WSHA Analysis of Proposed 2015 Medicare Outpatient Rule

August 25, 2014

CFOs and Financial Staff at Prospective Payment System Hospitals

From: Andrew Busz, Policy Director, Finance

Staff Contact: Andrew Busz,, 206-216-2533

The purpose of this bulletin is to provide an overview of proposed 2015 Medicare outpatient final rule, which will affect Medicare outpatient payments to Washington State hospitals. This bulletin is also intended to alert members to their opportunity to obtain the detailed hospital-specific analysis done by the Washington State Hospital Association (WSHA) that is available through the secure file transfer mechanism, and to alert members to their opportunity to comment on the proposed rule.

This final rule applies to prospective payment system hospitals and ambulatory surgical centers. The update includes significant proposed changes for hospital-based clinics and other outpatient services.

A new payment rule was released by the Centers for Medicare and Medicaid Services (CMS) on July 14 and published in the Federal Register. The rule applies to payment for outpatient services for outpatient services provided on or after January 1, 2015. The text of the rule can be found here.  CMS will accept comments on the proposed rule through September 2 on its website  (file code “1613P”).

Under the new rule, Washington hospitals could receive an average increase of about 3.5 percent in Medicare outpatient payments. This projection is separate from reductions due to the 2 percent sequestration cuts, still in effect.

WSHA has done a hospital-by-hospital analysis of how the new rule will affect payments, and that report, along with a more detailed summary of the final rule, is available through the secure file transfer mechanism hosted on the WSHA website. Please contact Dane Karnick at for help in getting access to those reports.

Specific changes in the final regulations include:

Marketbasket Update: Prospective payment system hospitals that participate in quality reporting will receive a net 2.1 percent update. The estimated effect of the marketbasket changes combined with other proposed changes to outpatient payment varies significantly among Washington hospitals, ranging from about a 1.5 percent to about a 7 percent increase.

Adjustments to Wage Index and Core Based Statistical Area (CBSA) Delineations: For 2015, CMS is updating the CBSA delineations. Under the proposed rule, the payment impact varies by hospital, but is positive for all Washington hospitals. Because of timing, the impact of wage index could change under the final rule.

Outlier Payment Threshold Change: CMS is proposing a change in the outlier threshold to $3,100 from its current level of $2,900. This is to maintain outlier payments at about 1 percent of APC payments. There are no other changes to the outlier payment formula.

APCs for Device Dependent Procedures and Expanded Bundling: CMS proposes extending and expanding its policy of establishing comprehensive Ambulatory Payment Classifications (APCs) for additional device dependent procedures and will bundle additional items into the APC system. A listing of the services is included in the detailed bulletin available with the hospital-specific analyses.

Rural Sole Community Hospital and Cancer Hospitals: CMS is proposing to continue the current 7.1 percent payment increase provided to rural sole community hospitals and essential access community hospitals. CMS also proposes to continue the policy that provides hospital-specific payment increases to the 11 hospitals identified nationally as cancer hospitals.

New Data Collection for Services Provided in Provider-Based Outpatient Departments: CMS is taking a great interest in hospital-based clinics, citing the growing trend toward hospital acquisition of physician offices and its impact on payment. As a result, it is proposing to collect new data from hospitals in order to differentiate between outpatient services provided directly in a hospital and services provided in off-campus provider-based outpatient clinics. Hospitals would be required to bill for off-campus services using a newly created Healthcare Common Procedure Coding System (HCPCS) modifier. This distinction could then be used to implement payment policy changes in the future. The new data requirement could create operational issues for hospitals. CMS will continue the policy begun in 2014 which collapsed Evaluation and Management Services provided at hospital-based clinics into a single APC and payment level. CMS is not proposing any similar collapsing of Emergency Department services at this time.

Impact of Sequestration Cuts:  The WSHA analysis separately estimates the impact of the 2 percent sequestration cut to Medicare payment as it is applied after patient cost-sharing. The application and impact of sequestration cuts to in-network Medicare Advantage services depends on the specific contract language between the plans and hospitals and is not a part of these estimates.



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