In this episode, Bob Mahoney, Sr. Consultant in our Reimbursement Services team at BESLER Consulting, reviews several important takeaways from the 2017 OPPS Final Rule that will affect hospitals in the coming year.
Michael Passanante: Hi, this is Mike Passanante and welcome to the Hospital Finance Podcast. We’re glad you could be with us. Today, I’m joined by Bob Mahoney. Bob is a Senior Consultant in our Reimbursement Services Team here at BESLER Consulting. And Bob is going to be talking with us today about the recently published OPPS Final Rule. Welcome to the show, Bob.
Bob Mahoney: Thanks, Mike. Thanks for having me. I look forward to talking to you today.
Michael: Yeah, me too. I’m very curious to see what some of the changes were in the rule. And just to get us started, could you give us just an overview of what we’ll be talking about today?
Bob: Yeah. The FY2017 CMS Final Rule for OPPS, which is Medicare outpatient payment, was released on 11/1/2016 and it was in the final register on 11/14/2016. So if you want to look it up for details there.
I’m going to be touching the highlights and significant changes to it. What’s interesting is that it went in effect on 11/1 and on 11/8, as you know, there was an election. And the balance of power and the parties changed and this law, the healthcare law has been a big topic of that.
So this is the law as of January 1st, but we’re looking at it. It could be changing and there could be significant changes and the next year’s conversation could be different. But obviously, we don’t have a crystal ball and we don’t know exactly what those changes are going to be.
Michael: True enough. So if we look at what we know about today, what is the effect of the final rule on OPPS rates?
Bob: Outpatient payments to hospitals are going to go up by 1.65% in the rates in 2017. That is because the 2.7% market basket increase offset by a negative 0.3% update for productivity adjustment and also a negative 0.75% adjustment for cuts under the ACA, which is Obamacare, which is a topic that’s being talked about.
And CMS estimates that along with the 1.65% rates and if you do everything else in the final rule, payments to hospitals will increase by—outpatient Medicare payments to hospitals will increase by 1.7% overall.
It’s a significant number. Outpatient area are growing area. And 1.7% is a good number for hospitals and an increase is always positive. And then that’s what we’re looking to see in 2017, assuming the volume to hospital stays the same. The Medicare payments will go up 1.7%.
Michael: Are there any significant changes to outlier payments?
Bob: Outliers have been around for a while. There’s no significant change in the methodology. Outlier payments for a hospital, if a case is high cost or complex, the hospital is not losing that much money.
The main thing that happened this year is the fixed dollar threshold was raised to $3825 from $3250.16. And that’s basically a charge as to the cost of charge ratio and once the cost gets over $3825, your Medicare allowable cost, then an outlier will kick and you will see increased payments. CMS believes and they have in years past budget outlier payments, 1% of the total outpatient payments.
Michael: Okay. So what about the impact of the wage index on the 2017 OPPS?
Bob: Outpatient payments are subject to the wage index just like inpatient payments. And the main changes were only in three delineations in different counties. And if you’re in these counties, it’s a lot more detailed, but I’ll just briefly go over them.
Garfield County in Oklahoma, which is where Enid, Oklahoma is, has gone from a rural area to an urban area. The other changes are in Bedford, Virginia. They went from being a city to a county. And Macon, Georgia is now Macon Bibb County, Georgia.
This is all based on census reports. And they come up with these changes every year. And like I said, if you’re in these areas, you certainly want to look into the Federal Register and know the detail and it has an impact on your payments going from rural to urban and how you operate your hospital.
Michael: Bob, has there been any changes to the electronic health record incentive programs?
Bob: This is where really the law—it’s such an important thing. Quality becomes such a big part of how we deal with Medicare nowadays and the hospitals’ quality reporting.
Electronic health record is now in phase three and will be through January. You’re going to have a 90-day reporting period in 2017. It would be phase three for eligible hospitals that have already attested to it.
Now, there’s a chance that you can attest with phase three because you get an add-on payment. And if you’re part of the electronic health record, it’s really important that Medicare believes in the electronic health record. And everybody, it’s a national database and everything is on the computer and that’s why we’re going to electronic health record.
So if you attest to it, you’re going to get an add-on payment. And hospitals that didn’t get it in the beginning for whatever reason – they didn’t have the software or the upgrades or the staff failed the attestation, do have another chance. If they do year three they have a chance to do it. They can go back and do phase two and phase one again.
So they really want you to do this. They want you to get that money. They want everybody to be on the electronic health record. And if you don’t do that, you’re going to start getting penalized. So it’s important. It’s part of your operations.
Michael: That makes sense. It’s just where we need to be.
Michael: So you touched on quality a minute ago. Can you talk to us about the hospital patient quality reporting program?
Bob: Like I said, quality, quality, quality is such a big area of what’s going on. And this is the HCAHPS Survey, which every Medicare patient gets after they leave the hospital. And there are eight dimensions.
They took away pain management. It’s subjective. And so they weren’t really getting a good score on that. But still, this is everything that goes to a patient. It’s so important. You’re going to get graded on this.
And the eight that are there now communication with nurses, communications with doctors, responsiveness of hospital staff, communication about medicines, hospital cleanliness and quietness, discharge information, free item, care transition, overall rating on the hospital. This happens just after the patient gets home, they get this survey and they do fill them out. It’s so important that hospitals’ nurses and doctors are friendly to patients, care for patients and the cleanliness.
It seems almost an actual thing to do, but we all get busy and we all do these things. I know at hospitals, they have a lot of programs and they all wear badges and smiling. There’s a badge above your waist and a smile on your face. It’s a slogan in the hospital. You see somebody in the hallway you ask them how they are doing. It’s just those little things.
So it affects payments, it affects payments throughout and it’s going to be a bigger piece going forward that you keep your hospitals clean and everybody knows what’s going on and you care for the patient and nurses and doctors and everybody does a great job taking care of patients. But you do have to make sure that you’re training people to be good with people and know what’s going on and getting everything right and no medical errors or mistakes.
Michael: Bob, if you had to sum up the most significant changes in the 2017 OPPS final rule, what would they be?
Bob: This is one that we saw coming for quite a while. It’s a bi-partisan act and it’s the changes to off-campus, outpatient provider-based payments to hospitals. This is in the proposed rules. There’s a lot of pushback.
And basically what happens is hospitals expand their footprints. If you’re within 35 miles to the hospital, you can apply to CMS and be paid as a provider-based facility for outpatient services. The reasoning there was that you’re part of the hospital. The hospital is ruling it, they’re doing all the quality initiatives and complying, everything that’s going on. And if something goes wrong, you’re close to the hospital.
Well, doctor’s office next door to that for the same procedure is getting paid 50% less with the minimum. So there’s been a lot of push from Medpac and the Office of the Budget saying, “Billion dollars a year, why are you getting paid more if you’re 35 miles away?” It’s just a savings mechanism. You can argue it either way, but it’s a significant change for hospitals as they try to expand their footprints throughout the area.
So the law went into effect and if you weren’t already a provider—but if you were a provider-based site before November 2nd, 2015, you’re still going to get paid a provider-based rate. Had you built the place in 2016 or planning to build one, you’re going to be paid 50% lower. And this is a significant change for hospitals and their budget.
So it’s been quite a bit of pushback, but this is a law that’s here and it’s here to stay. And the final law was just very concrete and that’s it. But there have been some changes.
The final rule proposal had some gray areas and they’ve tried to clean some of those up. And one of them is if you’re on a hospital campus, and the hospital campuses are sprawling, the 250 yard rule was what they used. It used to be front door to front door. But now they’ve changed that and they’re saying it’s going to be up to you or it‘s your discretion where they count from.
So it could be the back of the building. Is it the parking lot to the next building on the campus? And that obviously makes it provider-based. You’re going to get paid as an outpatient rate. So it will help hospitals keep those buildings on site.
The other issue—and there’s a talk about having a law in FY18—is if you already proposed before 2015, before November 2nd, 2015 to build a new building, you didn’t get it done yet but you have the architectural plans, are raising the money, you’re waiting for the site to be ready and you started building it and it would be approved once it was built, shouldn’t that be grandfathered? And hospitals are going to fight that and hopefully that will go into effect for hospitals’ sake.
But I think it’s a significant change, 50% less in payments on outpatients, significant dollars for hospital outpatients. So we’ll see sites that have gone up and also the future of where the hospital is going to go.
The other question that’s come up and they talked about it in the final rule and it’s going to be up to the lawyers and it could become a big issue, if you’re in a building and you lost the lease of the hospital and it was grandfathered in, you’re going to have to find a new building.
The way the law was originally written you’re not going to get the hospital payments. But what they’re doing now is they’re saying if something caused you to have to move that building—and they are not saying loss of lease or saying a seismic, an earthquake building code, other reasons why you have to change that building or aren’t you going to get grandfathered in—you’re providing the same services, the same hospital quality, it was good in November, ’15, then why is it not good now? That’s a significant change.
But really what’s going to happen is hospitals, as they go and plan, outpatients become more and more a bigger part of your business. For patient convenience, patients that want to go deal with a big hospital, they went to a place off on the side to get their EKG and get their treatments done, their radiology procedures, hospitals are making more money. And so they realized, “Why are we paying the hospital more for doing x-ray and paying a physician 50% less for doing the same procedure?” Are you really much safer? You still got to get an ambulance to get to the hospital.
So you can see where this is heading. It’s a significant for hospitals and planning and going forward.
So then they just came up with one year this year. The 50% payment is this year’s payment for ’17 because the rule is happening so quickly we weren’t even prepared for it. So this rule is going to probably change again in ’18, but it doesn’t look good or positive for hospitals. So whatever plans you made, you really need to take a look at that, your staffing and what you’re going to plan and hospitals are really probably going to have to go down the joint venture road or work with physicians to be able to provide that in their name, the outpatient site as part of their hospital.
But knowing the physicians are getting the rate and if it helps, it’s all about footprint of hospitals. They’re all trying to expand it. They’re very competitive. They can get to bigger systems. So if 35 miles, if you take over a hospital, all these rules are coming to effect and you get involved in the Stark law and everything else.
So it’s a significant change for hospitals. I really think that’s the biggest part. Hospitals have been preparing for this. And they might have to bring staff in house or change the way their buildings are set up if they’re not getting those payments. So you’re not going to get the 1.7% increase we talked about if your company buildings are off site. And every dollar counts in healthcare.
Michael: Yes, it does. There are a lot of challenges ahead.
Bob: Yes, there certainly is.
Michael: Bob, thanks for coming by today and sharing your insights on the 2017 OPPS Final Rule.
Bob: All right. Thank you.