The Centers for Medicare and Medicaid Services (CMS) published its 2017 Medicare Outpatient Prospective Payment System (OPPS) proposed rule on July 14, 2016 (the Proposed Rule).  In part, the Proposed Rule addresses CMS’s implementation of Section 603 of the Bipartisan Budget Act of 2015 (Section 603) which significantly limits payment for items and services furnished in certain off-campus provider-based outpatient departments.

Bipartisan Budget Act of 2015 

On November 2, 2015 President Obama signed the Bipartisan Budget Act of 2015 into law. Section 603 of the Act amended the Social Security Act by providing that items and services furnished at off-campus departments of a hospital will not be reimbursed under the OPPS if items and services furnished at that off-campus department were not billed as outpatient hospital services prior to November 2, 2015.  Instead, items and services at such off-campus departments will be paid under another “applicable payment system,” such as the Medicare Physician Fee Schedule, beginning on January 1, 2017.

Section 603 includes a number of important exceptions.  First, the new limitations only apply to items and services furnished at provider-based locations that are off-campus.  On-campus provider-based locations will continue to be paid under the OPPS.  The description of on-campus and off-campus locations in Section 603 is slightly different from the definitions used in the existing provider-based regulations.  Section 603 states that “off-campus” includes not only those facilities that are not “on-campus” (as defined under the current provider-based regulations), but also facilities that are not within 250 yards of a “remote location of a hospital.”

Second, facilities that meet the definition of a “dedicated emergency department” under existing regulations are excluded from the reimbursement change and may continue to receive provider-based reimbursement even if located off-campus.

Third, Section 603 includes an exception for grandfathered off-campus provider-based locations.  This grandfather exception protects off-campus provider-based departments that were furnishing services and billing Medicare under the OPPS prior to November 2, 2015.  Those grandfathered off-campus provider-based departments will be permitted to continue to bill Medicare for currently provided items and services as hospital departments under the OPPS after December 31, 2016.

Section 603 left hospitals with a number of questions regarding the limitations for off-campus hospital departments.  For example, Section 603 did not address the expansion, changes in ownership, or relocation of grandfathered facilities. The Proposed Rule, discussed below, addresses many of these unanswered questions.  In almost every case, CMS has proposed a restrictive interpretation of the language included in Section 603 that will, undoubtedly, have the effect of reducing the number of items and services furnished in off-campus provider-based departments which can be reimbursed under the OPPS.

For more information about the background of Section 603 visit our previous article here.

Excepted Items and Services- Use of Terminology

In the Proposed Rule, CMS refers to off-campus provider-based departments that meet one of the statutory exceptions described above, as “excepted” provider-based departments and the items and services provided in these locations as “excepted” items and services.  Similarly, CMS uses the term “nonexcepted” when referring to a location or items or services that are subject to the new payment limitations.

Relocation; Expansion of Footprint  

CMS interpreted the language of Section 603 to strictly limit the relocation of an excepted location if a hospital wants to continue billing for items or services at an excepted location under the OPPS.  Specifically, the Proposed Rule provides that “excepted off-campus [provider-based departments] and the items and services that are furnished by such departments would no longer be excepted if the excepted off-campus [provider-based department] moves or relocates from the physical address that was listed on the provider’s hospital enrollment form as of November 1, 2015.”  CMS went on to say that the unit number is considered to be part of the physical address, and thus, that an excepted off-campus provider-based department also could not expand or move into different units of the same building and remain excepted.  An off-campus provider-based department that relocates would lose its excepted status under the Proposed Rule and would no longer be able to bill under the OPPS.

In its explanation, CMS stated that allowing excepted departments to relocate and continue billing under the OPPS could result in hospitals relocating excepted off-campus departments to larger facilities, purchasing additional physician practices, moving these practices into the larger relocated facilities, and receiving OPPS payment for services furnished at these new locations, which CMS believes Section 603 was intended to preclude.

CMS is seeking comments on whether it should develop a clearly defined, limited relocation exception process for hospitals faced with natural disasters, experiencing extraordinary circumstances, or for other circumstances that are completely beyond the control of the hospital and would require an off-campus provider-based department to relocate.

CMS has historically permitted the expansion of the footprint of an off-campus provider-based department as long as the physical address of the off-campus department does not change.  These CMS determinations have been made in the context of critical access hospitals expanding the footprints of their already existing off-campus departments, so it remains to be seen whether CMS would apply a similar analysis under the current Proposed Rule.

Expansion of Services

CMS also stated that it believes that the limitation in Section 603 only “excepts those items and services that were being furnished and billed by off-campus provider-based departments prior to November 2, 2015.”  As a result, CMS has proposed prohibited excepted provider-based departments from seeking payment under the OPPS for items and services that it was not furnishing prior to November 2, 2015.

CMS proposed categorizing items and services into 19 “clinical families,” which are identified in a table in the Proposed Rule.  If an excepted provider-based department furnished and billed for a service within a clinical family of services prior to November 2, 2015, then any services included in that same clinical family would be excepted and eligible for payment under the OPPS going forward.  If the off-campus provider-based department, however, did not provide any services within a clinical family prior to November 2, 2015, then all of the services within that clinical family would be ineligible for payment under the OPPS if added at the off-campus provided based department after November 2, 2015.  CMS is not proposing a timeframe in which services needed to be billed under the OPPS at a location in order to be excepted going forward.  Instead, CMS is seeking public comment on whether it should adopt such a timeframe.  CMS gave an example timeframe of Calendar Year 2013 through November 1, 2015 in which an item or service would have needed to be furnished and billed under the OPPS at that off-campus location in order to count as an excepted service such that it and any other services within its clinical family could continue to be billed under the OPPS at that location.

CMS did emphasize in the Proposed Rule that it is not seeking to limit the volume of excepted items and services within a clinical family of services that are eligible for payment under the OPPS.  In other words, a provider-based department can increase the number of services furnished at an excepted location as long as the expanded services are within the same clinical family as the services furnished prior to November 2, 2015.

Change in Ownership 

Currently, if a Medicare-participating hospital, in its entirety, is sold or merges with another hospital, the provider-based status of off-campus locations generally transfers to the new owner.

CMS is proposing that the excepted status for an off-campus provider-based department would be transferred to new owner only if ownership of the main provider is also transferred and the Medicare provider agreement is accepted by the new owner.  If the hospital’s Medicare provider agreement is terminated, all excepted provider-based departments and the excepted items and services furnished by such departments would no longer be eligible for payment under the OPPS.   If finalized as proposed, this limitation could impact the decision of how to structure future hospital and system acquisitions.

Alternative Payment System 

Section 603 provides that items and services furnished at nonexcepted provider-based departments will be paid under an “applicable payment system” other than the OPPS beginning January 1, 2017.  CMS said that in the majority of cases, this payment system would be the Medicare Physician Fee Schedule (“MPFS”).  CMS acknowledged that nonexcepted off-campus departments could still be provider-based departments of a hospital (Section 603 only impacts the Medicare reimbursement for nonexcepted facilities and nonexcepted items and services). CMS, however, noted that it does not currently have the systems capabilities to allow an off-campus provider-based department to bill and be paid under any other system than the OPPS.

CMS has projected numerous regulatory and operational changes that will need to be made (including changes to enrollment and billing forms and processes) in order to allow for a hospital to bill and be paid for nonexcepted items and services under any other system than the OPPS.  This may include CMS establishing a completely different provider/supplier type for the nonexcepted off-campus provider-based departments and for nonexcepted items and services.  CMS is projecting that it will not have a straightforward way for hospitals to do this billing until CY 2018.  CMS proposes a temporary 1-year solution (for CY 2017) that the nonexcepted items and services would be billed and paid for in the off-campus provider-based department under the MPFS at the nonfacility rate instead of the facility rate.  There would be no separate facility payment made to the hospital, and the beneficiary cost sharing for such nonexcepted items and services would be the same as if the service were provided in a freestanding facility.

Nonemergency Services Furnished at a Dedicated Emergency Department

As noted above, Section 603 included an exception to the new payment limitations for items and services furnished by a dedicated emergency department.  Industry stakeholders had wondered whether this exception would apply to all services provided at dedicated emergency departments or only to emergency services.  CMS has proposed to include in the exception all services furnished in a dedicated emergency department, whether or not the services are emergency services.  Thus, all services furnished in a dedicated emergency department would continue to be eligible for payment under the OPPS, as long as the facility continues to meet the definition of a dedicated emergency department.

Unanswered Questions 

340B. Eligibility for 340B drug pricing includes a requirement that the costs associated with the site must be included as a reimbursable cost center on the hospital’s cost report.  CMS did not directly address the impact that Section 603 could have on the eligibility of off-campus provider-based locations to participate in the 340B Program, and did not address cost reporting issues.  However, CMS made clear in the Proposed Rule that hospitals could continue to consider off-campus outpatient departments to be departments of the hospital, even if they are nonexcepted.  Thus, the hope is that the off-campus departments could still be included as cost centers on the hospital’s cost report and thus eligible for 340B participation.  While the 340B Program is administered by the Health Resources and Services Administration (HRSA), not CMS, many within the healthcare industry had hoped that CMS would at least address the issue as part of its rule making process.   HRSA is unlikely to provide formal guidance regarding the impact of Section 603 on 340B eligibility until after CMS publishes a Final Rule in the fall, if ever.  In view of this lack of clarity, there is risk that nonexcepted facilities will not be eligible to participate in 340B.  This issue should be raised by hospitals in their comments to the proposed rule.

Enrollment of Nonexcepted Facilities.  CMS did discuss the possibility of establishing a new provider/supplier type in order to allow off-campus provider-based departments to bill and receive payment from Medicare for nonexcepted items and services.  CMS did not, however, make any specific proposals at this time.  Instead, CMS is soliciting comments on changes that would need to be made in order to allow an off-campus provider-based department to bill for nonexcepted items and services furnished under an alternative payment system.

Under development locations.  Another issue that CMS did not directly address in the Proposed Rule was the impact on off-campus provider-based departments there were under development prior to November 2, 2015 but that had not yet billed for any services under the OPPS.   However, a new, separate, piece of bipartisan legislation has been introduced in Congress and has passed the House, called “Helping Hospitals Improve Patient Care Act of 2016” which, among other things, addresses the “under development” issues that stemmed from the enactment of Section 603.  Specifically, the legislation would allow hospitals that were already building new off-campus outpatient departments at the time Section 603 was passed, to have grandfathered status for those off-campus departments (the “mid-build” exception).  In order to meet the mid-build exception, the proposed legislation would require the hospital to have had a binding written agreement in place with an outside unrelated party for the construction prior to November 2, 2015, and that the hospital submitted a provider-based attestation by December 31, 2016.  The proposed legislation also includes an “already billing” exception that would provide grandfathered status for off-campus departments that had attested to provider-based status prior to December 2, 2015 (the “already billing exception”).  Whether this proposed legislation passes Congress remains to be seen.  Without it, however, there is no grandfathered status for locations that were under development prior to enactment of Section 603.


Hospitals should consider submitting comments to CMS given the significant impact the proposed changes will have on the financial feasibility of off-campus hospital departments in the future.  Comments on the proposed rules are due no later than 5:00 p.m. EST on September 6, 2016. A copy of the Proposed Rule is available here.  Please contact the authors or any member of the Dorsey & Whitney health care practice group with any questions.