November 2, 2001

Outpatient Final Rule Will Contain No Payment Rates; Addresses Pass-Through Payments

The Centers for Medicare & Medicaid Services (CMS) Nov. 2 published the final rule [66 Federal Register 55856] on changes to the Medicare outpatient prospective payment system (OPPS) effective with services provided on or after Jan. 1, 2002. The rule will announce that base payment rates under the OPPS will be increased by 2.3 percent. This reflects the current law mandate that the base rate be increased by the rise in the hospital market basket (3.3 percent) less one percentage point.

Because of last minute decisions related to "pass through" payments for new drugs and devices, the Nov. 2 rule will not contain the actual 2002 payment rates for the ambulatory payment classification (APC) groups. CMS states that it will publish the APC rates and corresponding beneficiary copayment amounts by Dec. 1. It is unclear whether these payment rates can be implemented beginning Jan. 1. CMS has asserted that if implementation is delayed, the Agency will implement other changes (such as a reconciliation process) to ensure that all claims submitted on or after Jan. 1 will eventually be paid at the 2002 rates.

Under the OPPS, if cost-based "pass through" payment for new drugs and devices exceed 2.5 percent of total outpatient payments, those payments must be reduced on a pro rata basis until the 2.5 percent threshold is reached. CMS estimates that, without any changes, pass through payments in 2002 would be about 13 percent of total outpatient payments, necessitating an approximate 80 percent reduction in the pass through payments received by hospitals. To ameliorate that drastic reduction, CMS decided to "fold" into the calculation of the APC rates 75 percent of the costs of new devices. As a result, 75 percent of the costs of new devices would be paid as part of the APC rates, leaving 25 percent of these costs to be paid through the "pass through" payment mechanism. Despite this change, a pro rata reduction will still be necessary on the remaining 25 percent of the device costs, but it will be less than 80 percent. In a press release, CMS estimates that under its policy, total payments for drugs on the current pass through list will be about 80 percent of the average wholesale price and devices will be paid between 65 and 70 percent of average acquisition costs.

To further reduce the pro rata reduction, CMS is advocating that the current outlier payment pool be combined with the pass-through payment pool to make more funds available to pay for drugs and devices. The AAMC and American Hospital Association have distributed a letter opposing this combination. The outlier pool is an important provision for hospitals because it helps to offset the losses associated with high cost outpatient services. CMS has not implemented this change, however, because it requires legislative action.

Information: Karen Fisher, AAMC Division of Health Care Affairs, 202-862-6140.