The Centers for Medicare & Medicaid Services (CMS) utilizes a specific system to reimburse hospitals for outpatient services, known as the Hospital Outpatient Prospective Payment System (OPPS). This system dictates how Medicare pays for a wide array of services provided in hospital outpatient departments. Understanding what OPPS means is crucial for healthcare providers and anyone interested in the financial aspects of the U.S. healthcare system, particularly concerning Medicare.
Decoding OPPS: Ambulatory Payment Classifications (APCs)
At the heart of OPPS are Ambulatory Payment Classifications (APCs). Think of APCs as groupings of hospital outpatient services that are clinically similar and require comparable resources. CMS assigns every service and item covered under OPPS into an APC. This system allows for standardized payment rates for similar outpatient procedures and treatments performed across different hospitals. When a hospital outpatient department provides services, Medicare payment is determined based on the APC to which those services are assigned.
Within the APC framework, there are also comprehensive APCs (C-APCs). These are designed for certain high-cost primary services. When a C-APC applies, Medicare bundles the payment. This means that a single payment is made for the primary service and all other related items and services provided during the same outpatient visit. CMS considers these bundled services as integral, supportive, and necessary components of the comprehensive primary service. Essentially, C-APCs streamline payment for complex outpatient procedures, covering everything from the main procedure to necessary ancillary services.
To properly bill and receive payment under OPPS, healthcare providers use specific codes. These include HCPCS (Healthcare Common Procedure Coding System) codes, encompassing both Level I CPT® (Current Procedural Terminology) codes and Level II HCPCS codes. These codes are essential for classifying services and linking them to the appropriate APC for payment processing.
Addressing High-Cost Cases: Outlier Payments in OPPS
While APCs provide a standard payment, OPPS also incorporates a mechanism to protect hospitals from significant financial losses when dealing with exceptionally expensive outpatient services. This is achieved through outlier payments. These additional payments are triggered when the cost of a particular service significantly exceeds the standard APC payment.
Outlier payments are calculated based on thresholds. A service qualifies for an outlier payment if its cost surpasses a predetermined multiple of the APC payment amount, and also exceeds the APC payment plus a fixed dollar amount. These thresholds are updated annually by CMS through rulemaking. Outlier payments act as a safety net, ensuring that hospitals are not financially penalized for providing necessary, but unusually costly, care in the outpatient setting.
Integrating Innovation: New Technology APCs
The healthcare landscape is constantly evolving, with new medical technologies and procedures emerging regularly. OPPS is designed to adapt to these innovations through New Technology APCs. These are specifically created to provide a payment pathway for genuinely new services while CMS gathers sufficient data to appropriately categorize them within the standard clinical APC system.
To qualify for a New Technology APC, a service must meet stringent criteria:
- Novelty: The service must be truly new and not adequately described by existing HCPCS codes or fit into existing clinical APCs.
- Pass-Through Payment Ineligibility: Generally, services eligible for transitional pass-through payments cannot also be assigned to a New Technology APC (although exceptions may exist for comprehensive services involving devices or drugs that could individually qualify for pass-through payments).
- Medicare Benefit Scope: The service must fall under Medicare benefits and be deemed reasonable and necessary according to Medicare guidelines.
Services are typically paid under a New Technology APC for two to three years. This timeframe allows CMS to collect enough claims data to properly analyze the service’s clinical characteristics and resource utilization. After this period, the service is reassigned to a more clinically and resource-appropriate standard APC. The payment rate for a New Technology APC is based on a cost band that aligns with the estimated cost of the new service. Healthcare providers can apply for New Technology APC assignment through the MEARIS™ portal, with determinations made quarterly.
Supporting Access to Cutting-Edge Technologies: Transitional Pass-Through Payments
Beyond New Technology APCs for complete services, OPPS also includes transitional pass-through payments. These payments are specifically designed to provide temporary additional funding for new medical devices, drugs, and biologicals. The purpose is to facilitate patient access to innovative technologies that are too new to be fully reflected in the data used to set standard OPPS payment rates.
Pass-through payments are granted for a limited period, typically two to three years, while CMS gathers more comprehensive cost data on these new items. It’s important to distinguish pass-through payments from New Technology APCs: pass-through payments are for specific components (devices, drugs, biologicals) used within a service, whereas New Technology APCs cover the entire service itself.
Pass-Through Payments for Devices
For medical devices, Section 1833(t)(6) of the Social Security Act outlines the OPPS Device Pass-Through payment policy. To qualify, devices must meet specific criteria detailed in 42 CFR 419.66. The pass-through payment amount covers the cost of the device exceeding what is already included in the standard APC payment for the associated procedure. Once the pass-through period ends, the cost of the device is incorporated into the regular OPPS payment rate for related procedures.
Pass-Through Payments for Drugs and Biologicals
Similarly, Section 1833(t)(6) also allows for transitional pass-through payments for certain new drugs and biologicals. These are for drugs and biologicals that were not paid as outpatient department services as of December 31, 1996, and whose cost is “not insignificant” relative to the OPPS payments for associated procedures.
CMS defines “not insignificant cost” based on three conditions:
- The average cost of the drug or biological exceeds 10% of the relevant APC payment for the associated service.
- The average cost exceeds the drug/biological portion of the APC payment by at least 25%.
- The difference between the average cost and the drug/biological portion of the APC payment exceeds 10% of the APC payment for the related service.
The payment rate for drugs and biologicals receiving pass-through payments is generally the Average Sales Price (ASP) plus 6%, minus the portion of the APC payment that CMS attributes to the drug or biological. Like device pass-through payments, these are also temporary, lasting for at least 2 but no more than 3 years.
Important Note: This explanation provides a general overview of OPPS. It is not a substitute for official regulations and guidelines. For detailed and accurate information, always refer to the official CMS resources, statutes, and regulations. Healthcare providers should consult the specific statutes, regulations, and interpretive materials for a complete understanding of OPPS and its requirements.
