Better Than Nothing: Payment for Off-Campus Hospital Outpatient Department Services under 2017 Final Rule

November 2016

The Centers for Medicare and Medicaid Services (CMS) have implemented, through the 2017 Medicare Outpatient Prospective Payment System (OPPS) final rule, the site-neutral payment provisions of Section 603 of the federal Bipartisan Budget Act of 2015, which generally prohibit OPPS payment for items and services furnished in off-campus outpatient departments of hospitals. For those departments not eligible for an exception, OPPS payments will not be available as of January 1, 2017. However, reduced payment may be available to hospitals under the Medicare Physician Fee Schedule (MPFS).


Historically, Medicare rules allowed for payment for technical services provided by hospitals in off-campus outpatient departments, so long as certain standards, often called the "provider-based rules," were met. That changed with the passage of the Bipartisan Budget Act of 2015. Section 603 of that law excludes from the definition of "covered outpatient department services," items and services that are furnished on or after January 1, 2017 by an off-campus outpatient department of a hospital, even if the department meets the requirements of the provider-based rules.

The Final Rule

The Final Rule, published in the Federal Register on November 14, 2016, set out which off-campus hospital outpatient departments would be eligible for an exception. It also addressed several issues raised concerning the Proposed Rule that had been issued on July 14, 2016: (1) whether expanded services in an excepted off-campus provider-based outpatient department would also be eligible for the payment exception, (2) whether an excepted off-campus provider-based outpatient department could change location and maintain its exception, and (3) whether an excepted off-campus provider-based outpatient department could change ownership and maintain its exception.

  • Items and Services Not Affected by Section 603. Under the law and the Final Rule, OPPS payment will be permitted for claims for items and services furnished as of January 1, 2017 in (1) a dedicated emergency department (regardless of whether the items and services are in fact emergency services); (2) an off-campus outpatient department that billed in a timely fashion for covered outpatient department services furnished prior to November 2, 2015 (the date of enactment of Section 603) and that has not impermissibly relocated or changed ownership; or (3) an outpatient department that is on-campus or within 250 yards of a remote location of the hospital.
  • Expanded Services. The Proposed Rule would have limited the reimbursable items and services provided in an excepted off-campus outpatient department, to those within a clinical family of the items and services furnished and billed as of November 2, 2015. This proposal provoked extensive public comment highlighting the possible administrative burdens and the potential effect on patient access to services, thereby prompting CMS not to finalize this proposal. Thus, under the Final Rule, expanded services in an excepted off-campus provider-based department will be payable under the OPPS, although CMS stated that it will continue to monitor expansion of services and might consider adopting limitations in the future.
  • Relocation. Under the Proposed Rule, an excepted off-campus provider-based department that wished to maintain its eligibility for its exception would have had to continue to furnish billed services at the same physical address and suite number as was listed on the provider enrollment form as of November 2, 2015. CMS finalized this policy in the Final Rule. However, the rule allows temporary or permanent relocations without loss of excepted status if there were extraordinary circumstances outside of a hospital's control, such as natural disasters, significant seismic building code requirements, or significant public health and safety issues. CMS noted that it expects these situations to be rare.
  • Change of Ownership. CMS finalized its proposal to allow an excepted off-campus provider-based outpatient department to maintain its exception if the hospital itself undergoes a change of ownership and the new owner accepts the existing Medicare provider agreement from the prior owner. However, absent such a sale of the main hospital, an excepted off-campus provider-based outpatient department cannot maintain excepted status if it is transferred from one hospital to another.

Payment for Non-excepted Items and Services

The aspect of the Proposed Rule that caused the most controversy was that CMS would not pay hospitals in calendar year 2017 for non-excepted items and services. In order for a hospital to obtain reimbursement for its costs, it would have had to capture a part of the fee paid to physicians under the Medicare Physician Fee Schedule (MPFS), through some form of financial arrangement with each physician who practiced in the non-excepted off-campus department. Alternatively, a hospital could have enrolled an off-campus department as a type of freestanding facility eligible to bill for the items or services in question, such as a clinical laboratory or an independent diagnostic testing facility.

Seeing that these situations were problematic, CMS decided to pay hospitals directly. Section 603 allows for payment for non-excepted items and services under the "applicable payment system" (other than under the OPPS) if the requirements for such payment are otherwise met. Under the Final Rule, CMS established the MPFS as the "applicable payment system" for calendar year 2017 and issued an interim final rule to set payment rates under the MPFS. The 2017 rates will be 50 percent of the OPPS rate for each non-excepted item or service, with some exceptions. To bill for the items and services on the institutional claim, hospitals will use the modifier "PN" to indicate that the item or service is non-excepted. CMS will consider adjustments to the methods for establishing rates in 2017 and beyond, following public comment. (Physicians will continue to be paid at the facility rate under the MPFS for their professional services, consistent with current Medicare payment policies for physicians practicing in an institutional setting.)

Please contact Mike Davidson if you have any questions about payment for items and services furnished in off-campus hospital outpatient departments.