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OPPS Rule Continues Push Toward Bundled Payment


Medicaid Payment Perspectives helps Medicaid programs and other payers improve the methods used to purchase care and services for their beneficiaries. It’s published by the Payment Method Development team at Conduent.

The Center for Medicare and Medicaid Services (CMS) continues its push toward more bundled payments in its FY 2017 Outpatient Prospective Payment System (OPPS) final rule, with an emphasis on quality. The rule also refines the Medicare programs definition of the provider-based department and changes payment policy for x-ray services.

Many state Medicaid programs follow Medicare’s payment methodology as a precedent to some extent. States may choose to follow the Medicare Ambulatory Payment Classifications (APC) methodology using Medicare fees, relative weights and conversion factors. They also have the flexibility to use part of it. For example, a program may choose to implement Medicare APC relative weights but set a unique conversion factor, set different fees for Current Procedural Terminology (CPT) and Healthcare Common Procedure Coding System (HCPCS) codes or independently decide on covered services. States may also implement entirely different outpatient payment methodologies, such as Enhanced Ambulatory Patient Grouping (EAPG).

For states that follow Medicare policies, the annual OPPS final rule is an important update. The purpose of the rule is to tell hospitals how to bill for Medicare services and how CMS reimburses those hospitals. Each year, CMS analyzes millions of Medicare claims to determine what types of services were provided and how much they cost. Depending on their analysis, CMS will choose to update the fees and coverage for services or adjust their policies. CMS releases a proposed rule mid-year to allow hospitals the opportunity to comment on the rule. Once CMS receives and reviews the comments, they will make changes and adjustments before releasing the final rule.

In addition to the final rule, CMS also releases Addendums A–P, which reference material critical to outpatient hospital payment. Addendum A is a list of the current APCs, which are groups of services packaged together for payment. Addendum B is a list of the current HCPCS and CPT codes and their relative weights. Both addenda contain status indictors which are assigned to specific payment rules. Some services, such as those with Status Indicator A or B, are not covered under Medicare. Services with a status indictor N are bundled into other services on the same claim. Other services are paid by multiplying the relative weight and the Medicare conversion factor.

Over the last several years, CMS has been pushing more and more outpatient services into bundled payment. This means that the hospital will receive a payment for major procedures and services, but will not be paid for ancillary services and supplies that were provided during the same encounter. This is achieved through APCs, Comprehensive APCs and Composite APCs. They are updated annually with new and deleted APCs as well as the updates to CPT and HCPCS codes. Starting January 1, 2017, packaging of services is applied at the claim level; this was previously done by date of service, which allowed for multiple bundles on the same claim.

Also on January 1, 2017, CMS implemented section 603 of the Bipartisan Budget Act of 2015, which tightened the definition of an off-campus provider-based department (PBD). An excepted PBD furnished services in an off-campus setting prior to November 2, 2015. Dedicated emergency departments and on- or off-campus PBDs within 250 yards of the main campus are also considered excepted. A non-excepted PBD is a facility that has not billed for services on or before November 2, 2015. An excepted PBD can lose its exception status if the clinic bills for services beyond what has been billed prior to November 2, 2015, if they change ownership or if they relocate to a new address.

CMS also decided to decrease payments by 20 percent, for hospitals who take x-rays using film. When billing for x-rays, facilities are required to use modifier “FX” if they use film. If no modifier is present to indicate film was used, the payment is packaged into other services and paid at $0. Furthermore, over 2018 to 2023, CMS will reduce x-rays taken using computed radiology by 7 percent. Starting in 2023, payments will be reduced by 10 percent.

Another change for FY 2017 is the creation of status indicators E1 and E2, which replace status indicator E. Services with status indicator E were not covered by Medicare because they were either excluded or claims data was not available. These definitions were combined last year; for FY 2017, they were divided. Status indicator E1 is now used for excluded Medicare services and status indicator E2 is used for services where claims data wasn’t available to determine pricing.

CMS continues to refine its outpatient methodology in numerous ways. Other changes in FY 2017 include:

  • Unrelated laboratory services will be bundled (no payment) if they appear on the same claim as other outpatient services
  • Hospitals must report outpatient quality data for measures that will be used to tie payment to quality starting in 2018 (including hospital admissions after outpatient surgeries, ER visits for chemotherapy patients, etc.).

The Payment Method Development team at Conduent creates a breakdown of the OPPS final rule each year. For more information on outpatient payment methods, email

You can read more Conduent insights about Medicaid payment in previous editions of Medicaid Payment Perspectives.