Fact Sheets

CY 2021 Medicare Hospital Outpatient Prospective Payment System and Ambulatory Surgical Center Payment System Proposed Rule (CMS-1736-P)

On August 4, 2020, the Centers for Medicare & Medicaid Services (CMS) proposed policies that are consistent with the directives in President Trump’s Executive Order, entitled “Protecting and Improving Medicare for Our Nation’s Seniors,” that aims to increase choice, lower patients’ out-of-pocket costs, empower patients, and protect taxpayer dollars.  

These proposed changes would build on existing efforts to increase patient choice by making Medicare payment available for more services in different sites of service and adopting policy changes under the Medicare Hospital Outpatient Prospective Payment System (OPPS) and Ambulatory Surgical Center (ASC) Payment System.

The CY 2021 OPPS/ASC Payment System proposed rule would further advance the agency’s commitment to strengthening Medicare and reducing provider burden so that hospitals and ambulatory surgical centers can operate with increased flexibility, and patients are better equipped to be active healthcare consumers. 

This fact sheet discusses the major provisions of the proposed rule (CMS-1736-P), which can be downloaded from the Federal Register at:


Increasing Choice and Encouraging Site Neutrality

The proposed rule includes policies that would continue to give beneficiaries more affordable choices on where to obtain care with the potential for lower out-of-pocket expenses.

Proposed Elimination of the Inpatient Only List

In this rule, we propose to eliminate the Inpatient Only (IPO) list over a three-year transitional period with the list completely phased out by CY 2024. We propose to begin with the removal of nearly 300 musculoskeletal-related services, which would make these procedures eligible to be paid by Medicare in the hospital outpatient setting when outpatient care is appropriate in addition to the existing ability for payment in the hospital inpatient setting when inpatient care is appropriate, as determined by the physician. We also solicit comment on several related issues including whether three years is an appropriate time frame for transitioning to eliminate the IPO list, whether there are other services that are candidates for removal from the IPO list for CY 2021, and how we should sequence the removal of additional clinical families and/or specific services from the IPO list in future rulemaking.

Additionally, procedures removed from the IPO list will eventually become subject to the 2-midnight rule. In the CY 2020 OPPS/ASC final rule, CMS finalized a two-year exemption from certain medical review activities related to the 2-midnight rule for procedures newly removed from the IPO list. In this rule, we propose to continue the two-year exemption from certain medical review activities relating to patient status for procedures removed from the IPO list beginning in CY 2020 and subsequent years. We solicit comment on whether the 2-year period is appropriate, or whether a longer or shorter exemption period would be more appropriate.

Under this policy, Beneficiary Family Centered Care-Quality Improvement Organization (BFCC-QIO) reviews of short-stay inpatient claims for procedures that have been removed from the IPO list within the first two years would be eligible to be reviewed for medical necessity of the underlying services and to educate providers and practitioners regarding compliance with the 2-midnight rule. However, claims would not be denied based on patient status (that is, site of service) alone. Furthermore, these procedures would not be eligible for referral to the Recovery Audit Contractors (RAC) for noncompliance with the 2-midnight rule for a two-year period after their removal from the IPO list. This two-year exemption period would allow providers time to update their billing systems and gain experience with respect to newly removed procedures from the IPO list, while avoiding potential adverse site of service determinations.

ASC Covered Procedures List

CMS is proposing to expand the number of procedures that Medicare would pay for when performed in an ASC, which would give patients more choice on where to receive care and ensure CMS payment policies do not favor one type of care setting over another. For CY 2021, we propose to add eleven procedures to the ASC covered procedures list (CPL), including total hip arthroplasty (CPT 27130).  Additionally, we are proposing two alternatives to further expand services payable in ASCs that would give beneficiaries more choices on where to get care. Under the first alternative, we propose to modify certain criteria for adding a procedure to the ASC-CPL and to establish a nomination process under which external stakeholders, such as professional specialty societies, would use suggested parameters to nominate procedures that can be safely performed in the ASC setting.  CMS would select nominated procedures to propose and finalize adding to the ASC CPL through annual rulemaking.  

Under the other alternative proposal, we would revise the ASC CPL criteria under 42 CFR 416.166, keeping the general standard criteria (i.e., the procedure would not be expected to pose a significant safety risk to a beneficiary when performed in an ASC or to require active medical monitoring and care at midnight following the procedure) and eliminating five general exclusion criteria.  Under the proposed revised regulations, we would add approximately 270 potential surgery or surgery-like procedures to the ASC-CPL that are not on the CY 2020 IPO list and that meet the revised regulatory criteria  Additionally, under this alternative proposal, we solicit comment on whether the conditions for coverage for ASCs (the baseline health and safety requirements for Medicare-participating ASCs) should be revised given the nature of the services that would be added under this alternative. 

When receiving care in an ASC rather than a hospital outpatient department, patients can potentially lower their out-of-pocket costs for certain services. For example, for one of the most common cataract surgeries, currently, on average, a Medicare beneficiary pays $101 if the procedure is done in a hospital outpatient department compared to $51 if done in a surgery center. Since 2018, CMS has added 28 procedures to the ASC-CPL. 

CY 2021 OPPS Payment Methodology for 340B Purchased Drugs

Section 340B of the Public Health Service Act (340B) allows participating hospitals and other providers to purchase certain covered outpatient drugs from manufacturers at discounted prices. In the CY 2018 OPPS/ASC final rule, CMS reexamined the appropriateness of the prior Average Sale Price (ASP) plus 6 percent payment methodology for drugs acquired through the 340B Program, given that 340B hospitals acquire these drugs at steep discounts. Beginning January 1, 2018, Medicare adopted a policy to pay an adjusted amount of ASP minus 22.5 percent for certain separately payable drugs or biologicals acquired through the 340B Program that had been subject to ongoing litigation and was upheld by the D.C Circuit Court on July 31, 2020.

In this rule, we are proposing to adopt a rate of ASP-34.7 percent with a 6 percent add-on amount for overhead and handling costs for a net proposed rate of ASP-28.7 percent for separately payable drugs or biologicals that are acquired through the 340B Program. We also solicit comment on an alternative proposal of continuing the current Medicare payment policy of paying ASP-22.5 percent for 340B- acquired drugs for CY 2021 and subsequent years. This proposed rate is based on the results of a 340B hospital survey of drug acquisition cost administered earlier this year. Additionally, we are proposing that rural sole community hospitals, children’s hospitals, and PPS-exempt cancer hospitals be excepted from either of the proposed 340B payment policies and that these hospitals would continue to report informational modifier “TB” for 340B-acquired drugs, and continue to be paid ASP+6 percent.


Meaningful Measures/Patients Over Paperwork

CY 2021 Overall Hospital Quality Star Rating for CY 2021 and Subsequent Years

In continuing the agency’s efforts to reduce burden and improve efficiencies through the Patients Over Paperwork  Initiative, for the first time through the rulemaking process, CMS is proposing to establish, update, and simplify the methodology that would be used to calculate the Overall Hospital Quality Star Rating (Overall Star  Rating) beginning with 2021.  

After seeking stakeholder input through multiple public venues on the current methodology used to calculate the Overall Star Rating, CMS is proposing to retain certain aspects of the current methodology (e.g., annual refresh, what measures are included, standardization of measure scores, use of k-means clustering to assign a rating) and proposing to update other aspects, such as:

  • Combine three existing process measure groups into one new Timely and Effective Care group as a result of measure removals (thus, the Overall Star Rating would be made up of five groups – Mortality, Safety of Care, Readmissions, Patient Experience, and Timely and Effective Care);
  • Use a simple average methodology to calculate measure group scores instead of the current statistical Latent Variable Model;
  • Stratify the Readmission measure group only by hospitals’ proportion of dual-eligible patients to align with Hospital Readmissions Reduction Program (HRRP);
  • Change the reporting threshold to receive an Overall Star Rating by requiring a hospital to report at least three measures for three measures groups, however, one of the groups must specifically be the Mortality or Safety of Care group; and
  • Apply peer grouping methodology by number of measure groups where hospitals are grouped by whether they have three or more measures in three, four, or five measure groups (three measure groups is the minimum to receive a rating and five is the proposed number of groups after combining the three process measure groups into one).

These changes, if finalized, will be used to calculate the Overall Star Rating beginning in 2021. Overall, the changes we are proposing aim to:

  • Simplify the methodology by reducing the total number of measure groups and create an explicit approach to calculating measure group scores;
  • Improve predictability of  the Overall Star Rating over time through a simple average of measure scores  with equal measure weightings that hospitals can better anticipate; and
  • Improve the comparability of the Overall Star Rating through updating the reporting threshold, stratifying the Readmission group, and peer grouping.

We are also proposing to include critical access hospitals (CAHs) in the Overall Star Rating as well as Veterans Health Administration (VHA) hospitals.

Hospital Outpatient Quality Reporting (OQR) Program and Ambulatory Surgical Center Quality Reporting (ASCQR) Program

CMS is proposing changes to update and refine requirements for the Hospital Outpatient Quality Reporting (OQR) and Ambulatory Surgical Center Quality Reporting (ASCQR) Programs to further meaningful measurement and reporting for quality of care in the outpatient surgical setting while limiting burden. CMS proposes to revise and codify previously finalized administrative procedures and to propose and codify an expanded review and corrections process to further align the Hospital OQR and ASCQR Programs while clarifying program requirements. CMS is not proposing any measure additions or removals for either program.

Updates to OPPS Payment Rates

In accordance with Medicare law, CMS proposes to update OPPS payment rates for hospitals that meet applicable quality reporting requirements by 2.6 percent. This proposed update is based on the projected hospital market basket increase of 3 percent minus a 0.4 percentage point adjustment for multi-factor productivity (MFP).

Partial Hospitalization Program (PHP) Rate Setting

The CY 2021 OPPS/ASC proposed rule would update Medicare payment rates for Partial Hospitalization Program (PHP) services furnished in hospital outpatient departments and Community Mental Health Centers (CMHCs). The PHP is a structured intensive outpatient program consisting of a group of mental health services paid on a per diem basis under the OPPS, based on PHP per diem costs. 

Update to PHP Per Diem Rates

CMS is proposing to maintain the unified rate structure established in CY 2017, with a single PHP Ambulatory Payment Classification (APC) for each provider type for days with three or more services per day. CMS is proposing to use the CMHC and hospital-based PHP (HB PHP) geometric mean per diem costs, consistent with existing policy, using updated data for each provider type and a cost floor equal to the CY 2019 final geometric mean per diem cost for each provider type.  Accordingly, CMS is proposing to calculate the CY 2021 PHP APC per diem rate for HB PHPs based on updated cost data and to calculate the rate for CMHCs based on the proposed cost floor.

Device Pass-through Applications

CMS received five device pass-through applications for the CY 2021 proposed rule. Three of the applications have a FDA Breakthrough Device designation, two of which were preliminarily approved for device pass-through payment during the quarterly review process: CUSTOMFLEX® ARTIFICIALIRIS and EXALT™ Model D Single-Use Duodenoscope. We are soliciting public comment on all five of these applications and final determinations on these applications will be made in the CY 2021 OPPS/ASC final rule.

Clinical Diagnostic Laboratory Test Packaging Policy and Laboratory Date of Service (DOS) Policy for Cancer-Related Protein-Based Multianalyte Assays with Algorithmic Analyses (MAAA)

The CY 2021 OPPS/ASC proposed rule would exclude cancer-related protein-based MAAAs, which are not generally performed in the hospital outpatient department setting, from the OPPS packaging policy, and revise the laboratory DOS policy to add these tests to the laboratory DOS provisions at § 414.510(b)(5).  These proposals, if finalized, would require laboratories performing cancer‑related protein‑based MAAAs that meet the DOS requirements at § 414.510(b)(5), to bill Medicare directly for those tests instead of seeking payment from the hospital.


Updates to ASC Payment Rates

In the CY 2019 OPPS/ASC final rule with comment period, we finalized our proposal to apply the hospital market basket update to ASC payment system rates for an interim period of 5 years (CY 2019 through CY 2023).

Using the hospital market basket, CMS is proposing to update the ASC rates for CY 2021 by 2.6 percent. The proposed update applies to ASCs meeting relevant quality reporting requirements. This change is based on the projected hospital market basket increase of 3 percent minus a 0.4 percentage point adjustment for MFP. This proposed change would also help to promote site-neutrality between hospitals and ASCs and encourage the migration of services from the hospital setting to the lower cost ASC setting.

Protecting Taxpayer Dollars

CMS is continuing to focus on reducing unnecessary increases in the volume of covered outpatient department services through the use of prior authorization. In the CY 2021 OPPS/ASC proposed rule, CMS is proposing to require prior authorization for Cervical Fusion with Disc Removal and Implanted Spinal Neurostimulators. CMS continues to believe prior authorization is an effective mechanism to ensure Medicare beneficiaries receive medically necessary care, while protecting the Medicare Trust Funds from unnecessary increases in volume by virtue of improper payments, without adding new documentation requirements for providers.


Physician-Owned Hospitals

In order for a physician-owned hospital to submit claims and receive Medicare payment for services referred by a physician owner or investor (or a physician whose family member is an owner or investor), the physician-owned hospital must satisfy all of the requirements of either the whole hospital exception or the rural provider exception to the physician self-referral law, commonly referred to as the “Stark Law.”

To qualify for the rural provider or whole hospital exception, a physician-owned hospital may not increase the aggregate number of operating rooms, procedure rooms, and beds above that for which the hospital was licensed on March 23, 2010 (or, in the case of a hospital that did not have a provider agreement in effect as of March 23, 2010, but did have a provider agreement in effect on December 31, 2010, the effective date of such agreement), unless CMS has granted an exception to the prohibition on expansion. A hospital may request an exception to the prohibition on expansion of facility capacity using the process established in the CY 2012 OPPS/ASC final rule.

In the CY 2021 OPPS/ASC proposed rule, CMS is proposing to remove certain provisions in the expansion exception process that are applicable to hospitals that qualify as “high Medicaid facilities” because such provisions are not mandated by Section 1877 of the Act. Specifically, CMS is proposing to remove 1) the cap on the number of additional operating rooms, procedure rooms, and beds that can be approved in an exception and 2) the restriction that the expansion must occur only in facilities on the hospital’s main campus. In addition, a high Medicaid facility could apply for an exception more than once every two years from the time of a decision by CMS, provided that the hospital submits only one expansion exception request at a time. CMS is also proposing that, for purposes of determining the number of beds in a hospital’s baseline number of operating rooms, procedure rooms, and beds, a bed is included if the bed is considered licensed for purposes of State licensure, regardless of the specific number of beds identified on the physical license issued to the hospital by the State. This proposal would provide additional flexibility to physician owned hospitals that qualify as high Medicaid facilities, which, by definition, serve more Medicaid inpatients than other hospitals in the counties in which they are located.