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Fact Sheet

2003 Hospital Outpatient Prospective Payment System Proposed Rule

History

  • Medicare’s Outpatient Prospective Payment System (OPPS) was implemented in August 2000.
  • The most recent updating for 2002 included:
  • The first revision of the payment cells (Ambulatory Payment Classifications, or APCs) into which services are grouped.
  • The first recalibration of the relative weights used to determine payment for the APCs. This recalibration used hospital claims from July 1999 to June 2000, the period immediately before implementation of the new system.
  • The first application of a pro rata reduction to the transitional pass-through payments for certain devices, drugs, and biologicals[1] that are eligible for such payments.

Overview of 2003 Update Regulation

Each year, the Department must review and make adjustments to APC groups, weights, etc., as described below; we may also propose changes in methodology and policy. The 2003 update is based, for the first time, on hospital claims submitted under the OPPS (CY 2001 claims). The most significant provisions in the proposed rule for 2003 concern the methods used to recognize the cost of former pass-through items.

Annual Review and Revisions:

Each year, we are required to:

  • Review and revise the APC groups, that is, which services are included in each APC.
  • Recalibrate the weights applicable to the APCs.
  • Update payment levels to reflect inflation by increasing the conversion factor.
  • Update the wage index values used to adjust for geographic differences in hospitals’ costs.
  • Estimate aggregate spending on pass-through drugs and devices for the following year and, if the estimate exceeds 2.5 percent of total spending, impose a uniform reduction on pass-through payments for these items.
  • Update beneficiary copayment amounts to reflect various changes, including statutory limits (as in 2002, 2003 copayments cannot exceed 55 percent of the payment rate).

Data Issues

The 2003 rates will be based on approximately 50 million claims for services paid under the OPPS and provided from January 1, 2001, through December 31, 2001. This year will be the first time that we will be using claims submitted after the implementation of the OPPS to revise rates.

The Centers for Medicare and Medicaid Services has almost doubled the proportion of claims that we will use for setting APC weights. This step should make estimates more robust. We will continue to study ways to incorporate additional types of multiple procedure claims in future years.

Major Provisions

1. Sunset of transitional pass-through payment status

The rule includes a proposed method for incorporating expiring transitional pass-through devices and drugs into the regular payment system. By statute, transitional pass-through drugs and devices are eligible for special payments for two to three years. Beginning January 1, 2003, 95 categories of devices and more than 200 drugs basically those that have received transitional pass-through payments since the first year of the OPPS will lose this eligibility. They will continue to be paid for by the OPPS, but using a different method.

We propose to —

  • Fold all of the costs for the expiring categories of devices into the APCs with the procedures with which they were billed in 2001. Payment for these APCs will be calculated on the basis of median costs derived from the 2001 claims data for all the services and items in the APC.
  • Fold all of the costs of most low-cost expiring drugs[2] into payment for the APCs for the procedures with which they were billed in 2001. We propose to make separate payment based on median costs derived from 2001 claims data for the following:
  • Orphan drugs used solely to treat a rare condition or disease, such as alpha-1-antitrypsin deficiency;
  • Blood and blood products;
  • Vaccines paid under a separate benefit (flu, PPV, and Hepatitis B); and
  • Drugs the median cost of which exceeds a specified threshold  we propose a threshold of $150 per encounter.

Note that payment for all of the drugs with expiring pass-through status would be based on median hospital costs, not 95 percent of average wholesale price (AWP). (Currently such drugs are paid at 95 percent of AWP because they are pass-through drugs.) We expect to package additional drugs, such as those with median costs above $150, in the future, but we believe it would be prudent to wait until another year of claims data is available and further analysis can be performed before proceeding further.

  • Fold all of the costs of brachytherapy seeds and delivery systems used to treat prostate cancer into payment for the prostate therapy. For brachytherapy used to treat cancer of other organs, we propose to pay separately for the brachytherapy seeds. In both cases, payment rates would be based on median hospital costs.
2. Establish separate codes for facility payment for evaluation and management services
Facilities currently use the same Common Procedural Terminology (CPT) codes as physicians to report clinic and emergency department visits, which represent a large proportion of outpatient services. However well these codes capture physician work, they do not reflect well the activities of the facility in supporting these visits. Hospital representatives have persistently questioned us on how to use these codes. Interest in a common set of coding procedures for hospitals remains strong.
The Ambulatory Payment Classification Advisory Committee, a blue-ribbon expert panel that advises the Secretary on OPPS, has recommended that we:
  • Create a new set of HCPCS codes for these services to simplify hospital coding and accurately describe hospital-resource use, and
  • Develop guidelines for the use of these codes.

In response to this concern, we are proposing a new series of five simplified HCPCS codes intended to reflect activities and resource use of hospitals. Because transition to the new codes would require changes to provider and Medicare claims systems and would necessitate considerable provider education, we do not believe it would be prudent to attempt to proceed as soon as January 1, 2003, when the other provisions in this proposed rule would be implemented. Instead, we propose implementation in January 2004.

Other provisions
  1. Allow separate payment for observation services for patients with congestive heart failure, chest pains, and asthma who are directly admitted from a physician’s office.
  1. Clarify payment for inpatient-only services furnished in an outpatient setting when the beneficiary dies prior to admission or is transferred to another hospital.
  1. Allow payment for unscheduled dialysis treatment for ESRD patients in the outpatient department of a hospital under certain exceptional circumstances.
  1. Describe the methodology that is proposed to be used to estimate total pass-through spending for 2003. If pass-through spending is estimated to be less than 2.5 percent, the conversion factor will be increased appropriately in the final rule. (The conversion factor in the proposed rule has been reduced by 2.5 percent to account for pass-through spending.)

Impact of Proposed 2003 OPPS Update

OPPS payments are updated each year based on the increase in the hospital market basket. For CY 2003, we now estimate that this increase will be 3.5 percent. Consequently, we estimate hospitals would receive an average increase of 3.5 percent in total payments (including payments from both Medicare and from beneficiary copayments) as a result of the proposed rule.

[1] For convenience, we will refer only to drugs in the ensuing discussion. However, the same points apply to both drugs and biologicals.

[2] As well as a few drugs that are not eligible for pass-through drugs but that are now “unpackaged.”