For those in the hospital industry hoping for additional clarity regarding the operation and billing of provider-based departments (PBDs), the CY 2017 Outpatient Prospective Payment System (OPPS) Proposed Rule provides some much-needed insight but raises additional concerns. In the Proposed Rule, the Centers for Medicare & Medicaid Services (CMS) sets forth how the agency intends to implement Section 603 of the Bipartisan Budget Act of 2015 (BBA), which introduced site neutrality for new off-campus hospital outpatient departments. Section 603 requires that certain items and services furnished by certain off-campus PBDs shall not be considered covered outpatient department services for payment purposes beginning January 1, 2017, but instead will be reimbursed “under the applicable payment system.” The Proposed Rule, seeking to operationalize the BBA provision, addresses how renovations or changes in the items or services provided by the PBD may impact its ability to continue to bill hospital outpatient services.

CMS prefaces discussion of the agency’s hard-handed implementation proposal by citing that Section 603 of the BBA is “intended to curb the practice of hospital acquisition of physician practices that then result in receiving additional Medicare payment for similar services. This language and focus is echoed throughout the Proposed Rule.” As discussed below, the Proposed Rule, if adopted, will have a much broader impact on hospital operations than merely reducing acquisitions and will pose significant implementation challenges for hospitals and Regulators alike. Characterizing the Proposed Rule as “short-sighted” and “unreasonable,” the American Hospital Association cautions that the CMS proposals could “freeze the progress of hospital-based health care in its tracks.”

Excepted Items and Services

“Excepted” off-campus PBDs and items and services furnished by excepted PBDs that would continue to be paid under the OPPS after January 1, 2017, include:

  • All items and services furnished by a dedicated emergency department (whether existing or new), including both emergency and nonemergency services.
  • Items and services provided by an on-campus PBD and PBDs within 250 yards (straight-line measurement) from any point of a remote location.
  • Items and services furnished and billed by an off-campus PBD prior to November 2, 2015.

CMS is soliciting comments on how best to identify non-excepted PBDs and services, but the agency will not collect this information for CY 2017.

Requirements for Off-campus PBDs to Maintain Excepted Status


Not persuaded by stakeholders urging allowances for relocation of off-campus PBDs, CMS proposes that excepted off-campus PBDs and the items and services furnished by such departments would lose their excepted status if the PBD moves or relocates from the physical address (specific to unit number) listed on the provider’s hospital enrollment form (CMS 855A) as of November 1, 2015. According to the agency’s narrow interpretation of Section 603, excepted PBDs that have specific unit numbers on their CMS-855A would not be able to expand or relocate into other units of a multi-unit building and still maintain their excepted status. However, CMS does not explicitly discuss physical expansions within an existing address that do not include a unit designation, such as adding floors to an existing single occupancy building. The agency is also soliciting comments on whether to include an “extraordinary circumstances” exception in the event of a natural disaster or other circumstance beyond the provider’s control.

Change of Ownership

An excepted off-campus PBD involved in a change of ownership may maintain its excepted status if the ownership of the main provider is also transferred and the Medicare provider agreement is accepted by the new owner. If the Medicare agreement for the main provider is terminated, an off-campus PBD will lose its excepted status. Additionally, a single excepted off-campus PBD cannot be transferred to another hospital and maintain its excepted status.

Expansion of Clinical Services

Although Section 603 does not make this distinction, CMS proposes that OPPS reimbursement be limited to those service lines furnished and billed by the excepted off-campus PBD prior to the BBA’s date of enactment. To that end, the Proposed Rule would establish 19 “clinical families of services” defined by ambulatory payment classification group numbers, including, for example, advanced imaging and general surgery. If an excepted off-campus PBD furnishes services from a clinical family of services that the department did not furnish and bill for prior to November 2, 2015, the services would not be payable under OPPS. In taking the approach to limit the excepted off-campus PBDs to existing service lines, CMS cites to the absence of legislative history showing Congress’s clear intent for the exception. However, recent legislative action by the U.S. House of Representatives to extend “excepted” status to “mid-build” PBDs would certainly impact the proposed new service line limitations.

CMS is seeking public comment on a number of items involving service expansion, including:

  • The proposed categories of clinical families of services;
  • The proposal not to limit the volume of services furnished within a clinical family of services; and
  • Whether there should be a time frame from when those services must have been billed, posing as an example CY 2013 – November 1, 2015.
Applicable Payment System for Non-Excepted Services

CMS advises that it will not have systems in place that allow for non-excepted off-campus PBDs to bill and receive reimbursement under an “applicable payment system” other than the OPPS by January 1, 2017. As such, for CY 2017, the agency proposes to apply the Medicare Physician Fee Schedule (MPFS) as the “applicable payment system” for the majority of non-excepted items and services furnished in an off-campus PBD until CY 2018, when CMS hopes to have a new billing system in place. Under this “one-year solution,” the following options are proposed for non-excepted off-campus PBDs seeking reimbursement:

  • The physician would bill for all services furnished in a non-excepted PBD at the non-facility MPFS rate and the hospital would be forced to seek reimbursement for hospital services from the physician (whether through reassignment or agreement); or
  • Change the enrollment, which is typically a lengthy process, for a non-excepted off-campus PBD to another freestanding facility or supplier type payable under the MPFS (such as physician group practice or ambulatory surgery center).

For lab services, the Proposed Rule provides that a hospital may continue to bill separately under the Clinical Laboratory Fee Schedule. To that end, CMS is requesting comments on the impact of these billing arrangements on hospital-physician agreements and referral arrangements, including Stark and the laws governing the anti-markup and anti-kickback prohibitions.

Admitting that it cannot automate a process that links hospital enrollment information to claims processing for purposes of identifying items and services of specific off-campus PBDs, CMS is seeking comments on requiring hospitals to self-report and maintain information on service lines at each off-campus PBD prior to November 2, 2015. Such documentation would be available to CMS and its contractors upon request.

Comments on the Proposed Rule are due by September 6, 2016. Given the detrimental impact the Proposed Rule may have, we expect many hospitals will wish to weigh in on its effects and offer potential alternative tracks for its implementation.