Medicare Hospital Outpatient Prospective Payment System (OPPS) Changes for CY2005

• Medicare Payment Policy under the Physician Fee Schedule for Calendar year 2005
• Medicare Payment Policy under the Physician Fee Schedule for Calendar year 2005 Continued
• Medicare Hospital Outpatient Prospective Payment System (OPPS) Changes for CY2005
• Medicare Hospital Outpatient Prospective Payment System (OPPS) Changes for CY2005 Continued
• Revisions to the Physician Fee Schedule under Medicare Part B for Calendar Year 2005
• Revisions to the Physician Fee Schedule under Medicare Part B for Calendar Year 2005 Continued
• Revisions to the Physician Fee Schedule under Medicare Part B for Calendar Year 2005 Continued (2)
• Medicare Part A Pass-Through Payment Update CY2005

On November 2, 2004, the Centers for Medicare and Medicaid Services (CMS) released the Final Rule for changes to the Hospital Outpatient Prospective Payment System (OPPS) and the CY2005 payment rates. We will focus on the changes and payment rates associated with recombinant and plasma-based therapies. The final rule was released in the Federal Register on November 15, 2004, and CMS will accept comments to the final rule up until January 14, 2005. Comments will be received via email at www.cms.hhs.gov/regulations/ ecomments, or by mailing (one original and two copies) comments directly to: Centers for Medicare and Medicaid Services, Department of Health and Human Services, Attn: CMS-1427-FC, P.O. Box 8010, Baltimore, MD. 21244-8018.

Background

When the Medicare statute was originally enacted, Medicare payment for hospital outpatient services was based on hospital-specific costs. In an effort to ensure that Medicare and its beneficiaries pay appropriately for services and to encourage more efficient delivery of care, Congress mandated replacement of the cost-based payment methodology with a prospective payment system (PPS). The Balanced Budget Act of 1997 (BBA)(pub.L.105-33), enacted on August 5, 1997, added section 1833(t) to the Social Security Act authorizing implementation of a PPS for hospital outpatient services. The Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999 (BBRA)(pub. L. 106-113), enacted on November 29, 1999, made major changes that affected the hospital outpatient PPS (OPPS). The Medicare, Medicaid, and SCHIP Benefits and Improvement and Protection Act of 2000 (BIPA)(Pub. L. 106-554), enacted on December 21, 2000, made further changes in the OPPS. Section 1833(t) of the Act was also recently amended by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), Pub. L. 108-173, enacted on December 8, 2003. The OPPS was first implemented for services furnished on or after August 1, 2000.

Under the OPPS, Medicare paid for hospital outpatient services on a rate-per-service basis that varies according to ambulatory payment classification (APCs) groups to which the services are assigned. Health Care Common Procedure Coding System codes (HCPCS) were used to identify and group the services within each APC group. The OPPS rate is an adjusted national payment rate that includes the Medicare payment and the beneficiary co-payment. This rate is divided into a labor-related amount and a nonlabor-related amount. The labor-related amount is adjusted for area wage differences using the Medicare Inpatient hospital wage index value for the locality in which the hospital is located.

CY2005 Changes and Rates for Recombinant and Plasma-Derived Therapies

For specifically covered outpatient drugs and biologicals, payment rates under the OPPS were broken down into three (3) categories:

• Sole source drugs
• Innovator multiple source drugs
• Noninnovator multiple source drugs

Each category had been assigned a specific payment rate based on a floor and ceiling reimbursement rate specifically tied to the average wholesale price (AWP). The AWP based reimbursement rate is in affect for CY2004 and CY2005 for recombinant and plasma-derived therapies. For the purposes of CY2005 payment rates, Sole source drugs are to be paid at no less than 83 percent and no more than 95 percent of the referenced AWP. Innovator multiple source drugs are to be paid at no more than 68 percent of the referenced AWP, and Noninnovator multiple source drugs are to be paid at no more than 46 percent of the referenced AWP. Biologic therapies such as blood clotting factors and intravenous immune globulins (IVIG) are classified as sole source drugs1.

1The models used in determining payments rates are specified by Section 621 of the Medicare Drug Improvement and Modernization Act of 2003 (P.L. 108-173). Further, this law reaffirms the Social Security Act designation of all biologics as sole source therapies, regardless of the number of brands within a HCPCS code.

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