October 30, 2015
Without fanfare or any significant discussion, the Bipartisan Budget Act (Act) contains the first legislative action related to provider-based status—and it is a sweeping action with negative financial consequences to many hospitals. The Senate passed the Act early this morning, and it is headed to the President for signature. The changes take effect on the day President Obama signs the Act, which is expected to be November 2, 2015.

Section 603 of the Act pertains only to “new, off-campus” provider-based departments. A new provider-based department is any department that has not submitted a provider-based claim to Medicare by the date the law is enacted. An off-campus department is any department that is located more than 250 yards from the main hospital, though this range may be slightly extended by regional offices on a case-by-case basis.

The Change
Under the Act, new off-campus hospital outpatient departments are virtually shut down. Specifically, for any off-campus department or facility that submits a claim to Medicare for a hospital outpatient service for the first time after the date of enactment, payment under the hospital outpatient prospective payment system (OPPS) will be available only through December 31, 2016. After that date, services at that facility may be paid under another available Medicare payment system, depending upon that facility’s service type. For example, the facility could be paid under the physician fee schedule or the ASC payment system (or another payment system), as long as the facility meets all other requirements for payment under that system. For any other payment system, the facility must first enroll in Medicare as the applicable supplier-type (clinic, ASC, IDTF or other type). Certain supplier types (e.g., ASCs, IDTFs) also may be required to meet other conditions for participation. Accordingly, “new, off-campus” provider based departments/facilities must plan for the end of payments under the OPPS and the enrollment timing issues to be enrolled and paid as a new supplier type with minimal disruption in payment.

In contrast to other recent laws in which moratoria were placed on the development of new facilities (e.g., LTACHs, physician-owned hospitals), the Act includes no exemptions for projects for which funds have been incurred, accrued or spent but for which the facility has not yet become operational.

The Protected Group
All off-campus provider-based departments that are currently operating and billing Medicare under the OPPS are grandfathered under the Act and may continue to receive payment under the OPPS even after December 31, 2015.

Can We Become Protected?
For hospitals currently considering an off-campus department, whether by acquisition or through new implementation, the only way to become and remain provider-based beyond December 31, 2015 is to submit a claim under OPPS for services at that department/location before November 2, 2015. But, hospitals should not submit an outpatient hospital claim unless the location/facility otherwise meets all of the provider-based rules at 42 C.F.R. § 413.65 on the date of service that is billed. This is a tall order for any hospital that isn’t already at the full operational and compliance stage for an off-campus department.

Just the Beginning?
This legislation appears to have arrived out of thin air with respect to the discussion and drafting, leaving many questions regarding its promulgation process unanswered. This is the first step towards site-neutral payments, a topic of significant discussion within CMS, MedPac, OIG and industry stakeholders in the past several years. The expansion of provider-based departments in the last 10+ years, many with questionable hospital services according to the OIG, appears to have sharpened the focus on reducing the incentive for hospitals to turn ordinary physician practices into hospital outpatient departments. The incentive is created through generally higher payments for the same or similar services under OPPS than are available to free-standing facilities. By removing the option to have an off-campus provider-based department that is not already in place, Congress has taken a bold step towards site-neutral payments. The next steps may be to remove the protection for grandfathered facilities and/or the current protection for on-campus departments. It may be possible that discussions in the ensuing months could revise aspects of the Act or delay the end-date for new off-campus locations past December 31, 2016, but it is too early to speculate whether these changes are likely.

CMS may yet propose rules to define and implement the Act as well as clarify the scope of the current provider-based requirements that continue to apply to existing off-campus locations that are grandfathered or on-campus locations that remain unaffected by the Act. These rulemaking efforts are likely to appear in the proposed OOPS rules typically issued by CMS in the summer of each year.

340B Implications
The quiet yet significant change also impacts a hospital’s ability to take advantage of 340B drug pricing in these off-campus departments/facilities that are not operational and billing Medicare as of the date of enactment. Whether this is an unintended consequence of the bipartisan effort to find budget cuts or perhaps a more targeted approach is unknown. Either way, any future cancer treatment program that had been on the drawing boards (or even scheduled to open) with drug purchasing to occur under the 340B program will no longer be possible. Access to care in many areas may be yet another casualty of this Act as many hospitals cannot afford to offer these services in off-campus locations without 340B pricing.