CLIENT ADVISORY: Congress Cuts into Future Off-Campus Hospital Department Payments

Hospitals with plans for new, off-campus outpatient departments should be aware of a provision in the Bipartisan Budget Act of 2015 that may decrease the profitability of these ventures. Beginning on January 1, 2017, items and services provided to Medicare beneficiaries in new hospital outpatient departments (“HOPDs”) will no longer be eligible for reimbursement under the outpatient prospective payment system (“OPPS”) unless the HOPD meets an exception. According to the legislation, services provided in these HOPDs will be reimbursed through “other applicable payment systems.” While these payment systems have not been identified, it is likely that rates will come from the physician fee schedule or the ambulatory surgery center payment system. These payment systems generally provide significantly lower rates of reimbursement than the funds HOPDs currently receive under the OPPS.

An HOPD is considered off-campus if it is located more than 250 yards from a main provider hospital with inpatient services. An off-campus HOPD will be considered new if it was not billing Medicare as of November 2, 2015 when the law passed. The legislation provides an exception to this cut-off date, however. If a hospital develops an off-campus emergency department, services provided in that emergency department may be reimbursed under OPPS regardless of the date that the HOPD emergency department began billing Medicare.

Providers should also note that the dates for these changes do not align. The deadline for grandfathering a hospital into the OPPS payment system has already passed. Services provided by an HOPD that begins billing Medicare after November 2, 2015 will not qualify for OPPS reimbursement unless the services are provided in a dedicated emergency department. However, that reimbursement change will not be implemented until January 1, 2017. Thus, the unqualified HOPD will receive payment under the OPPS system until December 31, 2016.

Affected providers should also remain vigilant regarding CMS reporting requirements, which may change as a result of this legislation. In practice, hospitals are already including outpatient departments as practice locations on the 855A and beginning January 1, 2016 are required to include the modifier PO on all hospital bills for services furnished in off-campus HOPDs. The new legislation directs the Centers for Medicare & Medicaid Services (“CMS”) to enforce the new reimbursement rules and contemplates hospitals self-reporting to CMS on claim forms but leaves enforcement to CMS’s discretion.

Should you or your organization have any questions regarding the application of this new legislation to HOPD reimbursement, please contact Peter Mellette (, Harrison Gibbs ( or Elizabeth Dahl (, or call Mellette PC at (757) 259-9200.

This Client Advisory is for general educational purposes only. It is not intended to provide legal advice specific to any situation you may have. Individuals desiring legal advice should consult legal counsel for up to date and fact specific advice.

Categories: Client Advisory