The outpatient method for reimbursement from CMS for Medicare is

J Oncol Pract. 2010 Nov; 6(6): 321–324.

The Balanced Budget Act of 1997 granted authority to the Centers for Medicare and Medicaid Services (CMS) to establish a prospective payment system for hospital outpatient services. Further modifications were granted under the Balanced Budget Refinement Act of 1999. The main intent was to provide CMS with a system to better predict and manage program expenditures by assigning fixed payment amounts to groups of services similarly to the inpatient prospective payment system (based on Diagnosis-Related Groups).

The hospital outpatient prospective payment system (OPPS) in place today classifies all hospital outpatient services into Ambulatory Payment Classifications (APCs). Healthcare Common Procedure Coding System codes (HCPCS codes) are assigned to APCs by CMS, and these assignments are updated at least annually (HCPCS code sets include the full Current Procedural Terminology code set). The services assigned to any APC are considered by CMS to be clinically similar and similar in terms of the resources required to provide each service. Thus, one APC may be applied to numerous HCPCS codes, whereas any individual HCPCS code can be assigned to only one APC. Notably, many HCPCS codes are not assigned to any APC. Some are considered “packaged” into some other code, some are identified as appropriate only for the inpatient setting, and some are simply not considered by CMS to be payable under the OPPS. Thus, one must actually refer to the CMS files listing all HCPCS codes1 in order to determine whether the service is paid. This will be noted on those CMS files (in addendum B) as the Status Indicator. Status Indicators for 2010 are shown in Table 1. A hospital may, depending on a variety of factors, be paid for more than one APC or for more than one occurrence of the same APC at any given encounter.

Table 1.

Status Indicators for 2010

Who Is Subject to OPPS?

Institutions that are licensed as hospitals are subject to the OPPS. These are referred to as providers by CMS (Table 2). In the simplest terms, entities subject to and eligible for payment under the OPPS system are those that bill for outpatient services using the CMS 1450 form (UB04). Nonprofit or for-profit status is irrelevant.

Table 2.

Hospital Provider Definition

When the hospital outpatient services are provided outside the hospital's main facility, a determination of provider-based status must be made. The main criteria for receiving this status center around issues of control of operations, physical proximity to the main provider location, and population served by the off-site facility as compared with the population served by the main facility. Many Medicare claims administrators offer forms for submission to attain provider-based status.2

OPPS Payment Structure

The payment amounts for each APC, updated at least annually, are established by CMS and are based on CMS's estimates of the costs associated with providing any of the services assigned to an APC. Costs are calculated using national, aggregate data from hospitals' claims and cost reports. Coinsurance amounts are set at 20% of the APC payment amount, and no coinsurance amount may be greater than the hospital inpatient deductible in that year. Payments for procedures (not drugs or devices) are adjusted for geographic wage variations, using CMS's annually updated wage index: 60% of the APC amount is multiplied by the wage index and added to the remaining 40% of the APC amount.

Because the methodology for setting payment rates is based on costs, the rates for any given HCPCS code can vary significantly from rates paid to physician practices (Table 3). In addition, many codes (both procedures and drugs) will be reimbursed in the practice setting but are not reimbursed in the hospital outpatient setting. Finally, drugs that are paid separately are generally paid either at average sales price plus 4% or average sales price plus 6% (see part 2 of this article for further detail).

Table 3.

Comparison of Selected 2010 Payment Rates

Billing Under OPPS

Hospitals may only bill for services that are provided at the hospital's expense. If the physicians are employed, those services may be billed by the hospital using the CMS 1500 claim form, and they will be paid under the Physician Fee Schedule for the applicable site of service. The rules for billing these professional services are identical to the rules for professional service billing in the physician practice setting.

Interestingly, when hospitals fall under OPPS, they do not bill using the APC codes. CMS requires line item billing using the HCPCS codes because HCPCS codes are frequently moved from one APC to another in the annual updates. The claims administrator receives the claims and applies the appropriate APC payment rates to the HCPCS codes. The specific rules for OPPS billing are similar but not identical to those for practices, with various edits regarding allowable units of service, codes that may not be billed at the same encounter as other codes (component codes, mutually exclusive codes), and requirements regarding diagnosis codes.

Hospitals have access to numerous codes that are not available to physician offices. Most of those are alphanumeric (one letter followed by numbers), and many are intended to allow hospitals to capture what was, before the OPPS, referred to as a “facility fee” (facility fees are no longer billable to Medicare – see part 2 of this article for further discussion). For example, when a multidisciplinary clinic is located at the hospital, code G0175 (payment before wage index adjustment in 2010 is $113.44) may be billed for a scheduled interdisciplinary team conference that includes at least three team members (excluding patient care nursing staff) and that takes place with the patient present. This charge would be in addition to whatever professional fees may be billed by physicians for their evaluation and management services. Facility fees and visits will be discussed in greater detail in the second part of this article.

Hospital claims also differ from physician office claims in several ways. For example, there are condition codes, value codes, up to 28 ICD-9 diagnosis and procedure codes (which do not need to have pointers in the charge section), reason codes, and revenue codes.

Condition codes describe any conditions or events that apply to the billing period. For example, code 02 indicates employment-related illness/injury, and code 21 indicates that the bill is for denial notice. Value codes are used to report a variety of factors. Most relevant to oncology: when billing for growth factors, the hemoglobin reading is reported with a value code 48 and a hematocrit reading is reported with the value code 49. Reason codes describe a patient's reason for the billed visit. The patient's reason for visit is required for all unscheduled outpatient visits for outpatient bills, documented with ICD-9 codes. Finally, revenue codes indicate which hospital department is associated with the billed line items. These codes are particularly important for the reimbursement of separately payable drugs; these must be billed with revenue code 636 or there is a risk of nonpayment.

Clearly there are some significant differences between Medicare's OPPS and the Physician Fee Schedule, including complexities for billing and reimbursement for outpatient oncology services. In the second part of this article we will explore those differences further, including questions around facility fees, 340B drug pricing, and operational challenges that can interfere with optimal financial performance for hospital-based outpatient infusion centers.

Author's Disclosures of Potential Conflicts of Interest

The author indicated no potential conflicts of interest.

References

Articles from Journal of Oncology Practice are provided here courtesy of American Society of Clinical Oncology