Press release



Acute care hospitals will receive a 3.7 percent inflation update in Medicare payment rates in 2006 for outpatient services under a final Outpatient Prospective Payment System (OPPS) rule announced today by the Centers for Medicare & Medicaid Services (CMS) that also continues to lower the coinsurance rates that patients in Medicare have to pay for outpatient services.


Sole community hospitals in rural areas will receive an additional 7.1 percent payment adjustment, a move that stems from a study of rural hospital costs authorized by the Medicare Modernization Act of 2003 (MMA).  This adjustment, which is higher than the 6.6 percent in the proposed rule, will benefit about 400 sole community hospitals.


“Today’s final rule underscores Medicare’s ongoing commitment to improving beneficiary access to quality outpatient services regardless of where they live,” said CMS Administrator Mark B. McClellan, M.D., Ph.D.  “We are also taking steps to make our payments more accurate and doing more to promote high-quality, prevention-oriented outpatient care.”


The final rule continues the decline in coinsurance rates Medicare beneficiaries will pay for many hospital outpatient services.  Prior to the implementation of the OPPS in August 2000, the beneficiary often paid more than 50 percent of the total payment to the hospital for a service.  Coinsurance rates for OPPS services are being reduced gradually until the beneficiary’s share for any outpatient service will be 20 percent of the hospital’s total payment.  Under the final rule, the coinsurance rate for 31 additional medical and surgical Ambulatory Payment Classifications (APCs) will decline to the 20 percent minimum, a 21 percent increase in the number of APCs at the 20 percent coinsurance level over CY 2005.


The rule also reduces the maximum coinsurance rate for any service to 40 percent of the total payment to the hospital for the APCs in 2006, down from 45 percent this year.  Overall, average beneficiary copayments for all outpatient services are expected to fall from 33 percent of total payments in CY 2005 to 29 percent in CY 2006.  This represents a decline in beneficiary liability of more than $400 million from the CY 2005 OPPS to the CY 2006 OPPS.


The final rule continues the Medicare program’s effort to strengthen support for prevention and early detection of diseases, by increasing payment rates to hospitals for most screening examinations that are covered by Medicare.  For example, CMS is increasing payment for the Welcome to Medicare Physical when furnished in a hospital outpatient department by 7 percent in 2006.


In keeping with the outpatient payment reforms in the MMA to ensure drug payments reflect the marketplace pricing, CMS will begin paying for most Part B drugs and biologicals administered in hospital outpatient departments based on 106% of the manufacturer’s average sales price (ASP).  The most recent available hospital claims data indicate that payment set at 106% of ASP will cover both the average acquisition cost and associated overhead cost for drugs furnished in hospital outpatient departments.  Generally, drugs provided by hospital outpatient departments are infused or injectable drugs administered by clinicians, and are used to treat cancer and other conditions..


“CMS has had nearly a year’s experience with this payment method for drugs administered in physician offices,” said Dr. McClellan.   “During that time, we have found that drug prices generally have been stable and Medicare's payment rates now more accurately reflect market prices – leading to savings and continued access to drugs.” 


Because data on average sales prices of radiopharmaceuticals are not currently available, CMS will base payment for radiopharmaceuticals in 2006 on the hospital’s costs as determined from the hospital’s charges.  CMS plans to work with hospitals, manufacturers, and other interested parties to develop a more accurate methodology for future years.


In response to comments expressing concern about beneficiary access to intravenous immune globulin (IVIG), CMS is establishing a temporary add-on payment to cover the additional preadministration-related services required to locate and acquire adequate IVIG product and prepare for an infusion of IVIG during this current period of market instability.  CMS has determined that the pricing for IVIG is accurate, and that there is no overall product shortage.  However, in the face of such factors as increasing IVIG demand and manufacturer allocation of many formulations, hospital outpatient department staff has to expend extra resources on locating and obtaining appropriate IVIG products and scheduling patient infusions.  For calendar year 2006 only, hospitals will be permitted to bill this add-on code to compensate for the administrative burdens associated with IVIG administration during this time of some volatility in IVIG product availability.  During the upcoming year, CMS and other agencies in the Department of Health and Human Services intend to work with the IVIG patient community, product manufacturers, distributors, physicians and hospitals to develop a common understanding of the evolving IVIG marketplace, assure continued collection of accurate ASP data, and focus attention on the medical necessity of the utilization of IVIG.  We anticipate that these steps and other ongoing corrections in the marketplace will help to ensure that supply volatility stabilizes in the next year.


Blood and blood products will also be paid under a separate methodology based on blood-specific cost-to-charge ratios.  As in 2005, CMS will impute a blood-specific cost-to-charge ratio for those hospitals that do not have blood-specific cost centers.  However, in 2006, CMS will limit decreases in payment rates to 95 percent of the 2005 rates.


In light of the comments received on the proposed rule, CMS has decided not to adopt several proposals for 2006, but will continue to evaluate them and other options to improve the accuracy of payment for certain outpatient services.


CMS had proposed to require that a copy of the application submitted to the AMA’s CPT Editorial Panel for a new technology service be provided to CMS for its review of a New Technology APC request.  The final rule does not adopt the proposal.  Instead, CMS plans to seek further comment from device manufacturers, hospitals, and other stakeholders on this and other options for incorporating new technologies in the outpatient payment system.


“CMS is committed to providing more rapid access to effective new technologies,” said Dr. McClellan.  “At the same time, the hospitals that use these technologies need a consistent way of billing and being paid for them.  We will be working with the device and hospital industries to remove any unreasonable barriers to the fast introduction of effective technologies into the outpatient setting.”


In addition, CMS had identified 11 families of imaging procedures, based on the type of imaging modality used and contiguous body area, where a multiple procedure discounting policy would apply.  In response to comments suggesting that payment for these procedures already reflects the efficiencies available when multiple procedures are performed, CMS has decided not to finalize this policy for 2006, and will study it further.


Also, CMS is deferring its proposal to implement new codes in 2006 to collect data on drug overhead costs after hospitals vigorously objected to what they claimed would have been an excessively burdensome and costly requirement.


The final rule sets the outlier threshold at $1,250 for 2006.  Outlier payments are intended to partially compensate hospitals for certain high cost services.  To be eligible for an outlier payment, the estimated costs for a service must be greater than 1.75 times the payment amount for the APC and greater than the APC payment amount plus the outlier threshold.


The changes to the payment rates and increased volume of services contribute to an overall increase in projected payments to over 4,200 hospitals for Medicare outpatient services of $27.6 billion in 2006 compared to projected payments of $26.2 billion in 2005, an increase of 5.2 percent.


The final rule will be effective for hospital outpatient services furnished on or after January 1, 2006.


Note: For more information, visit the CMS Website at: