Medicare Proposes Payment Rates and Policy Changes for Hospital Outpatient Services

July 19, 2005

Medicare Proposes Payment Rates and Policy Changes for Hospital Outpatient Services

Acute care hospitals will receive a 3.2 percent inflation update in Medicare payment rates in 2006 for outpatient services under a proposed Outpatient Prospective Payment System (OPPS) rule announced today by the Centers for Medicare & Medicaid Services (CMS) that also continues to lower the coinsurance rates that patients in Medicare have to pay for outpatient services.

Also, sole community hospitals in rural areas will receive an additional 6.6 percent payment adjustment, a move that stems from a study of rural hospital costs authorized as part of the Medicare Modernization Act of 2003 (MMA).

"Today's proposed rule will help ensure that beneficiaries have access to quality services in the hospital outpatient setting no matter where they live," said CMS Administrator Mark B. McClellan, M.D., Ph.D. "In addition, the proposed rule increases payments for many preventive services and contains a number of changes designed to make sure that Medicare makes efficient use of taxpayer money through more accurate payments for drugs and imaging services in hospital outpatient departments."

The proposed rule would continue the gradual decline in coinsurance rates Medicare beneficiaries will pay for many hospital outpatient services. Prior to the implementation of the OPPS in August 2000, the beneficiary often paid more than 50 percent of the hospital's total payment for a service. Coinsurance rates for OPPS services are being reduced gradually until the beneficiary's share for any outpatient service will be 20 percent of the hospital's total payment. Under the proposed rule, the coinsurance rate for twelve additional medical and surgical Ambulatory Payment Classifications (APCs) will decline to the 20 percent minimum.

The proposed rule would also reduce the maximum coinsurance rate for any service to 40 percent of the total payment to the hospital for the APCs in 2006, down from 45 percent this year. Overall, average beneficiary copayments for all outpatient services are expected to fall to 30 percent of total payments under the proposal.

The proposed rule would continue the Medicare program's support for prevention and early detection of diseases, by increasing payment rates to hospitals for most screening examinations that are covered by Medicare. For example, CMS is proposing to increase payment for the Welcome to Medicare Physical when furnished in a hospital outpatient department by nearly 7 percent in 2006.

In keeping with the outpatient payment reforms in the MMA, CMS is also proposing to pay for most Part B drugs, biologicals, and radiopharmaceuticals administered in hospital outpatient departments based on competitive market prices. These drugs are primarily injectible drugs administered by clinicians and used to treat cancer and other conditions. They are currently paid at 83 percent of the average wholesale price (AWP) - a price that is often significantly higher than prices charged in the market. The new proposed payment at 106 percent of the manufacturer's average sales price (ASP) mirrors the pricing methodology already used for drugs administered in the physician's office. Payment rates for all drugs under this methodology would be updated quarterly.

"Paying the same competitive rates for Part B drugs, whether administered in the outpatient department or the physician's office, reflects Medicare's goal is to pay appropriately for the drugs regardless of where they are used," said Dr. McClellan. "And we will also pay appropriately for the pharmacy costs of using the drugs."

The proposed rule would also revise payment for pharmacy costs, like pharmacists' salaries, related to providing Part B drugs in hospital outpatient departments. Currently, payment for these costs is bundled into the payment for the drug. CMS is proposing to begin collecting claims data in 2006 with these costs separately identified for use in setting payment rates for 2008. In the meantime, CMS is proposing to pay an additional 2 percent over the drug payment to cover these costs.

Consistent with a recommendation to Congress by the Medicare Payment Advisory Commission (MedPAC), CMS is proposing to make payments for some diagnostic imaging procedures reflect their limited additional cost when they are performed with other imaging procedures in the same session with the patient. In the proposed rule, CMS has identified 11 families of imaging procedures, based on the type of imaging modality used and contiguous body area, where this proposed policy would apply. When two or more procedures in the same family are performed, the first procedure would be paid in full and a discount of 50 percent would be applied to subsequent procedures.

The changes to the payment rates and increased volume of services contribute to an overall increase in projected payments to over 4,200 hospitals for Medicare outpatient services of $27.5 billion in 2006 compared to projected payments of $26.1 billion in 2005, an increase of 5.4 percent.

The proposed rule will be published in the July 25th Federal Register. Comments will be accepted until Friday, September 16, 2005, and a final rule is scheduled to be published by November 1, 2005.

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