Hospital OPDs receive 3.3% inflation update

Starting Jan. 1, hospitals will receive a 3.3% inflation update in payment rates for services provided in outpatient departments (OPDs), under a final rule from the Centers for Medicare & Medicaid Services (CMS).

The final rule for the outpatient prospective payment system (OPPS) is projected to increase hospital Medicare outpatient payments from $23.1 billion in 2004 to $24.6 billion.

"We were fairly pleased with the rule," says Don May, vice president for policy with the American Hospital Association (AHA) in Washington, DC. "It’s very similar to what was proposed, to a large extent, and we were relatively happy with the proposed rule."

The AHA was pleased with the inflation update, he says. "They had a 1% increase essentially for transitional pass-through payments that they found they weren’t making, so they added the money back to the base rate," May adds.

However, the final rule is a mixed bag for hospital outpatient surgery providers. Here are some of the provisions in the final rule:

• Payment for screening tests were increased, but not by as much as set forth in the proposed rule. Payments for flexible sigmoidoscopy will increase by 6.8%, instead of 7.42% as proposed; payments for screening colonoscopy will increase 8.3%, instead of 9.9% as proposed.

• In response to comments received about the proposed reductions in payment for procedures that require expensive devices, payment for 21 device dependent ambulatory payment classifications (APCs) will be based on 95% of the 2004 payment median. (See list of device dependent APCs.)

• The rule continues into 2005 the regulation that sets rates for brachytherapy sources on charges adjusted to cost and establishes definitions for new codes for high activity brachytherapy sources.

• Under the final rule, hospitals can receive payments for new drugs and biologicals when they are approved by the Food and Drug Administration instead of having to wait months for a code and payment rate to be assigned.

• The final rule cuts the maximum coinsurance rate for outpatient services from 50% to 45% of the total payment to the hospital. This amount will be reduced gradually until outpatient services have a coinsurance rate of 20% of the total payment. Previously, beneficiaries paid 20% of the hospital’s charges.

• Beginning in 2005, outlier payments will be determined by applying a fixed-dollar threshold, in addition to the current threshold based on a percentage relationship between the cost of the service and the APC payment. The cost of furnishing an outpatient service would have to be higher than both thresholds for the hospital to receive an outlier payment. For 2005, the thresholds are 1.75 times the APC payment and $1,175 over the APC payment. In comparison, ASC payment rates are frozen until 2010.

There was good news for small rural hospitals with 100 or fewer beds and sole community hospitals in rural areas. CMS extended for another year the "hold harmless" payments. These payments help ensure that small rural hospitals are paid at least as much under the OPPS as they would have received under the cost-based payment method in effect before August 2000.

At press time, the rule was scheduled to be published in the Nov. 15, 2004, Federal Register. Comments will be received for 60 days. To review the rule, go to


For more information on the final outpatient rule, contact:

  • Dana Burley, Centers for Medicare & Medicaid Services. Phone: (410) 786-0378.

To comment on the final rule, refer to file code CMS-1427-FC. You may submit comments electronically at Attachments should be in Microsoft Word (preferred), WordPerfect, or Excel. You may mail comments (one original and two copies) to: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1427-FC, P.O. Box 8010, Baltimore, MD 21244-8018.