Hospital > Hospital Outpatient Prospective Payment System

The Outpatient Prospective Payment System (OPPS) was implemented for Medicare hospital outpatient claims on August 1, 2000. OPPS affects payments for hospital outpatient departments, comprehensive outpatient rehabilitation facilities (CORFs), community mental health centers (CMHCs), certain services provided by home health agencies (HHAs) and hospice services provided to patients for treatment of non-terminal illness.

This Medicare prospective payment system affects the following services:

• Hospital outpatient services
• Partial hospitalization psychiatric services, including those services furnished by community mental health centers
• Splints, vaccines, casts and antigens provided by home health agencies
• Splints, casts, vaccines and antigens provided to hospice patients for treatment of non-terminal illness
• Vaccines provided by CORFs

Inpatients who do not have Part A coverage may receive certain Part B services under OPPS.

Major hospital services included under OPPS are:

• Hospital outpatient ambulatory surgical procedures
• Hospital outpatient radiology and other ancillary services
• Radiation therapy
• Outpatient visits including hospital-based clinics and emergency department
• Partial hospitalization for the mentally ill
• Psychiatric services
• Surgical pathology
• Cancer chemotherapy administration and drugs
• Certain services furnished to inpatients who have exhausted Part A benefits or otherwise are not in a covered Part A stay
• Certain implanted DME, implanted prosthetic devices, and implemented diagnostic devices

Major hospital services excluded under OPPS are:

• The following are the major hospital services excluded from OPPS payment and are paid under a separate fee schedule rate or other payment system:
• Ambulance services
• Physical, occupational, and speech therapy services
• Clinical diagnostic laboratory services
• End Stage Renal Disease (ESRD) dialysis services
• Nonimplantable durable medical equipment (DME), orthotics, prosthetics, prosthetic devices, prosthetic implants, and supplies (DMEPOS)
• Screening mammography
• Services and procedures requiring inpatient care
• Professional services of physicians and non-physician practitioners
• Critical Access Hospitals (formerly called rural primary care hospitals) outpatient services are paid under a reasonable cost based system
• Certain hospitals in Maryland that qualify for payments under the state's payment system
• Indian health service hospitals and hospitals located in Saipan, American Samoa, and Guam

APC Groups
OPPS is made up of categories of services known as Ambulatory Payment Classification (APC) groups. Unlike the inpatient DRG system, a claim may be paid based on more than one APC assignment. APCs are driven by HCPCS/CPT code assignments, thus multiple CPT code assignments generate a claim with multiple APCs billed. CMS developed this classification system consisting of groups of services that are similar clinically (within each APC group) and represent similar utilization of resources.

The following are the APC category types:

• Significant procedures
• Surgical services
• Medical visits
• Ancillary
• Drugs and biologicals
• Devices

Status Indicators
The following status indicators identify how individual CPT or HCPCS codes are paid or not paid under OPPS. All codes within an APC are assigned a status indicator for payment purposes.

Packaging
APC group payments will include certain packaged items. Such as for surgical procedures, the anesthesia administration and monitoring, supplies and equipment, use of the operating suite and recovery room are all included in the payment for the procedure. The costs of certain designated drugs, pharmaceuticals, and biologicals are also packaged.

Discounting
Discounting is another feature of APC payment methodology with multiple APC procedures provided during the same patient encounter being discounted. The procedure with the highest weighted APC is reimbursed at the full APC payment amount and other procedures are paid at 50% of the payment amount.

Discounting also occurs when a procedure is terminated prior to completion depending upon the stage at which the procedure is terminated. Modifiers are required to identify terminated procedures where appropriate.

APC Payment Methodology
As with DRGs, each APC is assigned a relative payment weight (RW). The higher the RW, the greater the APC payment rate. To convert the relative weights into payment rates, a conversion factor is used. Payments are further adjusted for differences in local labor costs by using the wage index values.

Outlier payments are allowed to ensure equitable payments for hospitals. An outlier payment will be made for outpatient services in which a hospital's charges truly exceed unexpected high costs. To qualify for an outlier, the cost of the service must exceed both the APC outlier cost threshold (1.75 x APC payment) and the fixed-dollar threshold ($1,250 + APC payment). CMS will pay 50% of the amount over the one-and-a-half times threshold.

In order for hospitals to receive accurate payment, they must bill HCPCS codes and appropriate modifiers for all outpatient services documented as provided.

APC payment rates were calculated in the following manner:

• Each APC group's relative weight was calculated on the median costs of the services included in that group.
• Hospital-specific cost-to-charge ratios were used to convert billed charges to median costs for each group.
• Weights were converted to payment rates using a conversion factor.

Transitional Pass-through Items
If a device is eligible for pass-through payment, device payments are based on the difference between the hospital's charges adjusted to costs and the portion of the applicable hospital outpatient department fee schedule amount associated with the device. The hospital is paid for both the medical device pass-through payment and the associated surgical procedure.

C-Codes for Spine Devices
While there may be C-Codes that are appropriate for describing a few of Medtronic's spinal technologies, the technologies indication and application in instrumented spine procedures precludes the assignment of a C-code to a product.

C-Codes report devices used in conjunction with outpatient procedures billed and paid under HOPPS. All instrumented spine procedures are on the Medicare's "Inpatient Only" List. The procedures on this list are only paid in the inpatient setting.

Because instrumented spinal procedures are "Inpatient Only" and C-codes represent devices used in an outpatient setting, C-codes do no exist for Medtronic's spinal products.

New Technology
Special APC groups have been created to accommodate payment for new technology services. As new medical technology and services are identified, these services will group to new technology APCs for a short period of time, not to exceed three years. As information is obtained regarding hospitals' costs associated with these new services, each service will be evaluated and moved to a clinically related APC group with comparable resource costs. The movement of these services will occur as part of the APC annual update process.

Status Indicators for Spinal Procedures
HCPCS codes classified as "C" status indicators are procedures considered to be appropriately performed in an inpatient setting. Codes are removed and reassigned to an APC group as updates are made to the system.

The following is a current list of spinal CPT procedure codes and the proposed FY 2008 OPPS status indicator effective January 1, 2008:

View a list of Status Indicators (SI) for Spinal CPT Codes.

Outpatient Code Editor (OCE)
The Outpatient Code Editor (OCE) is a software package supplied to the fiscal intermediary by CMS. The edits are updated quarterly and changes are communicated through Program Memorandum Transmittals.

There are primarily two functions of the OCE:

• Edit claims data to identify errors and return a series of edit fags
• Assign an APC for each service covered under OPPS

View a list of the current edits and claims dispositions assigned to each.

Annual Updates
CMS is required to update payment rates no less than annually, add new APC groups, and adjust relative weights, conversion factors and wage indexes to reflect changes in costs of outpatient services as needed. Please note the changes reflected in this document are taken from the proposed ruling for OPPS. This information is subject to change with release of the final rule.

The latest update for FY 2008 for OPPS can be found at the following website: http://www.cms.hhs.gov/HospitalOutpatientPPS/