CMS Finalizes the CY 2023 Hospital Outpatient Rule

  • Regulations
  • 12/13/2022
African american male doctor talking to nurse at nurse station.

Key insights

  • CMS finalizes a market basket of 4.1% reduced by the productivity adjustment of 0.3% resulting in a 3.8% update.
  • CMS finalized rural emergency hospitals will receive $3.2 million annually in facility payments.
  • CMS will revert to prior 340B payments of ASP+6% due to court rulings.
  • CMS exempts sole community hospitals from site-neutral payment cuts.

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On November 3, the Centers for Medicare & Medicaid Services (CMS) released the final Calendar Year (CY) 2023 Hospital Outpatient Prospective Payment System (OPPS) and Ambulatory Surgical Center (ASC) rule. This rule includes regular payment updates and policies for the OPPS and ASC systems, but also details important payment and reimbursement aspects for the new Medicare designation, the Rural Emergency Hospital (REH). 

Table of Contents

  1. OPPS
    1. OPPS payment updates
    2. 340B payment policy
    3. Composite Ambulatory Payment Classification (C-APCs)
    4. Software as a Service payments
    5. HOPDs/ASCs to report discarded single-dose, single-use package drugs
    6. N95 masks
    7. Mental health services furnished remotely
    8. Supervision by nonphysician practitioners for diagnostic services
    9. Sole community hospitals site neutral exemption, payments
    10. CAH primary road definition
    11. Changes to inpatient only list (IPO)
    12. Prior authorizations
    13. Organ acquisition payment policies
  2. Hospital Outpatient Quality Reporting (OQR) program
  3. Rural emergency hospital (REH)
    1. Reimbursements
    2. Annual facility payment
    3. Enrollment
    4. Conditions of Participation (CoPs)
    5. Stark exemption
    6. Quality reporting program
  4. ASC payments


OPPS payment updates

CMS finalizes an update of 4.1% reduced by the productivity adjustment of 0.3% for a final rate of 3.8%. CMS estimates that total payments to OPPS providers (including beneficiary cost-sharing and estimated changes in enrollment, utilization, and case-mix) for calendar year (CY) 2023 would be approximately $86.5 billion, an increase of approximately $6.5 billion compared to estimated CY 2022 OPPS payments.

For rate setting, CMS uses CY 2021 claims data with cost reporting periods through CY 2019 (prior to the Public Health Emergency (PHE)) to set CY 2023 OPPS and ASC payment system rates.

For CY 2023, CMS finalizes a CY 2023 conversion factor update of $85.585. This uses a conversion factor of $84.177 in the calculation of the national unadjusted payment rates for those items and services for which payment rates are calculated using geometric mean costs along with the following:

  • Fee schedule increase factor of 3.8%
  • Required wage index budget neutrality adjustment of 0.9998
  • Adjustment to account for the change in policy for drugs purchased under the 340B program of 0.9691
  • Adjustment of 0.16 percentage point of projected OPPS spending for the difference in pass-through spending

CMS estimates outlier payments at 1% of aggregate total OPPS payments. Outlier payments would occur if the service exceeds either 1.75 times the APC payment or APC payment plus $8,350, whichever is higher.

340B payment policy

340B Policy and U.S. Supreme Court Decision

Review CLA's Health Care Innovation and Insight (HI²) 340B blost post for background information on the Court's ruling as well as practical implications for 340B hospitals.

Since 2019, CMS has applied a payment reduction to 340B reimbursements under the OPPS system. That reduction has been a negative 22.5% (as opposed to regular reimbursements at average sales price (ASP) +6%) and has been the subject of ongoing litigation. In July 2022, the U.S. Supreme Court ruled that CMS inappropriately cut 340B reimbursements. The case was remanded with the district court ruling on September 28, 2022.

As a result of the ruling, for CY 2023 CMS reverts to ASP +6% as the default payment rate for 340B-acquired drugs and biologicals. This is the same payment basis for drugs and biologicals not acquired through the 340B program.

CMS finalizes a budget neutrality adjustment to the CY 2023 OPPS conversion factor of 0.9691. The adjustment offsets the prior increase of 3.19% that was applied to the conversion factor when the agency implemented the 340B payment policy in CY 2018 in a budget neutral manner.

Effective January 1, 2023, the “JG” modifier will still be used by hospitals (except for rural sole community hospitals, children’s hospitals, and PPS-exempt cancer hospitals) to identify 340B drugs for informational purposes, rather than to trigger a payment adjustment.

For CY 2023, rural sole community hospitals, children’s hospitals, and PPS-exempt cancer hospitals will continue to use the “TB” modifier to identify 340B drugs for informational purposes.

CMS intends to issue a separate proposed rule detailing a proposed remedy for how to handle 340B payment reductions from CYs 2018 to CY 2022 in advance of the CY 2024 OPPS/ASC proposed rule.

Composite Ambulatory Payment Classification (C-APCs)

CMS finalizes the addition of one C-APC in CY 2023: C-APC 5372 (Level 2 Urology and Related Services).

CMS also finalizes that when the aggregate payment for specified mental health services provided by one hospital to a single beneficiary on a single date of service based on the payment rates associated with the APCs for the individual services exceeds the maximum per diem payment rate for partial hospitalization services provided by a hospital, those specified mental health services would be paid through C-APC 8010 for CY 2023. In addition, CMS finalizes setting the payment rate for C-APC 8010 at the same payment rate for APC 5863 (the maximum partial hospitalization per diem payment rate for a hospital) and that the hospital continue to be paid the payment rate for C-APC 8010.

Software as a Service (SaaS) payments

In 2018, CMS began reimbursing for the first SaaS procedure, Fractional Flow Reserve Derived from Computed Tomography (FFRCT), also known by the trade name HeartFlow, a noninvasive diagnostic service that allows physicians to measure coronary artery disease in a patient through the use of coronary CT scans. For CY 2023, CMS finalizes moving HeartFlow (HCPCS 0503T) from New Technology APC 1511 to APC 5724 (Level 4 Diagnostic Tests and Related Services), a clinical APC.

Since HeartFlow, CMS has also begun paying for other SaaS procedures that use artificial intelligence algorithms. For example, retina/eye-related Current Procedural Terminology (CPT) code 92229 was assigned to APC 5793. In addition, the American Medical Association (AMA) has released additional CPT codes for SaaS. Those include standalone codes associated with other SaaS procedures, including CPT 0648T, CPT 0721T, and CPT 0723T. CMS has separately paid those under New Technology APCs under the OPPS.

CMS agreed with commenters that the agency should pay separately for SaaS CPT add-on codes, rather than creating new HCPCS codes for these services, as proposed. Therefore, CMS will recognize SaaS CPT add-on codes and pay separately for them. CMS will not establish HCPCS codes, specifically, C-codes, to describe the add-on codes as standalone services that would be billed with the associated imaging service.

HOPD/ASCs to report discarded single-dose, single-use package drugs

CMS alerts readers that the 2023 final Physician Fee Schedule (PFS) rule contains policies related to Hospital Outpatient Departments (HOPDs) and ASCs. The requirement is the result of language in the Infrastructure Investment and Jobs Act (Pub. L. 117– 9) enacted in November 2021 that requires manufacturers to provide a refund to CMS for certain discarded amounts from a refundable single-dose container or single-use package drug.

CMS requires that billing providers report the JW modifier for all separately payable drugs with discarded drug amounts from single-use vials or single-use packages payable under Part B, beginning January 1, 2023. CMS also finalizes to require billing providers to report the JZ modifier for all such drugs with no discarded drug amounts beginning no later than July 1, 2023, and the agency will begin claims edits for both the JW and JZ modifier beginning October 1, 2023.

Refer to the final 2023 PFS rule for details.

N95 masks

CMS finalizes that payment reflect additional marginal resource costs in procuring domestically made, approved N95 respirators. CMS finalizes biweekly interim lump-sum payments. Information will be collected via cost reports and apply to cost reporting periods beginning January 1, 2023.

Mental health services furnished remotely

As a continuation of existing policies under the PHE for CY 2023, CMS is finalizing that mental health services furnished remotely by hospital staff using communications technology to beneficiaries in their homes are considered covered outpatient department services payable under the OPPS. CMS also creates OPPS-specific coding for these services.

CMS finalizes an in-person service within six months prior to the initiation of the remote service is required for telehealth mental health services beginning after the 152nd day after the end of the PHE with in-person service required every 12 months thereafter. Exceptions to the in-person visit requirement may be made based on beneficiary circumstances (with the reason documented in the patient’s medical record), and that more frequent visits are also allowed under the policy, as driven by clinical needs on a case-by-case basis. CMS finalizes that audio-only interactive telecommunications systems may be used to furnish these services in instances where the beneficiary is not capable of, or does not consent to, the use of two-way, audio/video (synchronous) technology.

CMS finalizes creating three OPPS-specific codes (see recreated table 47) to describe these services and those code descriptors will specify that the beneficiary must be in their home and that there is no associated professional service billed under the PFS. CMS finalizes that all hospital staff performing these services must be licensed to furnish these services consistent with all applicable state laws regarding scope of practice. CMS exempts these services from having staff be physically located in the hospital/HOPD when furnishing services remotely using communication technology.

With respect to payment, CMS uses the PFS as proxy.

TABLE 47: C-Code Numbers and Long Descriptors 
HCPCS Code Long Descriptor 
C7900  Service for diagnosis, evaluation, or treatment of a mental health or substance use disorder, initial 15 – 29 minutes, provided remotely by hospital staff who are licensed to provide mental health services under applicable state law(s) when the patient is in their home and there is no associated professional service 
C7901  Service for diagnosis, evaluation, or treatment of a mental health or substance use disorder, initial 30 – 60 minutes, provided remotely by hospital staff who are licensed to provide mental health services under applicable state law(s) when the patient is in their home and there is no associated professional service 
C7902  Service for diagnosis, evaluation, or treatment of a mental health or substance use disorder, each additional 15 minutes, provided remotely by hospital staff who are licensed to provide mental health services under applicable state law(s) when the patient is in their home and there is no associated professional service (list separately in addition to code for primary service) 
TABLE 48: Final SI, APC, Assignment, Geometric Mean Cost, HCPCS Code C7900 – C7902 
HCPCS Code Short Descriptor SI Proxy Service  PFS Facility Rate  APC APC GMC
C7900  HOPD mntl hlt, 15 – 29 min S 96159 $19.52 5821 $30.48
C7901 HOPD mntl hlt, 30 – 60 min  S 95158  $56.56  5822 $77.67 
C7902  HOPD mntl hlt, ea addl  N N/A  N/A  N/A  N/A 

Supervision by nonphysician practitioners for diagnostic services

CMS finalizes revisions to existing supervision requirements to clarify that nurse practitioners, clinical nurse specialists, physician assistants, certified registered nurse anesthetists, and certified nurse midwives may provide general, direct, and personal supervision of outpatient diagnostic services to the extent that those professionals are authorized to do so under their scope of practice and applicable state law. This would apply to Prospective Payment Systems (PPS) and CAHs.

Sole community hospitals (SCH) site neutral exemption, payments

CMS has an existing policy to pay for a clinic visit (G0463) at excepted off-campus provider-based departments (PBDs) a site neutral rate equivalent to the PFS, or roughly 40% of the regular OPPS rate. CMS finalizes it will now exempt excepted off-campus PBDs of rural SCHs from this policy because it believes that these visits are not driven by volume but by factors other than the payment differential for this service. CMS finalizes paying the OPPS payment rate, rather than the PFS-equivalent rate at SCHs. (As a reminder, CMS has already exempted SCH from its 340B payment reductions.)

CMS will continue the current policy of a 7.1% payment adjustment for rural SCHs for all services and procedures paid under the OPPS, excluding separately payable drugs and biologicals, brachytherapy sources, items paid at charges reduced to costs, and devices paid under the pass-through payment policy, applied in a budget neutral manner.

CAH primary road definition

CMS finalized codifying the definition of “primary road” for CAH eligibility to reduce burden and provider greater flexibility on the distance requirement. CMS agreed with stakeholder feedback that its proposed definition could have unintended ramifications. Therefore, CMS finalized including “numbered federal highways with two or more lanes each way, similar to the description of numbered state highways, and exclud[ing] numbered federal highways with only one lane in each direction.”

Changes to Inpatient Only (IPO) list

For 2023, CMS finalizes removing 11 services from the IPO list, many of which are maxillofacial procedures, while adding eight newly created CPT codes to the IPO list, six of which relate to hernias.

Prior authorizations

CMS finalizes the addition of a new service category to the existing services requiring prior authorization. The category is “Facet Joint Interventions,” and includes facet joint injections, medial branch blocks, and facet joint nerve destruction. The requirement would begin July 1, 2023 and covers CPT codes 64490 – 64495 and 64633 – 64636.

Organ acquisition payment policies

CMS finalizes changes to alter how an organ is counted as a Medicare usable organ for purposes of calculating Medicare’s share of organ acquisition cost, but due to stakeholder feedback, modifies and clarifies its changes.

2. Hospital Outpatient Quality Reporting (OQR) program

CMS finalizes the following to the OQR:

  • Add a data validation targeting criterion to existing four targeting criteria that reads: “Any hospital with a two-tailed confidence interval that is less than 75 percent, and that had less than four quarters of data due to receiving an ECE for one or more quarters,” beginning with the CY 2023 reporting period/CY 2025 payment determination
  • Align patient encounter quarters with the calendar year, beginning with the CY 2024 reporting period/CY 2026 payment determination
  • Change the Cataracts: Improvement in Patient's Visual Function within 90 Days Following Cataract Surgery (OP-31) measure from mandatory to voluntary beginning with the CY 2027 payment determination

3. Rural emergency hospital (REH)

CLA knows rural hospitals. Read our original article on the REH, A Path Forward: CLA’s Simulations on Rural Emergency Hospital Designation, cited by CMS along with our updated model, Updated Rural Emergency Hospital Analysis — Will $3.2 Million Be Enough?

The REH is a new Medicare designation for small, rural hospitals. It was enacted under the Consolidated Appropriations Act, 2021 and signed into law on December 27, 2020. The statute sets January 1, 2023, as the earliest date an REH is effective. Keep in mind there are additional requirements before an REH can exist, including that the respective state has licensed the REH designation and then the REH is licensed/approved accordingly.

The REH was designed to financially stabilize rural CAHs or rural PPS hospitals with fewer than 50 beds that may otherwise have to close.

REH reimbursements

In defining what an “REH service” includes, CMS takes a broad view in the final rule:

… all covered outpatient department service … furnished by an REH that would be paid under the OPPS when provided in a hospital paid under the OPPS for outpatient services, provided that the REH meets the various applicable REH CoPs. In other words, all services that are paid under the OPPS when furnished in an OPPS hospital, with the exception of acute inpatient services, would be REH services when furnished in a REH. We note that this definition of REH services excludes services described in section 1833(t)(1)(B)(ii) of the Act, which cannot be considered REH services because they are inpatient services … ]

CMS finalizes paying for these services at the OPPS rate +5%, as set forth under statute, and will utilize the existing OPPS claims processing system with a flag to alert the payment is for the REH. CMS would not include the 5% add-on bump for beneficiary co-payments.

CMS specifically notes that REH services will not have any impact on OPPS budget neutrality and REH claims will not be used for OPPS rate setting purposes.

With respect to other services provided by an REH that are not covered under the OPPS, CMS finalizes those to be reimbursed under their respective fee schedule. In other words, as long as the REH meets the statutory requirements governing a provider type and the REH CoPs and has services that do not meet the definition of REH services for OPPS payment, those claims would still be paid for by Medicare but under the appropriate fee schedule and without the additional 5% bump. CMS specifically references the SNF Fee Schedule and Clinical Laboratory Fee Schedule as examples.

CMS exempts REHs from existing site neutral payments related to “off-campus provider-based departments.”

REH annual facility payment

The underlying REH statute sets up an annual facility payment for REH conversions. The facility payment is equal to CAH payments in 2019 compared to what those payments would have been if paid under the OPPS system. This dollar amount is then divided by 12 and given in monthly installments to each REH.

CMS discusses this calculation in detail.

CAH 2019 Actual. In setting the facility payment, CMS interprets it should be based on a calendar year. CMS uses CAH claims data with service dates in CY 2019 to calculate the actual Medicare spending for CAHs for CY 2019, including CAH claims data for inpatient hospital services, inpatient rehabilitation services, inpatient psychiatric services, outpatient hospital services, and skilled nursing services including both hospital-based and swing-bed services. This will include provider payment, coinsurance amounts, and deductible amounts for all of the claims.

CAH 2019 If Paid Under OPPS, IPPS, SNF. When using the statutory requirement to base the prospective amount on the total amount that would have been paid to CAHs for inpatient hospital services, outpatient hospital services, and skilled nursing services if paid under their respective PPS, CMS uses claims data from the last nine months of FY 2019 and the first three months of FY 2020 to calculate payment data for CY 2019 for both inpatient hospital services and skilled nursing services and claims data from CY 2019 for outpatient hospital services. CMS uses the Medicare payment and the beneficiary payment when setting the amount.

To determine the prospective payment amount, CMS uses various fee schedules, such as the IPPS, OPPS, and SNF PPS, among others — as well as to include services and items paid through other payment subsystems, such as Clinical Laboratory Improvement Amendments, PFS, ambulance services, parenteral and enteral nutrition services, durable medical equipment/prosthetics/orthotics/supplies, vaccines, and Medicare Part B drugs if those services and items are reported on an inpatient CAH claim, an outpatient CAH claim, or a skilled nursing CAH claim.

CMS also includes other add-ons or supplemental payments, including IPPS new technology payments, outlier claims payments in both the IPPS and the OPPS, clotting factor payments, indirect medical education (IME) payments, Disproportionate Share Hospital (DSH) payments, uncompensated care payments, and low-volume hospital payments. For IME and DSH adjustments, CMS estimates an aggregate amount of IME and DSH spending for all CAHs.

CMS will not include adjustments for various quality reporting programs — value-based purchasing program payments, hospital readmissions reduction program adjustments, and hospital-acquired condition reduction program — because it could find no sufficient way to model these out for CAHs. CMS will make several other adjustments, such as Medicare Advantage claims that are not a primary payer, device credits, and sequester reduction.

In determining SNF PPS payments, CMS uses that system since SNFs paid via the SNF PPS are required to conduct patient assessment within a certain number of days after admission and submit the data to the CMS Minimum Dataset database for payment calculation. Once a daily rate is determined, claim payment is calculated as the number of covered days multiplied by the daily rate and geographic adjustment factor.

In determining swing beds, CMS indicates the simplest prediction of Resource Utilization Guidelines (RUG) and Patient-Driven Payment Model (PDPM) rate is to use the average daily rate across all PPS-paid SNF claims. However, this prediction ignores the fact that the patient case-mix of CAH swing beds is different from that of PPS-paid SNFs. To address this, CMS created a predictive model of RUG/PDPM per-diem rates for CAH swing-bed claims, using PPS-paid claims, and relied on one assumption as the basis of the prediction: the per-diem rate varies by the clinical conditions and severity of the patient.

When pulling all of these payments together, CMS finalizes the monthly REH facility payment of $272,866 or an annual amount of $3,274,392.

CMS outlines its approach in the following steps.

CMS final monthly facility payment calculation

Step 1:The total amount of Medicare spending for CAHs in CY 2019 minus the projected Medicare spending for CAHs in CY 2019 if inpatient hospital services, outpatient hospital services, and skilled nursing services had been paid on a prospective basis rather than at 101% of total cost and calculated according to the methodology described.

Total amount of Medicare spending for CAHs in CY 2019: $12.08 billion
Total projected amount of Medicare spending for CAHs if paid prospectively in CY 2019: $7.6 billion
Step 1 difference: $12.08 billion – $7.6 billion = $4.48 billion

Step 2: The difference in Step 1 would be divided by the number of CAHs enrolled in Medicare in CY 2019 to calculate the annual payment per individual REH. The annual payment amount would be divided by 12 to calculate the monthly REH facility payment. Each REH would receive the same facility payment.

Step 1 difference: $4,479,370,835
Number of Medicare CAHs in CY 2019: 1,368

REH monthly facility payment: ($4,479,370,835/1,368)/12 = $272,866 (or $3,274,392 annually)

CMS would also require that an REH receiving the additional monthly facility payments must maintain detailed information as to how the facility used the monthly facility payments and must make this information available upon request. CMS states that this requirement can be met using existing cost reporting requirements for outpatient hospital facilities that would include REHs. CMS believes this is appropriate because the cost reports track spending on outpatient hospital services as a part of overall provider spending. This information will show if a sufficient share of revenue to the REH, which includes the monthly facility payment, is being directed to outpatient care.

As such, for CY 2023, CMS does not propose to establish any new reporting or data collection requirements for REHs related to their use of the REH monthly facility payments. The agency states it will monitor this issue in CY 2023 to see if additional new reporting or data collection requirements are necessary in future rulemaking.

REH enrollment

CMS indicates that to convert to an REH, a hospital may submit a Form CMS 855A change of information application.

REH Conditions of Participation (CoPs)

CMS finalizes various CoPs that generally follow CAH CoPs. There are requirements for:

  • Credentialing, privileging
  • Telehealth
  • Policies and procedures for staffing, services, emergency preparedness, and others
  • Various services, such as emergency services, lab, radiology
  • Infection prevention and antibiotic stewardship
  • Staffing and staffing responsibilities
  • Nursing
  • Discharge planning
  • Patient rights
  • Quality, medical records, agreements
  • Physical environment

If a distinct skilled unit is present, the REH would comply with skilled nursing CoPs.

Refer to the final rule for full details on all CoPs.

REH Stark exemption

CMS specifically addresses the Stark law since the REH is not technically a hospital like a PPS or CAH but does provide covered services that fall under the Stark law. However, CMS indicates that only the rural provider exception would be applicable to an REH.

CMS does allow existing compensation exemptions to apply to REHs. Those include exceptions for physician recruitment, obstetrical malpractice insurance subsidies, retention payments in underserved areas, and assistance to compensate a nonphysician practitioner. These are available to hospitals, federally qualified health centers, and rural health clinics, and CMS believes these are appropriate for REHs. CMS finalizes these exceptions to permit an REH to provide remuneration to a physician if all requirements of the applicable exception are satisfied.

Stark law requirements are complicated. Review the full final rule or consult with legal counsel for guidance.

4. ASC payments

For CY 2023, CMS finalizes utilizing the hospital market basket update of 4.1% reduced by the productivity adjustment of 0.3% point, resulting in a productivity-adjusted hospital market basket update factor of 3.8% for ASCs meeting the quality reporting requirements.

CMS finalizes the addition of four procedures to the list of ASC covered surgical procedures: 38531, 19307, 37193, and 43774.

CMS finalizes it will adjust ASC payment policy for certain OPPS Complexity-Adjusted C-APCs since C-APCs are not paid for under the ASC system. CMS finalizes using the OPPS complexity-adjusted C-APC rate for each corresponding code combination to calculate the OPPS relative weight for each corresponding ASC payment system C code for procedures being performed together. For C codes that are not assigned device-intensive status, CMS will multiply the OPPS relative weight by the ASC budget neutrality adjustment (or ASC weight scalar) to determine the ASC relative weight and then multiply the ASC relative weight by the ASC conversion factor to determine the ASC payment rate for each C code.

As it did for the hospital OPPS, CMS alerts ASC readers that the 2023 PFS rule includes policies related to HOPDs and ASCs. The requirement is the result of language in the Infrastructure Investment and Jobs Act (Pub. L. 117– 9) enacted in November 2021 that requires manufacturers to provide a refund to CMS for certain discarded amounts from a refundable single-dose container or single-use package drug.

With respect to the ASC Quality Reporting (ASCQR) program, CMS finalizes:

  • Update the Cataracts: Improvement in Patient’s Visual Function within 90 days Following Cataract Surgery (ASC-11) measure to be voluntary due to the ongoing COVID-19 PHE

How we can help

There is a lot to unpack in the final OPPS rule, especially related to the REH designation. We are already assisting rural hospitals with modeling out the impact of a conversion. If you are interested in a similar discussion, reach out today. CLA’s industry-specialized health care team is happy to talk with you about that or any other hospital-related issue.

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