CMS Adjusts “PFS Relativity Adjuster” Further Downwards for Non-Excepted Off-Campus Provider-Based Hospital Departments

In an effort to achieve site-neutrality in terms of Medicare reimbursement between certain off-campus provider-based departments of hospitals (PBDs) and free-standing physician clinics, the Centers for Medicare & Medicaid Services (CMS) has announced further reductions in reimbursement for certain items and services furnished by those PBDs that began billing under the Medicaire Outpatient Prospective Payment Sytem (OPPS) on or after November 2, 2015 (Non-Excepted PBDs).

The Bipartisan Budget Act of 2015 requires that payment for certain items and services furnished by Non-Excepted PBDs on or after January 1, 2017 be made under the Medicare Physician Fee Schedule (PFS) rather than under the OPPS. (Non-Excepted PBDs that provide emergency department services or that satisfied the “under development” exception set out in the 21st Century Cure Act are exempt from this requirement.) For the broad range of nonexcepted items and services furnished by Non-Excepted PBDs, CMS established reimbursement rates under the PFS. These PFS rates are based on the OPPS payment amount for the same items and services, scaled downward by a certain percentage — known as the “PFS Relativity Adjuster.”

For calendar year (CY) 2017, CMS established the Relativity Adjuster to be 50%, providing its rationale that scaling the OPPS payment rates downward by 50% would “strike an appropriate balance that avoided potentially underestimating the relative resources involved in furnishing services in nonexcepted off-campus PBDs as compared to the services furnished in other settings for which payment was made under the PFS.”

For CY 2018, however, in its final rule to be published in the Federal Register on November 17, 2017 CMS has reduced the PFS Relativity Adjuster to be 40%, stating that it considered the PFS Relativity Adjuster of 50% for CY 2017 to be a “transitional policy until it had more precise data to better identify and value nonexcepted items and services furnished by nonexcepted off-campus PBDs and billed by hospitals.” Although at present CMS does not have more precise data than were available when it established the PFS Relativity Adjuster for CY 2017, CMS concluded that a 40% PFS Relativity Adjuster is appropriate for CY 2018 and that this adjustment “will provide a more level playing field for competition between hospitals and physician practices by promoting greater payment alignment.” (CMS’ original proposal in its proposed rule published in the Federal Register on July 21, 2017 was that the CY 2018 PFS Relativity Adjuster be 25%.)

Prior to CMS finalizing the PFS Relativity Adjuster for CY 2018, hospital groups lobbied CMS to keep the Relatively Adjuster the same as in CY 2017, if not increase it. Given the rationale CMS articulated in the Final Rule for the CY 2018 fee schedules, health systems with Non-Excepted PDBs should expect further decreases in the PFS Relatively Adjuster for future years.