Press Releases


For Immediate Release: Wednesday, November 01, 2006
Contact: CMS Media Relations


The Centers for Medicare & Medicaid Services (CMS) today issued a final rule for Medicare payment for hospital outpatient services in calendar year (CY) 2007 that will implement new steps to make payments more accurate and to promote higher quality and value in outpatient care.  Included in the final outpatient prospective payment system (OPPS) rule are provisions expanding quality reporting requirement for hospital inpatient services as well as expanding the list of services for which Medicare will make payment to ambulatory surgical centers in 2007.

“The rule we are announcing today is another step toward improving quality of care for Medicare beneficiaries in all settings,” said Leslie V. Norwalk, Esq., CMS Acting Administrator.  “The rule also addresses concerns about payments for emergency room services, and improves access to care for beneficiaries in rural areas served by critical access hospitals.”

Hospitals would receive an estimated $32.5 billion in CY 2007 under the final rule that revises policies and payment rates under the OPPS for outpatient services provided to Medicare beneficiaries.  The final rule affects outpatient services furnished by general acute care hospitals, inpatient rehabilitation facilities, inpatient psychiatric facilities, long-term acute care hospitals, children’s hospitals, and cancer hospitals.  As provided by statute, the rule includes a 3.4 percent market basket update to Medicare payment rates for services paid under the hospital OPPS for CY 2007.  After taking into account other factors that affect the level of payments, CMS estimates that hospitals will receive an overall average increase of 3.0 percent in Medicare payments for outpatient department services in 2007 due to the changes in this final rule.

While the market basket update accounts for increases in the costs of providing a service, much of the growth in outpatient spending results from increases in utilization and complexity (volume and intensity).  CMS estimates that between 2005 and 2006, hospital outpatient expenditures increased by nearly 12 percent, mainly due to growth in the volume and intensity of services.  CMS projects that the expenditures under the OPPS in CY 2007 will be approximately 9.2 percent higher than the estimated CY 2006 expenditures.  That rate of growth in expenditures is of great concern to CMS, not only because of its impact on all taxpayers, but especially on beneficiaries whose monthly premiums cover 25 percent of Part B expenditures. 

In order to promote greater value in the purchase of hospital outpatient services for Medicare beneficiaries, the final rule ties OPPS rate increases to the reporting of quality measures beginning in 2009.  The final rule announces CMS’ plans to develop additional quality measures that are specifically appropriate for hospital outpatient care, and will require hospitals to report the outpatient-specific measures beginning in CY 2009.

“In this final rule, we are taking one more step toward rewarding hospitals for providing quality care, not just in the inpatient setting, but also in the outpatient department,” said Ms. Norwalk.  “While our primary focus is on quality care for Medicare beneficiaries, we expect that our quality initiatives will stimulate better care for all patients who come to the hospital outpatient department.”

The final rule also includes an expansion of the hospital reporting of additional quality measures for inpatient services beginning in FY 2008, based on measures endorsed by the National Quality Forum (NQF) and supported by the privately-led Hospital Quality Alliance (HQA).  Under the final rule, hospitals would, for the first time, be required to report consistent measures on patient satisfaction with hospital care to receive a full IPPS payment update.  The survey instrument, called HCAHPS® (Hospital Consumer Assessment of Healthcare Providers and Systems), was developed jointly by the Agency for Healthcare Research and Quality and CMS, and is designed to gather information about patient perspectives on the care that they have received during an inpatient stay.  Also for the first time, hospitals would report risk-adjusted outcome measures to receive the full payment update, including 30-day mortality measures for patients hospitalized with an acute myocardial infarction, or heart failure.  The final rule also includes three new measures from the Surgical Care Improvement Project related to the process of care for beneficiaries undergoing surgical procedures.

“The Hospital Quality Alliance has been an invaluable partner in helping us move forward on providing more complete, valid information to the public on important aspects of the quality of hospital care,” said Ms. Norwalk.  “The steps we are adopting today are a major step in our efforts to improve health care quality and help beneficiaries make informed medical decisions.”

The final rule also creates five new HCPCS codes to describe hospital emergency visits provided in part time dedicated emergency departments (DEDs) that are subject to the requirements of the Emergency Medical Treatment and Labor Act (EMTALA) but do not meet the more prescriptive requirements consistent with the CPT definition of an emergency department.  The new codes would enable CMS to gather data to determine the relative resource costs of the services provided in these entities, as distinct from emergent care furnished in a facility that is accessible 24 hours per day, 7 days per week.  While gathering hospital cost data, CMS will pay for the new DED visit codes at the payment levels set for clinic visits. 

The final rule provides that hospitals will continue to report clinic and emergency visits, and critical care services using current CPT codes.  Medicare will pay for five levels of service in the emergency department and in clinics, and will pay for two levels of critical care services, based on the presence or absence of a trauma response. CMS is not finalizing its proposal to create 12 new HCPCS codes for visits to hospital clinics, full-time emergency departments and critical care services. 

CMS is revising the Ambulatory Payment Classification (APC) payment and coding structure for drug administration services, allowing hospitals to report the same CPT codes for drug administration used by physicians and other payors, and to be paid separately for additional hours of infusion, in addition to their payment for the initial hour of infusion.  As a result, hospitals will be paid more accurately for complex and lengthy drug administration services, while also receiving more appropriate payments for individual services when provided alone.

Currently, the Medicare statute requires CMS to pay separately for drugs and biologicals that cost $50 or more per administration and to bundle those costing less than $50 per administration into payments for the procedures with which they are associated.  Medicare has made an exception to that bundling policy for certain anti-nausea drugs often used by cancer patients to counteract side effects of treatment.  In the final rule CMS finalizes its proposed policy to pay separately for drugs, biologicals, radiopharmaceuticals and the anti-nausea drugs costing $55 or more per day, consistent with the previous $50 threshold but updated for inflation.  Drugs and biologicals will be paid at 106 percent of the average sales price (ASP+6), rather than the proposed rate of 105 percent of ASP.  Radiopharmaceuticals will continue to be paid at charges adjusted to cost using hospital-specific cost-to-charge ratios.  Payments for other drugs will continue to be bundled into payments for their associated procedures.

CMS continues to be concerned about increases in outlier payments to Community Mental Health Centers (CMHCs) for services under the partial hospitalization benefit.  Outlier payments are to compensate CMHCs for unusually high cost cases.  Since 2004, CMS has used a separate outlier threshold for CMHCs that would target payments to the most complex cases, and as a result, payment trends have stabilized.  The final rule maintains the existing threshold for 2007. 

In the proposed rule, CMS proposed to reduce per diem payment for partial hospitalization services in both CMHCs and hospital outpatient departments by 15 percent to reflect decreases in costs reported by these programs.  After further consideration, including review of public comments on the proposed rule, the final rule includes a per diem reduction of only 5 percent for CY 2007. We believe this rate is appropriate to ensure access for the vulnerable population served by partial hospitalization programs, while still reflecting the downward trend in the cost data.

Other provisions affecting payment for outpatient services paid under the outpatient prospective payment system include:

  • Continuing to pay separately for brachytherapy sources, but basing payment on the source-specific median costs for brachytherapy sources, as reflected in hospital outpatient claims data.
  •   Payment would be on a per unit source basis rather than on a per day basis, to recognize the high variability of individual treatment costs.
  • Reducing the payment rate for APCs with significant costs for implanted devices when a device is replaced without cost under warranty or recall and reducing the beneficiary coinsurance proportionately.


The final rule also revises the critical access hospital (CAH) conditions of participation to allow CAHs to include a registered nurse that is on site at the CAH as one of the qualified medical personnel available to perform an emergency medical screening.  For this provision to apply, the nature of the patient’s request for medical care must be within the scope of practice of a registered nurse as defined in applicable State laws. This revision conforms to the changes made to EMTALA regulations in 2003 and will align the emergency medical screening requirements in CAHs with those applicable to acute care hospitals.

The rule will begin the transition from the current policies for administering hospital claims for outpatient services using entities called fiscal intermediaries and carriers to the new Medicare Administrative Contractors (MACs), authorized by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA). Under the rule, hospitals will file their claims with the intermediary with jurisdiction over the hospital’s geographic location until a MAC ‑ which will handle not only hospital claims, but also Part B claims from physicians, laboratories and other suppliers ‑ replaces the intermediary.  CMS is adopting a policy that all providers and suppliers generally be assigned to a MAC based on geographic location, but that a large qualified provider chain would be permitted to file all claims with the MAC that has jurisdiction over the chain’s home office.

Finally, the rule makes final two statutory mandates that will affect ambulatory surgical centers (ASCs) in CY 2007.  First, in response to public comments, CMS is adding 19 procedures to the ASC list.  The law requires that the ASC list be updated at least every two years; the last update through notice and comment rulemaking was implemented in July 2005.  Two of the procedures for which Medicare will allow payment to ASCs beginning in CY 2007 are for surgical services furnished to maintain vascular access fistulas and grafts for hemodialysis patients.  The procedures are consistent with the CMS “Fistula First” initiative and adding them to the ASC list of Medicare approved procedures will provide expanded access to these services, which can be of critical importance to patients receiving dialysis treatment. 

In addition, CMS is implementing in CY 2007 a provision of the Deficit Reduction Act (DRA) which requires that Medicare payment for surgical procedures performed in ASCs not exceed the Medicare payment for the same procedures when they are performed in a hospital outpatient department subject to the OPPS.  This provision will result in decreased payment for approximately 280 procedures on the ASC list beginning January 1, 2007.


The final rule will be posted on the CMS website at:


It will go on display at the Federal Register at 4:00 p.m. today, and will be published at a later date.  It will be effective for outpatient and ASC services furnished to Medicare beneficiaries on or after January 1, 2007.


# # #



Page Last Modified: 12/02/2011 12:00 PM
Help with File Formats and Plug-Ins

Submit Feedback