OPPS final rule expands observation services, requires quality reporting

CMS moves toward packaged payments

The Centers for Medicare & Medicaid Services (CMS) has announced sweeping changes to the Outpatient Prospective Payment System (OPPS) that may significantly affect your hospital's revenue.

The final rule, which went into effect Jan. 1, expands the number of services packaged into ambulatory payment classification groups (APCs), requires hospitals to report outpatient quality measures for the first time, and introduces composite ambulatory payment classification groups, which provide one bundled payment for several major services.

In announcing the changes, CMS reiterated its goal of controlling growth of OPPS payment by moving away from service-specific payments to packaged payments.

"Hospitals will now have additional incentives to deliver the right service to the right patient in the right setting at the right time," says Kerry Weems, CMS acting administrator.

The final rule creates a new type of APC called a composite APC that provides one bundled payment for several major services received on the same day, rather than paying for the services individually under service-specific APCs. In some cases, hospitals will receive a single payment for services across the entire patient encounter.

The major change for case managers is the creation of two new composite APCs, which will pay for observation services for appropriate patients, regardless of the diagnosis, says Deborah Hale, CCS, president of Administrative Consultant Services in Shawnee, OK.

"We continue to believe that observation care is a clinically appropriate hospital outpatient service that includes ongoing short-term treatment assessment and reassessment before a decision can be made regarding whether patients will require further treatment as hospital inpatients or if they are able to be discharged from the hospital," CMS said in announcing the changes.

In creating the new composite APCs for observation services, CMS made a 180-degree shift from its original proposal in the proposed rule issued in August, Hale points out.

Original proposal

The Institute of Medicine's report Hospital-Based Emergency Care: At the Breaking Point, issued in June, recommended that CMS help hospitals cope with emergency department throughput and overcrowding by creating an incentive for hospitals to move patients to observation status, Hale says.

But in its proposed rule, CMS initially planned to eliminate the outpatient observation APC established in 2002 that provided separate observation payment for chest pain, congestive heart failure, and asthma. The proposed rule had no provision for observation payment other than a small across-the-board increase in the facility high-level emergency department payment to compensate for the elimination of the observation APC.

In the final rule, CMS followed the advice of the APC Observation and Visit subcommittee and created separate payments for observation for all diagnoses for which observation is indicated.

"The main thing for case managers to realize is that observation payment is made for any diagnosis by packaging it into a composite APC that includes both the emergency department payment and the observation payment. The hospital must make sure that the observation services are properly documented to support the medical necessity of the hospital's claim," Hale says.

Observation care requirements

To qualify for observation care under the new composite APCs, services must meet the same requirements related to physician order and evaluation, documentation, and observation beginning and ending times.

Beneficiaries must be under the care of a physician who has explicitly assessed patient risk to determine that the beneficiary would benefit from observation care, Hale says.

The medical record must include admitting, progress, and discharge notes that are timed, written, and signed by the physician, she adds.

The two new observation composite APCs are:

• APC 8002: Any patient who is admitted directly to the hospital for observation care or a patient who is admitted from a hospital-based clinic following a high-level (Level 5) clinic visit. Hospital services must be greater than eight hours. If the hospital has provided any service with a "T-status" on the day of admission or the previous day, the patient does not meet criteria for observation status. ("T-status" indicator means the patient also had a major procedure that is a separately payable APC. T-status procedures are subject to the OPPS multiple procedure reduction rules and will be discounted by 50% if another T-status indicator is performed.)

The national payment rate for APC 8002 is $351.04.

• APC 8003: Any patient who is admitted for observation services from the emergency department following a Level 4-5 or critical care emergency department visit.

Hospital services must be greater than eight hours. If the hospital has provided any service with a T-status on the day of admission or the previous day, the patient does not meet criteria for observation status.

The national payment rate for APC 8003 is $638.66.

The observation services are bundled with the emergency department services, which means that the hospital gets only the flat rate, and not payment for a Level 4 or 5 emergency department visit as well, points out Bill Hannah, southeast leader, Healthcare Advisory Practice at KPMG.

However, it does not include payment for other billable services and procedures such as diagnostic tests by laboratory and radiology, infusions, injections, catheter insertions, etc., Hale adds.

In the past, when patients with heart failure, chest pain, or asthma were admitted for observation after an emergency department visit, the hospital received payment for an ED visit as well as observation if the observation was in relation to the predetermined diagnosis, Hannah adds.

Other new composite APCs created in the final rule will be used to pay for mental health services, low-dose rate brachytherapy, and cardiac electrophysiologic evaluation and ablation services.

The final rule expands the CMS packaging approach by bundling seven categories of ancillary services into the primary diagnostic or treatment procedures with which they are performed.

Packaging means that many ancillary services for which hospitals have been receiving separate payment no longer will be paid separately, Hale says.

Packaged services include guidance services; image processing services; intraoperative services, imaging supervision and interpretation services, diagnostic radiopharmaceuticals, contrast media, and certain observation services.

This year, CMS is requiring that hospitals report seven outpatient quality measures including five emergency department acute myocardial infarction transfer measures and two surgical care improvement measures. Hospitals must report the applicable outpatient quality measures beginning in April 2008 in order to receive the full-market basket update in 2009. Otherwise, the update will be reduced by 2%.

In issuing its final rule for 2008, CMS reaffirmed its policy to pay for procedures on the "inpatient-only" list only when the patient was an inpatient at the time that the procedure was performed.

There has been speculation over the years that CMS will eliminate the inpatient-only list, but every year, CMS has stated its commitment to keep the list for the safety of Medicare patients, Hale says.

The 2008 rule did delete 13 procedures from the inpatient-only list.

Case managers should stay abreast of the CMS changes to the inpatient-only rule because of its implications for payment, Hale adds.

In order for case managers to be effective at making sure the surgery is performed in the right setting, they need to review the level-of-care order at the time the procedure is scheduled, Hale says.

"If the order for an inpatient admission is not written or verbalized until after the inpatient-only procedure has been performed, the hospital is not entitled for payment for the procedure," she says.

Hospitals will get paid for follow-up care if patients are admitted after a procedure on the inpatient-only list is performed as an outpatient procedure. However, in those cases, the hospital will not be paid for the surgical procedure.