It seems that the Centers for Medicare & Medicaid Services (CMS) finally has realized that there are fundamental problems with the regulations that govern hospital billing and the rapid-fire release of new proposed rules that affect Part B rebilling (CMS-1455-P) and redefine inpatient level of care (CMS-1599-P).

These rules have been greeted with a mixed reaction, but whether you like them or not, they are forcing hospitals to adapt to a new landscape. The July 9 release of the 2014 Outpatient Prospective Payment System (OPPS) proposed rule (CMS-1601-P) on the CMS website represented another step toward changing the way hospitals do business.

There are many aspects of this 718-page document that will affect hospitals and other outpatient providers. Here are a few:

Traditionally, hospitals have coded and billed for outpatient facility visits (for clinics and ED, for example) using the CPT® codes that the American Medical Association developed for billing physicians’ work. These so-called evaluation and management (E&M) codes are, as the name denotes, used to quantify the work physicians do when they see patients. Physicians select a code based on the information collected and reviewed, the extent of the physical exam, and the complexity of the medical decision-making. Knowing this, it is hard to understand why CMS has insisted (despite industry calls for change) on inappropriately using physician E&M codes to bill for outpatient facility services, requiring each hospital to develop its own interpretation of how to apply five-level E&M coding to specific cases.

Hospital billing for outpatient services will change if the proposed rule is enacted. Instead of the five E&M levels, every clinic and ED visit will be documented by a single G code, with new G codes for clinics, type A emergency room visits and type B emergencies as well. The averaging effect will remove the payment differential between simple treat-and-release ED visits and complex evaluation and/or resuscitation of critically ill patients. Brief clinic visits will be reimbursed in the same fashion as evaluations of complex patients. As a result of this change, those ERs that treat a sicker population or see more serious trauma cases may lose revenue while those that serve as virtual primary care centers, addressing minor illnesses that otherwise could be treated in a doctor’s office, may do very well. It will put geriatric clinics at a disadvantage because they treat sicker, elderly patients who require more time and resources.

Ambulatory payment classification (APC) codes for observation also will be changing. Currently, APC 8002 is used to bill when a patient is referred to observation directly from a physician’s office or clinic, and APC 8003 denotes a patient whose evaluation started in the ED. The proposed new APC, 8009, would be used for both. Eight hours or more of observation still will be required for payment. The G codes used to bill observation hours will persist, too: G0378, representing each hour of observation, and G0379, designating the first hour of observation following direct referral from office or clinic. Since the five-level E&M codes for clinic and ED visits would be replaced by a single G code, the requirement for a high-level ED or clinic visit preceding observation will cease to exist.

The payment for observation (APC 8009) will increase to $1,343; the 2013 rate for APC 8003 is $798.47 and it’s $440.07 for 8002.
If the two-midnight rule is implemented as proposed (CMS-1599-P), one can anticipate increased numbers of patients forced into outpatient status with longer lengths of stay – trends about which CMS has expressed concern due to the added financial burden placed on some beneficiaries. Perhaps this increase in observation payment is intended to compensate for the consequences of Medicare rules outside the OPPS. CMS hasn’t given any explanation for the increased payment, but at least this is good news for hospitals.

But wait; there’s more.

The proposed rule creates a new billing category, the “comprehensive APC,” which will be used to pay hospitals for outpatient services that are heavily device-dependent (i.e., they involve the placement of expensive hardware). Currently, hospitals bill for the devices and the services involved in the procedure, documenting it all using separate codes (and patients are responsible for multiple copayments). Twenty-nine comprehensive APCs are proposed to bundle all of the services the hospital provides when it performs one of 136 different device installation procedures. The proposed rule clarifies that “this includes the diagnostic procedures, laboratory tests and other diagnostic tests, and treatments that assist in the delivery of the primary procedure; visits and evaluations performed in association with the procedure; uncoded services and supplies used during the service; outpatient department services delivered by therapists as part of the comprehensive service; durable medical equipment as well as prosthetic and orthotic items and supplies when provided as part of the outpatient service.”


All drugs administered, both parenteral and oral, will be considered integral to the service and will be part of the bundled payment, with the exception of drugs separately payable by transitional pass-through. The only other exclusions will be “charges that cannot be covered by Medicare Part B or that are not payable under the OPPS.” This includes mammography and ambulance charges. The time frame for bundling services into the comprehensive APC will be “bracketed by the OPD registration to initiate the service and the OPD discharge at the conclusion of the service.”

Since payment for comprehensive APCs will be based on historical claims for these services, CMS asserts that the change in reimbursement methodology will be budget-neutral – for them. CMS hopes that for hospitals, the bundling of all outpatient services into a single prospective payment will encourage greater efficiencies. A new status indicator, J1 (defined as “OPD services paid through a comprehensive APC”) will be applied to these services. When one of the 136 HCPCS codes appears on the outpatient bill, the charges will be bundled and paid according to the corresponding comprehensive APC. CMS refers hospitals to Addendum B of the proposed rule on the CMS website to find payment rates for the new APCs. (To find the J1 HCPCS codes, filter the SI column on the Addendum B Excel file for J1.)

Here are examples of some comprehensive APC payments:

HCPCS Code Description APC Payment
33208 Insertion of dual chamber pacemaker 0655 $11,055.65
37210 Embolization of uterine fibroid 0229 $10,470.80
58290 Complex vaginal hysterectomy 0202 $4,794.03
62362 Implant spinal infusion pump 0227 $15,373.65
92920 Cardiac PTCA, one vessel 0083 $4,451.84
33249 Insertion of AICD 0108 $31,594.30

Beneficiaries likely would benefit from this proposed change because they would be responsible for only one copayment (20 percent of the APC reimbursement) instead of copayments for each of many billable services defined by multiple HCPCS codes. They no longer would be exposed to charges for self-administered drugs, provided by the hospital before or after the procedure since the hospital would be paid a global fee covering all medications.

There is a provision of the proposed rule that is of special interest to critical-access hospitals (CAHs). The physician supervision requirement for patients receiving outpatient therapeutic services in a hospital setting, which has been waived for CAHs up until now, would be applied to these small rural hospitals going forward. If the rule is adopted, CAHs will need to provide direct supervision for these patients; that is, a physician or qualified non-physician practitioner must be on site around the clock and able to intervene immediately in the care of these patients during their entire stay “to furnish assistance and direction throughout the performance of the procedure,” excluding only those patients receiving extended duration non-surgical outpatient therapeutic services who have been declared stable enough for general supervision. (See the Medicare Benefit Policy Manual, Chapter 6, Section 20.6, for the supervision requirements that would now apply to CAHs.)

Download the 2014 OPPS proposed rule CMS-1601-P and related documents from:

CMS will accept comments on the proposed rule for 60 days following its publication in the Federal Register at

About the Author

Steven J. Meyerson, M.D., is a Senior Vice President of the Regulations and Education Group (the “REGs Specialists”) for AccretivePAS®. He is Board Certified in Internal Medicine and Geriatrics. He has recently been the Medical Director of Care Management and a compliance leader of a large multi-hospital system in Florida. He has distinguished himself by creating innovative service lines and managing education for Accretive PAS®.

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