CMS's CY2017 OPPS rule: payments for off-campus departments

November 06, 2016

Health Care Alert

Author(s): Jena M. Grady

Site-neutral payment rules for off-campus departments in the newly released CMS CY2017 OPPS Rule.

The Centers for Medicare and Medicaid Services (CMS) has released a “display copy” of the Medicare Outpatient Prospective Payment System (OPPS) rules that it will publish in the Federal Register on November 14, 2016.

This alert focuses on the rules relating to hospitals’ off-campus departments and CMS implementation of the site-neutral payments provisions of Section 603 of the Bipartisan Budget Act of 2015 (the Act).

Excepted items and services at off-campus PBDs

After January 1, 2017, only the following are considered to be an “excepted” provider-based department (PBD) that may continue to bill for excepted items and services under OPPS:

  • Off-campus dedicated emergency departments;
  • Off-campus PBDs that were billing under OPPS for covered out-patient department (OPD) services prior to November 2, 2015 (i.e., the date of the enactment of Section 603 of the Act), provided that the PBD has not been impermissibly relocated or subject to a change of ownership; and
  • A PBD that is “on the campus” or within 250 yards of the hospital or a remote location of the hospital.

Service line expansions

In the proposed rule released on July 6, 2016, CMS suggested that the Act required excepted off-campus PBDs to include only those items and services within the so-called “clinical family” of items and services that were furnished and billed as of November 2, 2015. However, CMS relented and decided not to finalize the proposed policy limiting service line expansion because of public concerns regarding the administrative burdens, complexity, and possible access issues for beneficiaries.  Instead, CMS will continue to monitor the need to regulate the expansion of clinical service lines that are being provided by excepted off-campus PBDs.  


CMS initially provided in the proposed rule that Section 603 of the Act was intended to apply to off-campus PBDs as they existed on November 2, 2015 and, therefore, relocating an excepted off-campus PBD would remove its excepted status from Section 603. While CMS noted that numerous commenters opposed CMS proposal to limit excepted off-campus PBDs to the physical address shown on the provider’s hospital enrollment form as of November 1, 2015, CMS decided to finalize this policy. However, CMS does permit relocation in limited instances of extraordinary circumstances outside of the hospital’s control, such as temporary or permanent relocations due to natural disasters, and significant public health or public safety issues. These extraordinary circumstances will be evaluated by CMS on a case-by-case basis, with CMS noting that permitted exceptions will be limited and rare.

Changes of ownership

CMS requested public comments on its proposal that excepted status for an off-campus PBD would be transferred to new ownership only if the ownership of the Medicare-participating hospital main provider is also transferred and the new owner accepts the Medicare provider agreement. CMS also proposed that an individual excepted off-campus PBD cannot be transferred from one hospital to another and maintain its excepted status. While many commenters expressed concern that these proposals would have unintended consequences for hospitals that face financial difficulty or need to downsize to providing only outpatient services, CMS finalized these change of ownership proposals without modification.

Applicable payment system

CMS finalized the Medicare Physician Fee Schedule (MPFS) as the “applicable payment system” for most non-excepted items and services furnished by a non-excepted off-campus PBD. Additionally, CMS issued an interim final rule, which in part provided new interim final MPFS rates for non-excepted items and services for CY 2017. For CY 2017, the payment rates will generally be 50% of the OPPS rates, with some exceptions. CMS seeks public comment on the rates and the mechanism that creates the rates provided in the interim final rule. CMS said that it will modify rates as necessary through rulemaking that may affect CY 2017 rates.

Payment mechanism for off-campus PBD non-excepted items and services

In the proposed rule, CMS did not provide for direct billing by, or payment to, the non-excepted off-campus PBDs for their services. Instead, CMS proposed that physicians would be able to bill for items and services furnished by non-excepted off-campus PBDs, with hospitals and physicians entering into financial relationships with the physicians who billed under the MPFS. CMS did not finalize this payment proposal. CMS recognized that the proposal would lead to significant difficulties for hospitals and physicians trying to create financial relationships that complied with the Stark Law, Anti-Kickback Statute, and “incident to” regulations.

Instead, in the final rule, CMS decided that a hospital may be paid directly for non-excepted items and services furnished by off-campus PBDs. Therefore, CMS referenced and simultaneously issued an interim final rule in part to establish a billing mechanism for non-excepted items and services furnished by off-campus PBDs pursuant to which the hospital can report and receive payment directly under MPFS.  Hospitals will bill on institutional claim forms and provide a new claim line modifier “PN” to show that an item or service is a non-excepted item or service, triggering payment under the new MPFS payment rates for these items and services. While CMS considered adopting a mechanism allowing hospitals to bill under the MPFS on the professional claim, CMS did not adopt that policy at this time due to operational challenges it believed it could not address before January 1, 2017. CMS takes the position that the billing mechanism that allows direct payment to hospitals for items and services in non-excepted off-campus PBDs mooted commenters’ concerns about fraud and abuse laws.

Finally, CMS provides, that unless it significantly modifies policies based on public comments, it anticipates that its methods used to determine MPFS payment amounts for CY 2016 will be used for non-excepted items and services furnished by non-excepted off-campus PBDs for CY 2018.

The foregoing has been prepared for the general information of clients and friends of the firm. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without professional counsel. If you have any questions or require any further information regarding these or other related matters, please contact your regular Nixon Peabody LLP representative. This material may be considered advertising under certain rules of professional conduct.

Back to top