CMS Releases 2024 Hospital Outpatient Rule

  • 8/31/2023
Two doctors speaking to businessman while walking down hallway.

Key insights

  • CMS proposes a 3% update reduced by a required productivity adjustment of 0.02, resulting in a 2.8% update.
  • CMS proposes additional clarification, requirements, and specificity around price transparency and machine-readable files.
  • CMS proposes the implementation of a new behavioral health benefit called the Intensive Outpatient Program (IOP), to be provided in hospital outpatient departments (HOPDs), federally qualified health centers (FQHCs), rural health clinics (RHC) and community mental health clinics (CMHC) beginning 2024.

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Outpatient Prospective Payment System

Larger Industry Environment

Hospitals are still recovering from impacts of the pandemic and wrestling with workforce issues and rising costs, but Congress and the administration are still keying in on issues of concern. For example, price transparency and moving to site-neutral payments have been approved in various congressional committees with more activity coming. See our blog for additional insights.

On the other hand, hospitals were victorious in the U.S. Supreme Court in their 340B lawsuit. The result is an estimated $9 billion owed to impacted hospitals. The downside is that Centers for Medicare & Medicaid Services (CMS) believes budget neutrality applies and, therefore, proposes to reduce reimbursements under the Outpatient Prospective Payment System (OPPS) by 0.5% for some 16 years. See our blog for details.

In market-related news, hospital mergers and acquisitions continue and are now on pace with pre-pandemic levels, perhaps partly why the Department of Justice and Federal Trade Commission removed two antitrust documents and released new proposed merger guidelines. These actions are all certainly aimed at concerns over ongoing health care consolidation. On top of that, industry incumbents continue to be buffeted by new, non-traditional competitors. It’s a bumpy landscape.

Annual update

CMS proposes a 3% market basket increase update minus a productivity adjustment of 0.2% for a 2.8% update. Based on this update, CMS estimates that total payments for calendar year (CY) 2024 would be approximately $88.6 billion, an increase of some $6 billion compared to estimated CY 2023 OPPS payments.

The conversion factor is a proposed $87.488 in the calculation of the national unadjusted payment rates for items and services. CMS gets to this amount using:

  • The proposed update factor of 2.8% for CY 2024
  • The required proposed wage index budget neutrality adjustment of approximately 0.9974
  • The proposed 5% annual cap for individual hospital wage index reductions adjustment of approximately 0.9975
  • The proposed cancer hospital payment adjustment of 1.0005
  • The proposed adjustment of a decrease of 0.1% of projected OPPS spending for the difference in pass-through spending

CMS proposes using CY 2022 claims for the CY 2024 OPPS/ASC rate-setting process. Further, CMS proposes resuming its typical cost report update process of including the most recently available cost report data (primarily including cost reports with cost reporting periods including CY 2021).

Wage index

Beginning with FY 2024, CMS proposes including Section 412.103 reclassification along with geographically rural hospitals in all rural wage index calculations, and to exclude “dual reclass” hospitals.

CMS also proposes continuing the low wage index hospital policy under which the wage index for hospitals with a wage index value below the 25th percentile is increased by half the difference between the otherwise applicable final wage index value for a year for that hospital and the 25th percentile wage index value for that year across all hospitals.

Sole community hospitals (SCH)

For CY 2024, CMS continues using its 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.

Outlier payments

CMS proposes the hospital outlier threshold at when cost exceeds 1.75 times the Ambulatory Payment Classification (APC) payment amount plus $8,350.

Comprehensive APCs

CMS proposes two new C-APCs: Level 2 Intraocular APC (APC 5492) and a new Level 2 Abdominal/Peritoneal/Biliary and Related Procedures APC (APC 5342). If finalized, there will now be 72 C-APCs.

340B Payment Background, Remedy

Beginning in 2018, CMS began reducing payments to certain 340B hospitals, primarily disproportionate share hospitals (DSH). The rationale was that because these hospitals were not paying the full amount for drugs under the program, they should not be reimbursed the normal amount either. Hospitals sued the federal government. The case went to the U.S. Supreme Court where hospitals won. HHS recently released the remedy for how the agency proposes to repay 340B hospitals some $9 billion along with how budget neutrality impacts all hospitals under the OPPS. Read our HI2 blog for details.

New technology APCs

For CY 2024, CMS proposes payment rates for New Technology APCs 1491 to 1599 and 1901 through 1908. See Addendum A.

Pass-through payments

CMS received six device pass-through payment applications, two alternative pathway device pass-through payment applications, and four traditional device pass-through payment applications. For traditional drug pass-through payments, CMS indicates 43 drugs and biologics will lose transitional pass-through payment status at the end of 2023 and 25 will lose the status at the end of 2024. Forty-two drugs will continue to receive pass-through payment status through 2024.

340B drug

CMS will pay for these drugs at the normal rate — generally, Average Sales Price +6%. This is in accordance with the U.S. Supreme Court decision where hospitals prevailed. See sidebar.

CMS also proposes all 340B covered entity hospitals paid under the OPPS report the “TB” modifier effective January 1, 2025, even if the hospital previously reported the “JG” modifier.

Inpatient only (IPO) list

CMS proposes to add nine codes to the IPO list but will not remove any. See Table 47 in the proposed rule for the list of additions.

Dental codes

In the 2023 final OPPS rule, CMS first finalized a policy to pay for certain dental services that were “inextricably linked” to medical services. The agency now proposes adding 229 dental codes to clinical APCs to enable them to be paid for under the OPPS when payment and coverage requirements are met.

CMS requests comments on the list of codes and APC assignment. CMS also proposes to make packaged payments for dental services under the OPPS by assigning the dental codes describing those dental services to packaged status indicators. CMS indicates packaging payment for dental services will incentivize clinical resource efficiencies.

Cardiac, pulmonary rehabilitation

CMS proposes to expand the practitioners who may supervise cardiac rehabilitation (CR), intensive cardiac rehabilitation (ICR), and pulmonary rehabilitation (PR) services to include nurse practitioners (NPs), physician assistants (PAs), and clinical nurse specialists (CNSs). CMS also proposes to allow for the direct supervision requirement for CR, ICR, and PR to include virtual presence of the physician through audio-video real-time communications technology (excluding audio-only) through December 31, 2024. CMS also proposes to extend this policy to the nonphysician practitioners, that is NPs, PAs, and CNSs, who are eligible to supervise these services in CY 2024.

Drugs shortages

Due to these shortages, CMS is seeking comments on hospitals having a “buffer” stock of essential medicines and whether CMS would compensate them for that.

Behavioral health

As required under the Consolidated Appropriations Act, 2023 (CAA, 2023), CMS proposes to cover and implement intensive outpatient programs (IOP) beginning CY 2024. CMS proposes IOP services may be furnished in HOPDs, CMHCs, FQHCs, and RHCs. CMS also proposes establishing payment for intensive outpatient services provided by opioid treatment programs (OTPs) under the existing OTP benefit.

CMS proposes covered IOP services would include:

  • Individual and group therapy with physicians or psychologists (or other mental health professionals as authorized under state law)
  • Occupational therapy
  • Services of social workers, trained psychiatric nurses, and other staff trained to work with psychiatric patients
  • Drugs and biologicals furnished for therapeutic purposes
  • Individualized activity therapies that are not primarily recreational or diversionary
  • Family counseling
  • Patient training and education
  • Diagnostic service
  • Other items and services as determined by HHS

CMS proposes appropriate physician certification and a plan of care are required. For the plan of care, CMS proposes it will be akin to the partial hospitalization program (PHP) but reflective of the lower intensity level of the IOP (e.g., nine hours in IOP versus 20 hours in PHP).

CMS proposes to define IOP services as “a distinct and organized intensive ambulatory treatment program that offers less than 24-hour daily care other than in an individual's home or in an inpatient or residential setting and furnishes the services” as described in the statute. IOP services would not require that they are provided in lieu of inpatient hospitalization, which is a requirement of PHP.

CMS proposed some service exclusions when those are separately paid for and covered. Those include physician services, physician assistant services, nurse practitioner and clinical nurse specialist services, qualified psychologist services, and services furnished to residents of a skilled nursing facility.


CMS proposes that a minimum of nine hours per week of therapeutic services as evidenced in their plan of care be provided and that the individual would benefit from a coordinated program of services and require more than isolated sessions of outpatient treatment.

In addition, eligible individuals would not require 24-hour care and would have an adequate support system outside of the program. A mental health diagnosis would be needed: the individual would need to be judged not to be dangerous to self or others and would have the cognitive and emotional ability to participate in and tolerate the active treatment process.

CMS would amend Part B regulations to add a reference to “intensive outpatient services” to the list of covered services when furnished as hospital or CAH services incident to a physician’s professional services. CMS notes that intensive outpatient services that are not directly provided by a physician are not subject to the outpatient mental health treatment limitation.

Coding and billing

CMS indicates a new condition code, condition code 92, will be used to identify intensive outpatient claims. CMS notes it will continue to require hospitals to report condition code 41 for PHP claims. See Table 43 in the proposed rule for list of IOP services HCPCS codes.

CMS proposes that to qualify for payment for an IOP APC, at least one service must be from the PHP/IOP list. Specifically, CMS proposes that to qualify for payment for the IOP APC (5851, 5852, 5861, or 5862) or the PHP APC (5853, 5854, 5863, or 5864) one service must be from the PHP/IOP list. See Table 44 in the proposed rule for list of PHP/IOP services, of which one must be included to qualify for IOP.

CMS solicits comments on whether caregiver, peer support workers, or discharge services/codes should be considered and included.

For payment, CMS proposes to set IOP payment rates for three services/day and four services/day equal to the PHP payment rates. CMS also propose to set payment rates for IOP APCs at amounts equal to the payment rates for PHP APCs. CMS believes this is appropriate since it does not have definitive IOP data or utilization data to use since this is a newly established Medicare benefit.

CMs proposes applying the four-service payment rate (that is, payment for PHP APCs 5854 for CMHCs and 5864 for hospitals, and IOP APCs 5852 for CMHCs and 5862 for hospitals) for days with four or more services. For days with three or fewer services, CMS proposes to apply the three-service payment rate (that is, payment for PHP APCs 5853 for CMHCs and 5863 for hospitals, and IOP APCs 5851 for CMHCs and 5861 for hospitals).

Specific to FQHCs and RHCs, however, the CAA, 2023 requires that the payment amount for intensive outpatient services furnished in FQHCs and RHCs be equal to the payment amount that would have been paid for the same service furnished by a hospital outpatient department. The CAA, 2023 is silent with respect to the payment methodology for IOP services provided by CMHCs.

FQHCs and RHCs currently are paid either under the FQHC PPS or RHC all-inclusive rate (AIR). For RHC IOP services, CMS proposes to establish two IOP APC per diem payment rates for hospital-based IOPs (APC 5861 and APC 5862 for three-service days and four-service days, respectively) and apply them to the payment rate for IOP services furnished in an RHC. For IOP services furnished in FQHCs, CMS proposes the payment be based on the lesser of a FQHC’s actual charges or the rate determined for APC 5861. Both RHCs and FQHCs would need to report condition code 92 to identify intensive outpatient claims.

Additionally, for services provided through a Medicare Advantage (MA) organization, if the contract rate is lower than the amount Medicare would otherwise pay for FQHC services, FQHCs that contract with MA organizations would receive a wrap-around payment from Medicare to cover the difference. For RHCs and FQHCs, CMS clarifies the agency will permit a mental health visit or IOP services on the same day as a medical visit.

Opioid treatment programs

CMS proposes to establish payment under Part B for IOP services furnished by OTPs for the treatment of opioid use disorder for CY 2024 and subsequent years.

CMS proposes that to qualify as “OTP intensive outpatient services,” a physician must certify that the individual has a need for such services for a minimum of nine hours per week and requires a higher level of care intensity compared to existing OTP services. Services would generally follow the ones listed for IOP.

CMS proposes to use the separate CMHC rates for three-service and four-service PHP days as the physician fee schedule IPFS) rates, depending on whether a nonexcepted off-campus hospital outpatient department furnishes three or four PHP services in a day. Similarly, CMS also proposes to use the CMHC rates for three-service and four-service IOP days as the PFS rates, depending upon whether a nonexcepted hospital outpatient department furnishes three or four IOP services in a day.

Price transparency

CMS is proposing additional clarifications and requirements and is firming up its existing price transparency requirements for posting machine-readable files (MRF). These changes are to improve monitoring and enforcement capabilities by improving access to, and the usability of, hospital standard charge information and increase transparency to the public.

Price Transparency Compliance

In reviewing hospital websites, CMS says 70% of hospitals are meeting requirements. Of the remaining 30%, 3% fully failed to meet website assessment criteria and 27% partially met website assessment criteria. CMS notes that these numbers are not reflective of a formal compliance review (which often require additional information).

CMS says that as of June 27, 2023, the agency had issued approximately 906 warning notices and 371 requests for corrective action plans since the initial regulation went into effect in January 2021. Some 301 hospitals were determined by CMS after a comprehensive compliance review to not require any further action. Some 457 hospitals addressed deficiencies and received a closure notice from CMS indicating all was sufficient.

CMS has imposed civil monetary penalties on four hospitals and publicized those situations. All other hospitals identified as being noncompliant either corrected its deficiencies or is cooperating with CMS to work toward correcting its deficiencies.

In the proposed rule, CMS would define four key terms:

  • CMS template — a CSV format or JSON schema that CMS makes available for purposes of compliance with the existing requirements
  • Consumer-friendly expected allowed amount — the average dollar amount the hospital estimates it will be paid by a third-party payer for an item or service
  • Encode — to enter data items into the fields of the CMS template
  • Machine-readable file — a single digital file that is in a machine-readable format

CMS proposes requiring hospitals to use a standard CMS-developed template. CMS would require each hospital to conform to the CMS template layout, data specifications, data dictionary, and to meet any other specifications related to the encoding of the hospital’s standard charge information in its MRF. CMS wants to improve automated aggregation of the standard charge information in the hospital’s MRFs and streamline its enforcement capabilities. CMS also proposes hospitals will need to make a positive affirmation in its MRF that the file is complete and includes all data as required.

With respect to encoding, CMS proposed to require hospitals to encode their MRF with all applicable standard charge information that corresponds to each of the required data elements.

CMS notes that its use of the phrase “as applicable” does not mean that encoding standard charge information that corresponds to a required data element is “optional.” Rather, if a hospital has established standard charge information for a required data element, the hospital would be required to display that information accurately and completely in its MRF.

CMS proposes to require additional data elements and more specificity in the MRF:

  • Hospital name(s), license number, and location name(s) and address(es) under the single hospital license to which the list of standard charges apply
  • Date of last update to the MRF
  • For standard changes, CMS proposes allowing hospitals to indicate plan(s) as categories (such as “all PPO plans”) when the established payer-specific negotiated charges are applicable to each plan in the indicated category rather than having to individually list each.
  • CMS also proposes hospitals will need to indicate the contracting method they used to establish the payer-specific negotiated charge (e.g., base rate). CMS proposes to require that hospitals indicate whether the payer-specific standard charge listed should be interpreted by the user as a dollar amount, percentage, or, if the standard charge is based on an algorithm, the algorithm that determines the dollar amount for the item or service.
  • CMS also proposes that when a hospital has established a payer-specific negotiated charge that can only be expressed as a percentage or algorithm, it must display alongside that percentage or algorithm a consumer-friendly “expected allowed amount” in dollars for that payer/plan for that item or service. The “expected allowed amount” would be the amount, on average, that the hospital estimates it will be paid for the item or service based on the contract with the third-party payer.
  • For drugs, CMS proposes hospitals would be required to indicate the drug unit and type of measurement as separate data elements.
  • CMS proposes requiring any relevant modifier(s) needed to describe the established standard charge, and the code type(s) (e.g., whether the code is based on HCPCS, CPT, APC, DRG, NDC, revenue center, or other type of code).

CMS would also require a hospital’s website include a .txt file in the root folder that includes a standardized set of fields including the hospital location name that corresponds to the MRF, the source page URL that hosts the MRF, a direct link to the MRF (the MRF URL), and hospital point of contact information.

Second, the hospital must verify the public website includes a link in the footer on its website, including the homepage, that is labeled “Hospital Price Transparency” and links directly to the publicly available webpage that hosts the link to the MRF.

With respect to compliance warnings, CMS will require that a hospital submit an acknowledgement of receipt of the warning notice in the form and manner, and by the deadline, specified in the notice of violation issued by CMS to the hospital. In the event CMS takes an action to address hospital noncompliance and the hospital is determined by CMS to be part of a health system, CMS may notify the health system leadership of the action and may work with hospital system leadership to address similar deficiencies for hospitals across the health system.

CMS proposes it may publicly post its assessment of a hospital’s compliance, any compliance actions taken against a hospital, the status of such compliance action(s), and the outcome of the compliance actions.

Rural Emergency Hospitals

For CY 2024, CMS proposes that Indian Health Services (IHS) and tribal hospitals that convert to an REH would be paid for hospital outpatient services under the same AIR that would otherwise apply if these services were performed by an IHS or tribal hospital that is not an REH. Existing beneficiary coinsurance policies applicable to such services under the AIR would remain unchanged.

CMS also proposes that IHS-REHs would receive the REH monthly facility payment consistent with how this payment is made to REHs that are not tribally or IHS operated. CMS proposes processing IHS-REHs claims separately by using a “flag” in the claims processing system. CMS also proposes the hospital would receive the REH monthly facility payment consistent with how this payment is applied to REHs that are not tribally or IHS operated.

Rural Emergency Hospital Quality Reporting (REHQR) Program

For the REHQR measure set, CMS proposes adopting four measures:

  1. Abdomen computed tomography (CT) — use of contrast material
  2. Median time from emergency department (ED) arrival to ED departure for discharged ED patients
  3. Facility seven-day risk-standardized hospital visit rate after outpatient colonoscopy
  4. Risk-standardized hospital visits within seven days after hospital outpatient surgery

CMS proposes various other changes related to the REHQR program.

Finally, CMS seeks comments on future potential measures and approaches for implementing quality reporting under the REHQR program, such as electronic clinical quality measures, care coordination measures, and a tiered quality measure approach.

Hospital Outpatient Quality Reporting Program

For the Hospital OQR Program measure set, CMS proposes the following changes:

  • Remove the Left Without Being Seen measure beginning with the CY 2024 reporting period/2026 payment determination
  • Modify the COVID–19 Vaccination Coverage Among Healthcare Personnel measure beginning with the CY 2024 reporting period/CY 2026 payment determination
  • Modify the Cataracts: Improvement in Patient’s Visual Function Within 90 Days Following Cataract Surgery measure beginning with the voluntary CY 2024 reporting period
  • Modify the Appropriate Follow-Up Interval for Normal Colonoscopy in Average Risk Patients measure beginning with the CY 2024 reporting period/CY 2026 payment determination
  • Re-adopt with modification the Hospital Outpatient Volume Data on Selected Outpatient Procedures measure beginning with the voluntary CY 2025 reporting period and mandatory reporting beginning with the CY 2026 reporting period/CY 2028 payment determination
  • Adopt the Risk-Standardized Patient-Reported Outcome-Based Performance Measure Following Elective Primary Total Hip Arthroplasty and/or Total Knee Arthroplasty in the HOPD Setting beginning with the voluntary CYs 2025 and 2026 reporting periods, and mandatory reporting beginning with the CY 2027 reporting period/CY 2030 payment determination
  • Adopt the Excessive Radiation Dose or Inadequate Image Quality for Diagnostic Computed Tomography in Adults (Hospital Level — Outpatient) measure, beginning with the voluntary CY 2025 reporting period and mandatory reporting beginning with the CY 2026 reporting period/CY 2028 payment determination

CMS requests comments on several topics: patient and workforce safety (including sepsis), behavioral health (including suicide prevention), and telehealth as a potential future measurement.

Ambulatory surgical centers

Annual update

For CYs 2019 through 2023, CMS adopted a policy to update the ambulatory surgical center (ASC) payment system using the hospital market basket update. In light of the impact of the COVID-19 public health emergency on healthcare utilization, CMS proposed to extend its policy to update the ASC payment system using the hospital market basket update an additional two years — through CYs 2024 and 2025.

Therefore, using the hospital market basket methodology, for CY 2024, CMS proposes increasing increase payment rates under the ASC payment system by 2.8%. CMS estimates for CY 2024 this will be approximately $6 billion, an increase of approximately $170 million compared to estimated CY 2023 Medicare payments.

Covered procedures list

CMS proposes to add 26 dental surgical procedures to the list for CY 2024, as shown in Table 61 of the proposed rule.

Ambulatory Surgical Center Quality Reporting (ASCQR) Program

For the ASCQR Program measure set, CMS proposes:

  • Modifying the COVID-19 Vaccination Coverage Among Health Care Personnel measure beginning with the CY 2024 reporting period/CY 2026 payment determination
  • Modifying the Cataracts: Improvement in Patient’s Visual Function Within 90 Days Following Cataract Surgery measure beginning with the voluntary CY 2024 reporting period
  • Modifying the Endoscopy/Polyp Surveillance: Appropriate Follow-Up Interval for Normal Colonoscopy in Average Risk Patients measure beginning with the CY 2024 reporting period/CY 2026 payment determination
  • Re-adopting with modification the ASC Facility Volume Data on Selected ASC Surgical Procedures measure beginning with the voluntary CY 2025 reporting period and mandatory reporting beginning with the CY 2026 reporting period/CY 2028 payment determination
  • Adopting the Risk-Standardized Patient-Reported Outcome-Based Performance Measure Following Elective Primary Total Hip Arthroplasty and/or Total Knee Arthroplasty in the ASC Setting beginning with the voluntary CYs 2025 and 2026 reporting periods, and mandatory reporting beginning with the CY 2027 reporting period/CY 2030 payment determination.

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