CMS Plays The Wicked Witch of the West Due To Their Site-neutral Outpatient Payment Rule

July 18, 2016 Phil C. Solomon

CMS Becomes Arch Nemesis of Hospitals with Plans for Site-neutral Rates in Outpatient Payment Rule

CMS Witch of the WestTo hospitals, the Centers for Medicaid & Medicare Services (CMS) is acting like the terrible Wicked Witch of the West from the movie the Wizard of Oz because of their proposed plans for site-neutral rate reductions.  The 2017 Hospital Outpatient Prospective Payment System (OPPS) and Ambulatory Surgical Center (ASC) Payment System (CMS-1656-P) proposal changes were submitted on July 6, 2016.  The law provides for payment system policy changes, quality reporting provisions, and reduced pay rates that many hospitals would prefer to douse with water and have them disappear like the Wicked Witch rather than have payments reduced at their off-campus facilities.

CMS is proposing a number of policies they believe will improve the quality of care Medicare patients receive.  A key piece of the 2017 proposed legislation is the implementation of Section 603 of the Bipartisan Budget Act of 2015. This law affects how Medicare pays for certain items and services furnished by certain off-campus outpatient departments.  Also, CMS is proposing to remove the pain management dimension of the Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) survey for purposes of the Hospital Value-Based Purchasing Program (VBP).

The OPPS and ASC proposed rule is one of several slated for 2017 that reflect a broader administration-wide strategy to create a healthcare system that results in better care, smarter spending, and healthier people.

The American Hospital Association (AHA), a not-for-profit association that advocates for provider organizations that include nearly 5,000 hospitals, healthcare systems, networks, other providers of care and 43,000 individual members, disagrees with CMS.  Tom Nickels, the Executive Vice President, Government Relations and Public Policy for the AHA issued a statement on July 6, 2016, expressing its disappointment with CMS’ “short-sighted” proposal.

“Hospitals and health systems and more than half of the House and the Senate requested that CMS provide reasonable flexibility when implementing Section 603 of the Balanced Budget Act of 2015 in order to ensure that patients have continued access to hospital care,” Nickels, with the AHA, said.  “Instead, the agency is proposing to provide no funding support for outpatient departments for the services they provide to patients.  This does not reflect the reality of how hospitals strive to serve the needs of their communities.  Also, CMS’ refusal to continue current reimbursement to hospitals that need to relocate or rebuild their outpatient facilities to provide needed updates and ensure patient access is unreasonable and troubling.”

The AHA is not the only industry group that disagrees with CMS.  America’s Essential Hospitals (AEH), a trade group that represents safety-net providers, said that CMS “appeared to ignore Congress’ intent” to use a different payment system for new hospital-owned outpatient facilities.  “Hospital systems that otherwise would seek to enhance access by establishing new clinics in underserved areas will not do so, as this damaging payment policy makes new outpatient centers economically unsustainable,” the organization said in a statement.  Based on comments to date from providers it appears that CMS will have its work cut out for them as they sift through the public’s feedback.  They will accept comments on the proposed rule until September 6, 2016, and will respond to comments in a final rule.  The rule is available in the Federal Register and can be downloaded at

The fundamental changes in the OPPS, and ASC payment system proposed rule include:

  1. Site-neutral payment provisions for emergency departments
    Under the proposed rule, services provided in a dedicated emergency department would continue to be paid under the OPPS and CMS proposed certain restrictions on off-campus provider-based departments that began billing under the OPPS before November 2, 2015.
  2. Payment update
    CMS has proposed updating the OPPS rates by 1.55 percent in 2017.  CMS arrived at its proposed rate increase through the following updates: a positive 2.8 percent market basket update, a negative 0.5 percent update for a productivity adjustment and a negative 0.75 percent update for cuts under the Affordable Care Act.  After considering all other policy changes included in the proposed rule, CMS estimates OPPS payments would increase by 1.6 percent and ASC payments would increase by 1.2 percent in 2017.
  3. Hospital Value-Based Purchasing Program
    Beginning with the fiscal 2018 program year, CMS has proposed removing the pain management dimension of the HCAHPS survey of the VBP.  It is their belief that leaving the section in the rule puts pressure on hospital staff to prescribe more opioids and that is ill advised.
  4. Electronic Health Record Incentive Program
    To offer greater flexibility in the meaningful use of the Electronic Health Record Incentive Program (EHR), CMS has proposed a 90-day EHR reporting period in 2016 for all eligible professionals and hospitals.  The reporting period would be any continuous period of 90 days between January 1, 2016, and December 31, 2016.   Also, CMS noted that it is not feasible for physicians and hospitals that have not demonstrated meaningful use in a prior year to attest to the Stage 3 objectives and measures in 2017.  Under the proposed rule, these new participants would be required to attest to Modified Stage 2 by October 1, 2017.
  5. Hospital Outpatient Quality Reporting Program
    CMS offers hospitals a financial incentive to report the quality of their services.  The hospital reporting program provides CMS with data to help consumers make more informed decisions about their healthcare.  For 2017, CMS has proposed adding seven measures to the Outpatient Hospital Quality Reporting Program for the 2020 payment determination and subsequent years.  Some of the hospital quality of care information gathered through the program is available to consumers on the Hospital Compare website at:

In addition to the changes proposed for site-neutral rates in OPPS and ASC, the 764-page draft rule proposes adjustments to the following:

  • Proposed Comprehensive Ambulatory Payment Classifications (C-APCs) for 2017;
  • Proposed Packaged Services Policy Refinements;
  • Device-Intensive Procedure Policies;
  • Device Pass-Through Applications;
  • Inpatient Only List Paid Under The IPPS;
  • ASC Payment Update;
  • Partial Hospitalization Program (PHP) Rate Setting;
  • Hospital Value-Based Purchasing Program;
  • Organ Transplant Enforcement;
  • EHR Incentive Program; and
  • Ambulatory Surgical Center Quality Reporting Program.


CMS is expecting numerous comments on their rule changing proposals.  I’m sure many stakeholders who are vying to change the proposed OPPS and ASC wished they had the all-knowing Wizard of Oz on their side to help them build a compelling case in their favor.

Based on AHA and AEH’s comments, you would think CMS has become an arch-nemesis flying around on a broomstick trying to do harm to their members.  It is the job of the AHA and AEH to protect its members, so it is no surprise they are stepping up to guard their interests.

Does the proposed rule change make sense?  The law seems to discourage organizations from expanding or duplicating services and this may play a part in reducing healthcare costs.  Perhaps encouraging providers to consolidate services into one location would offer some benefits.  Combining specialties into one place would improve parking and access for the sick and elderly population who otherwise have to navigate their way around large campuses.  Consolidation of services impacts workflow, timeliness, and efficiency and would reduce maintenance and other building costs, and eliminate duplicate staffing.

Unfortunately, many facilities have limited land for contiguous expansion.  They will be forced to build upward to avoid the negative financial repercussions the new law will pose.  Since CMS is actively seeking comments on a number of their proposals; there is a good chance that many items inside of the rule will change.  Will CMS’ site-neutral payments rule save Medicare about $500 million in 2017 as they projected?  Only time will tell.


Phil C. Solomon is the publisher of Revenue Cycle News, a healthcare business information blog and serves as the Vice President of Global Services for MiraMed, a revenue cycle outsourcing company.  Phil has over 25 years experience consulting on a broad range of healthcare initiatives for revenue cycle optimization, where he has developed executable strategies for revenue enhancement, expense reduction, and clinical transformation. Previously, he was the CEO of a Fast-Tech 50 healthcare firm, a principal at an INC Magazine’s top 500 Company and he has held various senior leadership positions with national and global business process outsourcing firms. He is an active member of the HFMA Georgia Chapter, has published over 250 articles about revenue cycle optimization and healthcare reform and is a featured speaker at industry educational events. You can reach him at, 404-849-8065 or on Twitter @philcsolomon.

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