMS also finalizes its proposal to add eight services to the IPO list that were recently created by the American Medical Association (AMA) CPT ^®[10] Editorial Panel for CY 2023 effective January 1, 2023.

CMS EXTENDS BEHAVIORAL HEALTH SERVICE FLEXIBILIITIES

In alignment with the Biden Administration’s goal to advance health equity and promote care access, CMS finalizes several proposals relating to the remote administration of behavioral health services. Specifically, CMS finalizes its proposal that payment for mental health services furnished to beneficiaries in their homes can be made, but only if the beneficiary receives an in-person service within a 6-month period prior to remote services being provided by hospital clinical staff. There must also be an in-person visit within 12 months of each behavioral health service provided remotely with the use of communications technology.

CMS also finalizes its proposal to continue to permit exceptions to the in-person service requirement, based on provider judgement regarding the risk to benefit ratio of an in-person service. Finally, CMS finalizes its proposal that while hospital staff must have the capability of providing two-way audio and video services to patients, audio-only communications may be utilized to support an individual patient’s access or preference.

CMS FINALIZES QUALITY REPORTING PROGRAM CHANGES

CMS finalizes changes for the Hospital Outpatient Quality Reporting Program (OQR), Ambulatory Surgical Center Quality Reporting (ASCQR), and Rural Emergency Hospital Quality Reporting (REHQR) Programs.

Hospital OQR and ASCQR Programs

The Hospital OQR and the ASCQR Programs are pay-for-reporting quality programs for the hospital outpatient department and Ambulatory Surgical Center (ASC) settings respectively that require hospitals and ASCs to meet program requirements or receive a reduction of 2.0 percentage points in their annual payment update.

For CY 2023, CMS finalizes the policy of maintaining voluntary reporting for the Cataracts: Improvement in Patient’s Visual Function within 90 Days Following Cataract Surgery (OP-31) OQR measure and the Cataracts: Improvement in Patient’s Visual Function within 90 Days Following Cataract Surgery (ASC-11) ASCQR measure due to the ongoing COVID-19 public health emergency (PHE).

In addition, CMS finalizes:

• Alignment of Hospital OQR Program patient encounter quarters for chart-abstracted measures to the calendar year for annual payment update (APU) determinations; and
• Addition of a targeting criterion for the Hospital OQR Program in the selection of hospitals for data validation, for hospitals with fewer than four quarters of data subject to validation, due to receiving an extraordinary circumstance exception for one or more quarters.

Rural Emergency Hospital Quality Reporting (REHQR) Programs

CMS finalizes that in order for REHs to participate in the REHQR Program, they must have an account with the Hospital Quality Reporting (HQR) secure portal and a designated Security Official.

CMS FINALIZES ORGAN ACQUISITION PAYMENT POLICY CHANGES

CMS finalizes changes for organ acquisition payment, with the goal of lowering costs and improving the accuracy of organ procurement programs. Specifically, CMS finalizes its proposal to require transplant hospitals and organ procurement organizations (OPOs) to exclude organs used for research in the calculation of Medicare’s share of organ acquisition costs on the Medicare cost report (for both Medicare usable organs and total usable organs) with modifications. CMS would permit providers to follow accounting practices of adjusting costs, offsetting revenue, or establishing a non-reimbursable cost center. CMS believes this will reduce or maintain research organ procurement and provision costs to the research community. CMS also finalizes its proposal that organ acquisition costs include certain hospital costs incurred for services provided to deceased donors.

In the CY 2023 OPPS/ASC proposed rule, CMS requested information on different methodologies for counting organs in calculation of Medicare’s share of the organ acquisition costs for consideration in future policy development. While CMS is not responding to comments, the agency will take these comments into consideration for potential future policy development.

Most commenters opposed CMS’ proposal for research organs and raised a number of concerns about counting of organs for organ acquisition costs. To address these concerns, CMS clarifies that acquisition costs of organs that are intended for transplant but determined to be unsuitable and instead used for research are allowable organ acquisition costs. Consequently, CMS also clarifies that acquisition costs of organs that were initially intended for research are not allowable organ acquisition costs, except for certain islet cell transplant pancreata.

CMS APPROVES FOUR OF EIGHT DEVICE PASS-THROUGH APPLICATIONS FOR 2023

Transitional device pass-through payment allows beneficiaries to access innovative devices by allowing payment for these devices while necessary cost data is being collected to incorporate the devices into a procedure rate. A device is eligible for transitional pass-through payments for at least two years but no more than three years. For CY 2023, eight applications for device pass-through payments were submitted. One of these applications, the aprevo™ Intervertebral Fusion Device, received preliminary approval in CMS’ quarterly review process. In total, four of the eight applications qualified for transition device pass-through status beginning January 1, 2023.

Devices with Breakthrough Device designation and FDA marketing authorization may use an alternative pathway for pass-through status, which was finalized in CY 2020 rulemaking. These products are not evaluated for substantial clinical improvement but must meet all other pass-through requirements.

CMS finalizes its proposal to publicly post all completed pass-through applications and related materials online, excluding some proprietary information. CMS initially proposed this policy to apply to applications received on and after January 1, 2023 but is finalizing the alternative implementation date of March 1, 2023.

Consistent with prior years, CMS will set the pass-through payment percentage limit to 2.0 percent of the total projected OPPS payment for 2023. CMS estimates payment of $21 million for the first group of devices and $61.1 million for the second group of devices eligible for pass-through payment in CY 2023.

Table 1. Applications for Device Pass-Through Status in CY 2023

Device	Manufacturer	FDA Break-through	Qualified for Pass-Through
aprevo™	Carlsmed, Inc.	X	Yes
Vivistim® System	MicroTransponder, Inc.	X	Yes
BrainScope Ahead 500 system	BrainScope Company Inc.		No
NavSlim™ and NavPenci	Elucent Medical, Inc.		No
SmartClip™	Elucent Medical, Inc.		No
Evoke® Spinal Cord Stimulation (SCS) System	Saluda Medical Inc.		Yes
Pathfinder®	Neptune Medical		No
Uretero1	STERIS		Yes

CMS TO CONTINUE NON-OPIOID PAIN MANAGEMENT DRUG AND BIOLOGICAL POLICY WITH CHANGES

Under current law,[11] the Secretary must review payments for opioids and evidence-based non-opioid alternatives for pain management (including drugs and devices, nerve blocks, surgical injections, and neuromodulation) with a goal of ensuring that there are not financial incentives to use opioids instead of non-opioid alternatives. In the CY 2022 OPPS and ASC final rule, CMS had finalized its proposal that, beginning January 1, 2022, CMS would provide for separate payment for non-opioid pain management drugs and biologicals that function as supplies in the ASC setting when those products are FDA approved, have an FDA-approved indication for pain management or as an analgesic, and have a per-day cost above the OPPS drug packaging threshold, as determined by CMS.

For CY 2023, CMS maintains its current policy of separate payment in the ASC for products meeting the criteria. Additionally, the agency finalizes two technical clarifications to criteria to receive separate payment to reflect current policy:

1. The drug or biological does not have transitional pass-through payment status. In the case where a drug or biological otherwise meets this non-opioid pain management drug policy requirements and has transitional pass-through payment status that will expire during the calendar year, the drug or biological would qualify for separate payment during such calendar year on the first day of the next calendar year quarter after its pass-through status expires.
2. The drug or biological must not already be separately payable in the OPPS or ASC payment system under a policy other than the one specified in this non-opioid pain management drug policy.

Using these criteria, CMS reevaluated the products that receive separate payment under the policy for CY 2022 and indicates that three would continue to receive separate payment under this policy for CY 2023 while finalizing two additional new products:[12]

• Exparel (HCPCS C9290, Injection, bupivacaine liposome, 1 mg),
• Omidria (HCPCS code J1097, Phenylephrine 10.16 mg/ml and ketorolac 2.88 mg/ml ophthalmic irrigation solution, 1 ml),
• Xaracoll (HCPCS code C9089, Bupivacaine, collagen-matrix implant, 1 mg),
• Dextenza (HCPCS code J1096, Dexamethasone, lacrimal ophthalmic insert, 0.1 mg), and
• Posimir (HCPCS code C9144, Injection, bupivacaine (Posimir), 1 mg).

CMS solicited comments on the following:

• Potential policy modifications and additional criteria that may help further align the ASC payment system policy for non-opioid pain management drugs and biologicals that function as surgical supplies with the intent of sections 1833(t)(22) and 1833(i)(8) of the Act,
• Non-drug or non-biological products that should qualify for separate, or modified, payment under this authority and any data regarding any such products,
• Barriers to access to non-opioid pain management products that may exist, and how our payment policies could be modified to address these barriers, and
• Comments and data regarding the need to expand the current ASC payment system policy for non-opioid pain management drugs and biologicals that function as surgical supplies to the OPPS.

Several commenters noted potential criteria modifications and suggested CMS extend its non-opioid pain management payment policy to the hospital outpatient department setting. In response to comments, CMS makes no changes for CY 2023; however, will take these comments under consideration for future policy making.

CMS TO CONTINUE EXISTING PASS-THROUGH POLICIES FOR CERTAIN DRUGS, BIOLOGICALS, AND RADIOPHARMACEUTICALS

Under current law,[13] CMS provides temporary additional payments or “transitional pass-through payments” for certain drugs and biological agents for “new” drugs, devices and biological agents that were not paid for as a hospital outpatient department service as of December 31, 1996, and whose cost is “not insignificant” in relation to the OPPS payment for the procedures or services associated with the new drug, device, or biological. Under statute, transitional pass-through payments can be made for at least 2 years but not more than 3 years.

CMS finalizes its proposal to continue existing pass-through payment policies for drugs, biologicals, and radiopharmaceuticals through CY 2023, for 32 drugs and biologicals which were approved for pass-through payment status with effective dates between April 1, 2021 and April 1, 2022.[14]

In addition, CMS finalizes its proposal to continue pass-through payment status in CY 2023 for 49 drugs and biologicals which were approved for pass-through payment status with effective dates beginning between April 1, 2021 and October 1, 2022.[15]

CMS also finalizes its proposal to end pass-through payment status in CY 2023 for 43 drugs and biologicals which were initially approved for pass-through payment status between April 1, 2020 and January 1, 2021.[16]

CMS MAINTAINS SKIN SUBSTITUTE TERMINOLOGY

CMS is not finalizing its proposal to redefine skin substitute terminology. CMS currently uses the term “skin substitute” to define a group of products used to cover appropriate wounds with the intent of stimulating the healing process. CMS has previously defined skin substitutes as a category of “biological and synthetic products that are most commonly used in outpatient settings for the treatment of diabetic foot ulcers and venous leg ulcers.”[17] CMS has also clarified that this definition does not include bandages or standard dressings.

In response to confusion about the use of these products, CMS proposed to replace the term ‘skin substitute’ with the term ‘wound care management’ or ‘wound care management products.’ However, commenters expressed significant concern about the adoption of these terms.

In addition, CMS finalizes its proposal to continue its payment policy under the OPPS to package skin substitute products under a high cost/low category.

CMS is also finalizing its proposal to remove HCPCS code C18149. In the 2021 OPPS Final Rule,[18] CMS established HCPCS code C1849 (Skin substitute, synthetic, resorbable, per square centimeter) “to describe any synthetic graft skin substitute product,” excluding bandages and standard dressings. CMS established this code to provide a mechanism for synthetic skin substitute products to receive payment comparable to how Medicare pays for services performed with biological skin substitute products under the OPPS. However, given how the agency has now made certain synthetic skin substitute A-codes payable under the OPPS, CMS finalizes its proposal to discontinue code C1849 for CY 2023.

Further, CMS finalizes its proposal with modification to assign skin substitutes that are currently or would have been described by code C1849 to the high-cost skin substitute group, regardless of whether pricing data is available.

CMS FINALIZES RURAL EMERGENCY HOSPITAL POLICIES

REHs are facilities converted from either a critical access hospital (CAH) or a rural hospital with less than 50 beds, that do not provide acute care inpatient services except for skilled nursing facility services in a distinct unit. REHs were established as a new provider type under the Consolidated Appropriations Act (CAA), 2021, which becomes effective January 1, 2023. CMS finalizes several payment policies and updates to the provider enrollment regulations and physician self-referral law.

Payment Policies for REHs

CMS finalizes several payment policies for REHs:

• All covered outpatient department services that would otherwise be paid under the OPPS (outside of inpatient hospital services) will be covered as REH services;
• Covered outpatient department services provided by REHs will be paid at a rate equal to the OPPS, payment rate for the equivalent service, with an additional 5 percent payment for each service,
• Beneficiaries will not be charged coinsurance on the additional 5 percent payment,
• REHs will receive a monthly facility payment, which will be initially established in CY 2023 and increased in future years by the hospital market basket percentage increase, and
• REHs may provide outpatient services that are not otherwise paid under the OPPS and post-hospital extended care services as part of a skilled nursing facility (SNF), but these services will not receive the additional 5 percent payment increase for REH services.

CMS Finalizes Conditions of Participation for REHs

In this rule, CMS finalizes the CoPs, which include requirements related to governance, services offered, staffing, physical environment, and emergency preparedness. CMS initially proposed Conditions of Participation (CoPs) for REHs on June 30, 2022.[19]

Updates to REH Provider Enrollment Regulations

CMS finalizes its proposal to update existing Medicare provider enrollment regulations to address enrollment requirements for REHs. A key provision allows facilities to submit a Form CMS-855A change of enrollment application, rather than an initial application, to accelerate the process of switching from a CAH to a REH.

Updates to REH Physician Self-Referral Law

CMS finalizes one of its two proposed updates to the “Stark Law,” which prohibits physician self-referral of certain designated services, for the REH provider type. CMS finalized a policy revising certain Stark Law exceptions to make them applicable to compensation arrangements for REH providers. CMS did not finalize its proposed exception for ownership or investment interests in REHs, but the rural provider exception remains available to REHs.

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This Applied Policy® Summary was prepared by Patrick Harrison with support from the Applied Policy team of health policy experts. If you have any questions or need more information, please contact him at pharrison@appliedpolicy.com or at (202) 558-5272.

[1] Hospitals that fail to meet hospital outpatient quality reporting requirements will have a 2.0 percentage point reduction to their update factor.

[2] ASCs that fail to meet ASC quality reporting requirements will have a 2.0 percentage point reduction to their update factor.

[3] CMS finalizes a fixed-dollar threshold of $8,625.

[4] https://www.hrsa.gov/opa/index.html.

[5] Safety net providers generally provide Medicare and Medicaid services to low-income and vulnerable populations regardless of their ability to pay.

[6] Am. Hosp. Ass’n et al. v. Becerra, No. 20–1114 (June 15, 2022).

[7] CMS finalizes a 0.9691 percent to the budget neutrality adjustment to the conversion factor for CY 2023.

[8] 63 FR 47571.

[9] 85 FR 86084-88.

[10] CPT is a registered trademark of the American Medical Association.

[11] Section 1833(t)(22)(A) of the Social Security Act.

[12] See Table 84 in the unpublished rule for a description of these products.

[13] Section 1833(t)(6) of the Social Security Act.

[14] Pass-through status is set to expire on December 31, 2023, for products listed in Table 57 in the unpublished rule.

[15] For a list of approved drugs and biologicals, see Table 59 of the unpublished rule.

[16] See Table 58 of the unpublished rule.

[17] 85 FR 80605.

[18] 85 FR 85866.

[19] 87 FR 40350.