On November 2, 2015, President Obama signed the Bipartisan Budget Act of 2015 (“Act”) into law significantly impacting how Medicare pays certain off-campus hospital departments.  Specifically, Section 603 of the Act provides that items and services furnished at off-campus departments of a hospital will not be reimbursed under the hospital outpatient prospective payment system if items and services furnished at that off-campus department were  not billed as outpatient hospital services prior to the date of the Act’s enactment (i.e., November 2, 2015). Instead, items and services at such off-campus departments will be paid under applicable non-hospital payment systems (such as the physician fee schedule) beginning January 1, 2017 (the text of the Act can be accessed here). Providers currently in the process of establishing a new off-campus hospital department, either through conversion of an existing location or through acquisition, will want to reevaluate their plans in light of the new payment rules for off-campus hospital departments.


Currently, a clinic that operates as provider-based to a hospital is reimbursed under the outpatient prospective payment system (“OPPS”) which usually, but not always, results in increased Medicare payment for the services provided at that location.  To be paid under the OPPS as a hospital department, provider-based clinics are required to meet a number of requirements designed to demonstrate that the clinic is integrated with the main provider.  The increased payment that most provider-based clinics receive under the OPPS is intended, in part, to compensate the clinics for additional costs associated with operating as part of the main hospital.

Opponents of the payment differential between provider-based clinics and freestanding clinics, including the influential Medicare Payment Advisory Commission (“MedPAC”), have for years advocated that Medicare should pay the same amount for the same service, regardless of the setting in which the service is provided.  Opponents have argued that the current system creates incentives for hospitals to convert previously freestanding clinics to provider-based departments, leading to higher cost-sharing obligations on beneficiaries and increased spending for Medicare as a whole.

New Payment Rules 

The Act appears to be the first step by Congress  to address some of the concerns raised by MedPAC and others.  Under Section 603 of the Act, items and services furnished to Medicare beneficiaries on or after January 1, 2017 by off-campus outpatient departments that were not billing as provider-based prior to November 2, 2015 would not be eligible for reimbursement under the Medicare OPPS.  Instead, they would be reimbursed under other Medicare payment systems, such as the physician fee schedule or the ambulatory surgery center prospective payment system.  This change effectively eliminates any reimbursement incentives to create  new off-campus outpatient hospital departments.


The Acts includes a number of important exceptions.  As noted, the most important is the grandfather provision that protects off-campus departments that were billing Medicare under the OPPS prior to November 2, 2015.  Those off-campus departments will be permitted to continue to bill Medicare as hospital departments even after December 31, 2016.  Interestingly, unless CMS issues contrary guidance in the future, the statutory language suggests that off-campus hospital departments which are established after November 2, 2015 may bill Medicare under the OPPS until the new payments rules take effect on January 1, 2017.

In addition, the new limitations only apply to items and services furnished at locations that are off-campus.  The description of on-campus and off-campus locations in the Act is slightly different from the definitions used in the existing provider-based regulations.  The Act includes in its definition of on-campus not only those facilities that meet the definition of on-campus under the current provider-based regulations (i.e., the physical area immediately adjacent to the provider’s main buildings and other areas and structures that are not strictly contiguous to the main buildings but are located within 250 yards of the main buildings) but also facilities within 250 yards of a “remote location of a hospital.” A “remote location of a hospital” is a facility “furnishing inpatient hospital services under the name, ownership, and financial and administrative control of the main provider.”

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


In light of the changes caused by the Act, providers who are considering establishing an off-campus hospital outpatient department may want  to reconsider financial assumptions that may underlie those plans. Providers should contact the authors of this article with any questions or concerns about these important changes.