NAMDRC and Partners Focus on CMS Threat to Pulmonary Rehabilitation

In a genuine very good news, very bad news proposal included in the 2017 hospital outpatient regulations, the Centers for Medicare & Medicaid Services (CMS) has proposed a major payment boost for pulmonary rehab services billed through hospital outpatient departments, but, simultaneously, the Agency proposes to preclude certain programs from utilizing that long- standing payment mechanism.

In November 2015, Congress authorized CMS to take action on the growing trend of hospitals purchasing certain physician practices so that the hospital can bill for certain services at a notably higher rate than the same service when provided in the physician office setting. CMS Section 603 pf P.L. 114-74 authorizes such action, and “These proposals are made in accordance with our belief that section 603… is intended to curb the practice of hospital acquisition of physician practices that result in receiving additional Medicare payment for similar services.” While we recognize that the congressional intent has some level of legitimacy, as is often the case, the CMS approach is too inclusive, especially as it applies to pulmonary rehabilitation services billed through HCPCS code G0424.

This problem has evolved because of two distinctly different formulas for determining payment. The physician fee schedule is based on the concept of RVUs, practice expense, and malpractice expense. Hospital outpatient services that may be virtually identical are based on a formula that includes charge data from Medicare claims forms and the annual hospital cost report identifying overhead.

If adopted as proposed, hospital outpatient programs in place on the date of enactment of P.L. 114-74 (early November 2015) are grandfathered into the hospital outpatient methodology. However, new programs that are not part of the main hospital campus (or within 250 yards of the campus) will only be able to bill at the physician office setting rate. Likewise, an existing program that moves to a new location that is beyond the 250-yard threshold will lose its “grandfather” status and be forced to bill at the physician office setting payment rate.

For practical purposes, the 2017 proposed rate for G0424 in the hospital setting is $160+, while the same service in the physician office setting is $30+.

While there is certainly understandable logic in the Congressional mandate, the CMS approach that includes pulmonary rehab is fraught with basic flaws in logic, strongly supported by CMS data. For example, in 2014 only 231 distinct providers billed for a total of 22,603 services. That translates into an outlay of approximately $535,000. Compare that outlay for 2014 with the outlay for hospital outpatient pulmonary rehab at just under $120 million, billed by 1350 distinct providers.

Those data alone strongly support the contention that a business model of pulmonary rehab in a physician office setting is rarely viable. Space, capital investment, and staffing, coupled with low payment, hardly create an incentive for a hospital to purchase a pulmonary practice because of lucrative pulmonary rehab services.

Other Medicare data also work in our favor. An examination of the physician specialties that actually bill G0424 through the physician fee schedule also punches a large hole in the CMS argument. The top five physician specialties that billed G0424 through the physician office setting include:

2012 2013 2014

TOTAL $688,489 $589,116 $535,512

Pulmonary $340,805 $310,065 $229,832

Family Practice $175,788 $116,681 $183,499

Internal Medicine $79,053 $78,211 $52,943

Crit Care (intensivists) $29,964 $29,139 $18,723

Cardiology $31,947 $17,729 $17,242

Source: Physician Supplier Procedure Summary File (PSPS), 2012-2014

These data speak volumes, or perhaps an absolute lack of volume. How does one support the concept that this proposed action is necessary to stem the tide of hospital acquisition of pulmonary practices when the total volume, notably declining over the past 3 years, of actual billings for pulmonary rehab is valued at under $230,000? The comparison with actual hospital billing in 2014 of just under $120 million is critical. There is no rhyme or reason to the CMS proposal as it applies to pulmonary rehabilitation services.

Unintended consequences are not difficult to imagine. With the new payment rates, hospitals may choose to expand their programs but cannot do so unless that physical location in on the main campus or within 250 yards of the campus. An off-site program that must move to accommodate larger space would be precluded from such a move. Likewise, hospitals that may want to open a new program must do so within the confines of the hospital campus/250-yard perimeter. Otherwise, these programs would be required to bill at the physician fee schedule rate.

In a genuine very good news, very bad news proposal included in the 2017 hospital outpatient regulations, the Centers for Medicare & Medicaid Services (CMS) has proposed a major payment boost for pulmonary rehab services billed through hospital outpatient departments, but, simultaneously, the Agency proposes to preclude certain programs from utilizing that long- standing payment mechanism.

In November 2015, Congress authorized CMS to take action on the growing trend of hospitals purchasing certain physician practices so that the hospital can bill for certain services at a notably higher rate than the same service when provided in the physician office setting. CMS Section 603 pf P.L. 114-74 authorizes such action, and “These proposals are made in accordance with our belief that section 603… is intended to curb the practice of hospital acquisition of physician practices that result in receiving additional Medicare payment for similar services.” While we recognize that the congressional intent has some level of legitimacy, as is often the case, the CMS approach is too inclusive, especially as it applies to pulmonary rehabilitation services billed through HCPCS code G0424.

This problem has evolved because of two distinctly different formulas for determining payment. The physician fee schedule is based on the concept of RVUs, practice expense, and malpractice expense. Hospital outpatient services that may be virtually identical are based on a formula that includes charge data from Medicare claims forms and the annual hospital cost report identifying overhead.

If adopted as proposed, hospital outpatient programs in place on the date of enactment of P.L. 114-74 (early November 2015) are grandfathered into the hospital outpatient methodology. However, new programs that are not part of the main hospital campus (or within 250 yards of the campus) will only be able to bill at the physician office setting rate. Likewise, an existing program that moves to a new location that is beyond the 250-yard threshold will lose its “grandfather” status and be forced to bill at the physician office setting payment rate.

For practical purposes, the 2017 proposed rate for G0424 in the hospital setting is $160+, while the same service in the physician office setting is $30+.

While there is certainly understandable logic in the Congressional mandate, the CMS approach that includes pulmonary rehab is fraught with basic flaws in logic, strongly supported by CMS data. For example, in 2014 only 231 distinct providers billed for a total of 22,603 services. That translates into an outlay of approximately $535,000. Compare that outlay for 2014 with the outlay for hospital outpatient pulmonary rehab at just under $120 million, billed by 1350 distinct providers.

Those data alone strongly support the contention that a business model of pulmonary rehab in a physician office setting is rarely viable. Space, capital investment, and staffing, coupled with low payment, hardly create an incentive for a hospital to purchase a pulmonary practice because of lucrative pulmonary rehab services.

Other Medicare data also work in our favor. An examination of the physician specialties that actually bill G0424 through the physician fee schedule also punches a large hole in the CMS argument. The top five physician specialties that billed G0424 through the physician office setting include:

2012 2013 2014

TOTAL $688,489 $589,116 $535,512

Pulmonary $340,805 $310,065 $229,832

Family Practice $175,788 $116,681 $183,499

Internal Medicine $79,053 $78,211 $52,943

Crit Care (intensivists) $29,964 $29,139 $18,723

Cardiology $31,947 $17,729 $17,242

Source: Physician Supplier Procedure Summary File (PSPS), 2012-2014

These data speak volumes, or perhaps an absolute lack of volume. How does one support the concept that this proposed action is necessary to stem the tide of hospital acquisition of pulmonary practices when the total volume, notably declining over the past 3 years, of actual billings for pulmonary rehab is valued at under $230,000? The comparison with actual hospital billing in 2014 of just under $120 million is critical. There is no rhyme or reason to the CMS proposal as it applies to pulmonary rehabilitation services.

Unintended consequences are not difficult to imagine. With the new payment rates, hospitals may choose to expand their programs but cannot do so unless that physical location in on the main campus or within 250 yards of the campus. An off-site program that must move to accommodate larger space would be precluded from such a move. Likewise, hospitals that may want to open a new program must do so within the confines of the hospital campus/250-yard perimeter. Otherwise, these programs would be required to bill at the physician fee schedule rate.

In a genuine very good news, very bad news proposal included in the 2017 hospital outpatient regulations, the Centers for Medicare & Medicaid Services (CMS) has proposed a major payment boost for pulmonary rehab services billed through hospital outpatient departments, but, simultaneously, the Agency proposes to preclude certain programs from utilizing that long- standing payment mechanism.

In November 2015, Congress authorized CMS to take action on the growing trend of hospitals purchasing certain physician practices so that the hospital can bill for certain services at a notably higher rate than the same service when provided in the physician office setting. CMS Section 603 pf P.L. 114-74 authorizes such action, and “These proposals are made in accordance with our belief that section 603… is intended to curb the practice of hospital acquisition of physician practices that result in receiving additional Medicare payment for similar services.” While we recognize that the congressional intent has some level of legitimacy, as is often the case, the CMS approach is too inclusive, especially as it applies to pulmonary rehabilitation services billed through HCPCS code G0424.

This problem has evolved because of two distinctly different formulas for determining payment. The physician fee schedule is based on the concept of RVUs, practice expense, and malpractice expense. Hospital outpatient services that may be virtually identical are based on a formula that includes charge data from Medicare claims forms and the annual hospital cost report identifying overhead.

If adopted as proposed, hospital outpatient programs in place on the date of enactment of P.L. 114-74 (early November 2015) are grandfathered into the hospital outpatient methodology. However, new programs that are not part of the main hospital campus (or within 250 yards of the campus) will only be able to bill at the physician office setting rate. Likewise, an existing program that moves to a new location that is beyond the 250-yard threshold will lose its “grandfather” status and be forced to bill at the physician office setting payment rate.

For practical purposes, the 2017 proposed rate for G0424 in the hospital setting is $160+, while the same service in the physician office setting is $30+.

While there is certainly understandable logic in the Congressional mandate, the CMS approach that includes pulmonary rehab is fraught with basic flaws in logic, strongly supported by CMS data. For example, in 2014 only 231 distinct providers billed for a total of 22,603 services. That translates into an outlay of approximately $535,000. Compare that outlay for 2014 with the outlay for hospital outpatient pulmonary rehab at just under $120 million, billed by 1350 distinct providers.

Those data alone strongly support the contention that a business model of pulmonary rehab in a physician office setting is rarely viable. Space, capital investment, and staffing, coupled with low payment, hardly create an incentive for a hospital to purchase a pulmonary practice because of lucrative pulmonary rehab services.

Other Medicare data also work in our favor. An examination of the physician specialties that actually bill G0424 through the physician fee schedule also punches a large hole in the CMS argument. The top five physician specialties that billed G0424 through the physician office setting include:

2012 2013 2014

TOTAL $688,489 $589,116 $535,512

Pulmonary $340,805 $310,065 $229,832

Family Practice $175,788 $116,681 $183,499

Internal Medicine $79,053 $78,211 $52,943

Crit Care (intensivists) $29,964 $29,139 $18,723

Cardiology $31,947 $17,729 $17,242

Source: Physician Supplier Procedure Summary File (PSPS), 2012-2014

These data speak volumes, or perhaps an absolute lack of volume. How does one support the concept that this proposed action is necessary to stem the tide of hospital acquisition of pulmonary practices when the total volume, notably declining over the past 3 years, of actual billings for pulmonary rehab is valued at under $230,000? The comparison with actual hospital billing in 2014 of just under $120 million is critical. There is no rhyme or reason to the CMS proposal as it applies to pulmonary rehabilitation services.

Unintended consequences are not difficult to imagine. With the new payment rates, hospitals may choose to expand their programs but cannot do so unless that physical location in on the main campus or within 250 yards of the campus. An off-site program that must move to accommodate larger space would be precluded from such a move. Likewise, hospitals that may want to open a new program must do so within the confines of the hospital campus/250-yard perimeter. Otherwise, these programs would be required to bill at the physician fee schedule rate.