On September 28, the Centers for Medicare and Medicaid Services (CMS) published a proposed rule (Proposed Rule) entitled “Medicaid Program; Clarification of Outpatient Clinic and Hospital Facility Services Definition and Upper Payment Limit” that could have potentially significant effects on Medicaid reimbursement for outpatient hospital services. The Proposed Rule would both narrow the regulatory definition of outpatient hospital services and adopt restrictive and mandatory approaches to calculating the upper payment limits (UPLs) for outpatient hospital and clinic services provided by private providers.
Although the magnitude of the impact of the proposed changes are unclear, the Proposed Rule may result in lower payments for hospitals, as some services would (a) no longer be reimbursable as outpatient hospital services, (b) no longer be included in calculating the outpatient hospital UPL, and (c) no longer be reimbursable through disproportionate share hospital (DSH) payments. In addition, CMS proposes to reduce state flexibility in calculating the UPL applicable to private clinic services, requiring the use of Medicare fee schedules as the limit rather than costs.
CMS will accept comments until October 29, 2007, either electronically or via U.S. mail. The Proposed Rule as published in the Federal Register (72 Fed. Reg. 55158 (Sep. 28, 2007)) is available at http://a257.g.akamaitech.net/7/257/2422/01ja2007 1800/edocket.access.gpo.gov/2007/pdf/E7-19154.pdf.
SUMMARY OF THE PROPOSED RULE
A. Narrowing The Definition Of Outpatient Hospital Services
CMS is proposing to clarify what it describes in the preamble to the Proposed Rule as the current vague regulatory definition of the Medicaid benefit for “outpatient hospital services.” CMS believes that this broad definition is problematic because it overlaps with other covered services. The agency is concerned that states have included non-facility services and non-traditional outpatient services within this broad definition, leading to higher reimbursement than would otherwise be available under the State Plan and potential inflation of the outpatient hospital UPL.
The Proposed Rule would limit the scope of services included in the definition of outpatient hospital services in three ways.
- The Proposed Rule would exclude any services not treated as outpatient hospital services under Medicare. Professional services, for example, would be excluded from the definition, presumably whether or not the hospital bills for the services. States may continue to allow hospitals and physicians to bill for professional services under a separate fee schedule rate.
- The Proposed Rule would exclude services provided by entities that are not provider-based departments of a hospital. Current regulations require only that the services be provided by facilities that meet the requirements for participation in Medicare as a hospital.
- The Proposed Rule would exclude services covered elsewhere in the State Plan. For example, in the preamble to the proposed regulations, CMS explicitly mentions school-based services, adult day health and rehabilitative services, and services paid for under a fee schedule, such as services provided by Federally Qualified Health Centers. CMS also suggests that hospital-based rural health clinic services would be excluded from the proposed definition.
States would be permitted to continue to cover services excluded from the definition of outpatient hospital services, but would not be permitted to reimburse them as outpatient hospital services. In addition, though CMS does not discuss this implication in the Proposed Rule, under current CMS policy, services excluded from the narrowed definition of outpatient hospital services would no longer be eligible for DSH reimbursement because they would not be considered costs incurred by a hospital.
B. Revisions To The Private Outpatient Hospital And Clinic Upper Payment Limits
CMS further proposes to clarify the current definition of the private outpatient hospital and clinic upper payment limits (UPL). First, CMS explicitly proposes that states only include services in the outpatient hospital UPL if they:
- Meet the proposed definition of outpatient hospital services described above, and
- Appear on the outpatient-specific Medicare cost report worksheets. Second, CMS proposes to limit states’ calculation of the hospital outpatient UPL to one of two permissible methodologies:
- An estimate of Medicare allowable cost calculated based on ratios of costs-to-charges, taken directly from designated sections of the Medicare cost report; or,
- An estimate of Medicare allowable payment calculated based on ratios of payments-to-charges derived from designated sections of the Medicare cost report.
Note that in dictating the specific sections of the Medicare cost report that a state may use in calculating cost information for the outpatient UPL, CMS may effectively exclude GME costs from the outpatient costs that a state can include. CMS claims in the preamble that it currently requires compliance with one of these methodologies when states submit State Plan Amendments related to outpatient services.
Finally, the Proposed Rule would require states to calculate the UPL for private clinics either by:
- Adopting reimbursement methodologies that pay a specified percentage, not greater than 100%, of the Medicare rate; or
- Demonstrating that in the aggregate Medicaid fee schedule rates are less than what Medicare would pay based on a comparison by CMS Current Procedural Terminology (CPT) code to the amount Medicare pays for equivalent services.
Under this proposal, states would not have the option of calculating the clinic UPL based on the clinic’s costs. As Medicare outpatient fee schedule rates are much lower than cost, this could impact providers in certain states. The proposed regulation would explicitly permit states to include dental services in the clinic UPL calculation, using the Medicaid fee schedule as the UPL.
C. Potential Violations Of Legislative Moratorium
There is concern that this Proposed Rule may violate a legislative moratorium on CMS action included in a supplemental funding bill signed into law in May 2007. Section 7002(a) of the U.S. Troop Readiness, Veterans’ Care, Katrina Recovery and Iraq Accountability Appropriations Act of 2007 (Pub. L. No. 110-28) prohibits the Secretary of the Department of Health and Human Services from taking any action to finalize or implement (1) provisions of a rule to limit Medicaid reimbursement for governmental providers to cost, and (2) any rule to restrict Medicaid graduate medical education payments. Some providers are concerned that CMS may have violated this language by reissuing sections of the cost limit rule and potentially restricting Medicaid GME payments. CMS explicitly states in the preamble that the Proposed Rule does not violate this moratorium.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.