CY 2021 Medicare Hospital Outpatient Prospective Payment System and Ambulatory Surgical Center Payment System Final Rule (CMS-1736-FC)

On December 2, 2020, the Centers for Medicare & Medicaid Services (CMS) finalized policies that are consistent with the directives in President Trump’s Executive Order, entitled “Protecting and Improving Medicare for Our Nation’s Seniors,” that aim to increase choice, lower patients’ out-of-pocket costs, empower patients, and protect taxpayer dollars.

These changes would build on existing efforts to increase patient choice by making Medicare payment available for more services in different sites of service and adopting policy changes under the Medicare Hospital Outpatient Prospective Payment System (OPPS) and Ambulatory Surgical Center (ASC) Payment System.

The CY 2021 OPPS/ASC Payment System final rule with comment period would further advance the agency’s commitment to strengthening Medicare and reducing provider burden so that hospitals and ambulatory surgical centers can operate with increased flexibility, and patients are better equipped to be active healthcare consumers.

This fact sheet discusses the major provisions of the final rule with comment period (CMS-1736-FC), which can be downloaded at:


Increasing Choice and Encouraging Site Neutrality

The final rule includes policies that would continue to give beneficiaries more affordable choices on where to obtain care with the potential for lower out-of-pocket expenses.

Elimination of the Inpatient Only List

In this rule, we are finalizing our proposal to eliminate the Inpatient Only (IPO) list over a three-year transitional period, beginning with the removal of approximately 300 primarily musculoskeletal-related services, with the list completely phased out by CY 2024. This will make these procedures eligible to be paid by Medicare in the hospital outpatient setting when outpatient care is appropriate, as well as maintain our ability to pay for these services in the hospital inpatient setting when inpatient care is appropriate, as determined by the physician.

Additionally, procedures removed from the IPO list may become subject to medical review activities related to the 2-midnight rule. In the CY 2020 OPPS/ASC final rule, CMS finalized a two-year exemption from certain medical review activities related to the 2-midnight rule for procedures newly removed from the IPO list. In this rule, we are finalizing a policy in which procedures removed from the IPO list beginning January 1, 2021 will be indefinitely exempted from site-of-service claim denials under Medicare Part A, eligibility for Beneficiary and Family-Centered Care-Quality Improvement Organization (BFCC-QIO) referrals to Recovery Audit Contractors (RACs) for noncompliance with the 2-midnight rule, and RAC reviews for “patient status” (that is, site-of-service). This exemption will last until we have Medicare claims data indicating that the procedure is more commonly performed in the outpatient setting than the inpatient setting. This exemption will allow providers more time to become accustomed to the new ability to bill for Medicare payment of claims for services that were previously only paid on an inpatient basis. Providers are still expected to bill in compliance with the 2-Midnight rule. The BFCC-QIOs will still have the opportunity to review such claims in order to provide education for practitioners and providers regarding compliance with the 2-midnight rule, but claims identified as noncompliant will not be denied with respect to the site-of-service under Medicare Part A.

ASC Covered Procedures List

For CY 2021, we are adding eleven procedures to the ASC covered procedures list (CPL), including total hip arthroplasty (CPT 27130), under our standard review process.  Additionally, we are revising the criteria we use to add covered surgical procedures to the ASC CPL, providing that certain criteria we used to add covered surgical procedures to the ASC CPL in the past will now be factors for physicians to consider in deciding whether a specific beneficiary should receive a covered surgical procedure in an ASC, and adopting a notification process for surgical procedures the public believes can be added to the ASC CPL under the criteria we are retaining. Using our revised criteria, we are adding an additional 267 surgical procedures to the ASC CPL beginning in CY 2021.

OPPS Payment Methodology for 340B Purchased Drugs

Section 340B of the Public Health Service Act (340B) allows participating hospitals and other providers to purchase certain covered outpatient drugs from manufacturers at discounted prices. In the CY 2018 OPPS/ASC final rule, CMS reexamined the appropriateness of paying the Average Sale Price (ASP) plus 6 percent for drugs acquired through the 340B Program, given that 340B hospitals acquire these drugs at steep discounts. Beginning January 1, 2018, Medicare adopted a policy to pay an adjusted amount of ASP minus 22.5 percent for separately payable drugs or biologicals acquired under the 340B Program.  This policy has been subject to ongoing litigation but was upheld by the United States Court of Appeals for the D.C Circuit Court on July 31, 2020.

In this final rule with comment period, we are continuing the current 340B payment policy of paying ASP minus 22.5 percent for 340B-acquired drugs. We believe maintaining the current payment policy is appropriate in order to maintain consistent and reliable payment amid the PHE. The 340B payment policy continues to exempt rural sole community hospitals, children’s hospitals, and PPS-exempt cancer hospitals. These hospitals would continue to report informational modifier “TB” for 340B-acquired drugs, and continue to be paid ASP+6 percent. Although we are continuing the current 340B payment policy, we will continue to consider and evaluate the appropriateness of using 340B hospital survey data to set future payment rates for 340B drugs.


Meaningful Measures/Patients Over Paperwork

CY 2021 Overall Hospital Quality Star Rating for CY 2021 and Subsequent Years

In continuing the agency’s efforts to reduce burden and improve efficiencies through the Patients Over Paperwork Initiative, for the first time through the rulemaking process, CMS will establish, update, and simplify the methodology used to calculate the Overall Hospital Quality Star Rating (Overall Star Rating) beginning with 2021.

After seeking stakeholder input through multiple public venues on the current methodology used to calculate the Overall Star Rating and our proposal from the CY 2021 proposed rule, CMS is retaining certain aspects of the current methodology (e.g., annual refresh, what measures are included, standardization of measure scores, and the use of k-means clustering to assign a rating) and updating other aspects, such as:

  • Combine three existing process measure groups into one new Timely and Effective Care group as a result of measure removals (thus, the Overall Star Ratings would be made up of five groups – Mortality, Safety of Care, Readmissions, Patient Experience, and Timely and Effective Care)
  • Use a simple average methodology to calculate measure group scores instead of the current statistical Latent Variable Model
  • Standardize measure group scores (that is, make varying scores directly comparable by putting them on a common scale)
  • Change the reporting threshold to receive an Overall Star Rating by requiring a hospital to report at least three measures for three measures groups, however, one of the groups must specifically be the Mortality or Safety of Care group; and
  • Apply peer grouping methodology by number of measure groups where hospitals are grouped into whether they have three or more measures in three, four, or five measure groups (three measure groups is the minimum to receive a rating).

These changes will be used to calculate the Overall Star Rating beginning in 2021. Overall, the changes we are finalizing will:

  • Simplify the methodology by reducing the total number of measure groups and create an explicit approach to calculating measure group scores;
  • Improve the predictability of the Overall Star Rating over time through a simple average of measure scores with equal measure weightings that hospitals can better anticipate; and
  • Improve the comparability of the Overall Star Rating through updating the reporting threshold, and peer grouping.

We are also including critical access hospitals (CAHs) in the Overall Star Rating, as well as Veterans Health Administration (VHA) hospitals.

Hospital Outpatient Quality Reporting (OQR) Program and Ambulatory Surgical Center Quality Reporting (ASCQR) Program

CMS is finalizing changes to update and refine requirements for the Hospital Outpatient Quality Reporting (OQR) and Ambulatory Surgical Center Quality Reporting (ASCQR) Programs to further meaningful measurement and reporting for quality of care in the outpatient surgical setting, while limiting burden. CMS is revising and codifying previously finalized administrative procedures, and codifying an expanded review and corrections process to further align the Hospital OQR and ASCQR Programs while clarifying program requirements. CMS is not adding or removing any measure for either program.


Updates to OPPS Payment Rates

In accordance with Medicare law, CMS will update OPPS payment rates for hospitals that meet applicable quality reporting requirements by 2.4 percent. This update is based on the projected hospital market basket increase of 2.4 percent with a 0.0 percent adjustment for multi-factor productivity (MFP).

Partial Hospitalization Program (PHP) Rate Setting

The CY 2021 OPPS/ASC final rule updates Medicare payment rates for Partial Hospitalization Program (PHP) services furnished in hospital outpatient departments and Community Mental Health Centers (CMHCs). The PHP is a structured intensive outpatient program consisting of a group of mental health services paid on a per diem basis under the OPPS, based on PHP per diem costs.

Update to PHP Per Diem Rates

CMS is finalizing its policy to maintain the unified rate structure established in CY 2017, with a single PHP Ambulatory Payment Classification (APC) for each provider type for days with three or more services per day. CMS will continue to use the CMHC and hospital-based PHP (HB PHP) geometric mean per diem costs, consistent with existing policy, using the latest available data for each provider type.  Based on the latest data, the geometric mean per diem costs for both CMHCs and hospital-based PHPs are significantly higher than the cost floors that were proposed for CY 2021.  Because the final calculated geometric mean per diem costs for both provider types are above the proposed floors, the data does not support finalizing floors at this time, and therefore, we are not finalizing the proposed cost floors in this CY 2021 OPPS/ASC final rule.  Accordingly, CMS is finalizing the CY 2021 PHP APC per diem rates for CMHCs and HB PHPs based on the updated cost data for each provider type.

Device Pass-through Applications

Effective January 1, 2021, CMS is approving five device pass-through applications that meet the criteria to be granted transitional pass-through status:  BAROSTIM NEO™ System, Hemospray® Endoscopic Hemostat, the SpineJack® Expansion Kit, CUSTOMFLEX® ARTIFICIALIRIS, and EXALT™ Model D Single-Use Duodenoscope. Three of the applications have a FDA Breakthrough Device designation, two of which were preliminarily approved for device pass-through payment during the quarterly review process: CUSTOMFLEX® ARTIFICIALIRIS and EXALT™ Model D Single-Use Duodenoscope.

Clinical Diagnostic Laboratory Test Packaging Policy and Laboratory Date of Service (DOS) Policy for Certain Protein-Based Multianalyte Assays with Algorithmic Analyses (MAAAs)

The CY 2021 OPPS/ASC final rule excludes cancer-related protein-based MAAAs as described by CPT codes 81500, 81503, 81535, 81536, and 81539 and the test described by CPT code 81490, which are not generally performed in the hospital outpatient department setting, from the OPPS packaging policy, and revises the laboratory DOS policy to add these tests to the laboratory DOS exception at § 414.510(b)(5).  These revisions require laboratories performing these protein‑based MAAAs that meet the DOS requirements at § 414.510(b)(5) to bill Medicare directly for those tests instead of seeking payment from the hospital.


Updates to ASC Payment Rates

In the CY 2019 OPPS/ASC final rule with comment period, we finalized our proposal to apply the hospital market basket update to ASC payment system rates for an interim period of 5 years (CY 2019 through CY 2023).

Using the hospital market basket, CMS is updating the ASC rates for CY 2021 by 2.4 percent. The final update applies to ASCs meeting relevant quality reporting requirements. This change is based on the projected hospital market basket increase of 2.4 percent with a 0.0 percent adjustment for MFP. This update will help to promote site-neutrality between hospitals and ASCs and encourage the migration of services from the hospital setting to the lower cost ASC setting.


Protecting Taxpayer Dollars

CMS is continuing to focus on reducing unnecessary increases in the volume of covered outpatient department services through the use of prior authorization. In the CY 2021 OPPS/ASC final rule, CMS is requiring prior authorization for Cervical Fusion with Disc Removal, and Implanted Spinal Neurostimulators for dates of services on or after July 1, 2021. CMS continues to believe prior authorization is an effective mechanism to ensure Medicare beneficiaries receive medically necessary care, while protecting the Medicare Trust Funds from unnecessary increases in volume by virtue of improper payments, without adding new documentation requirements for providers.


Physician-Owned Hospitals

In order for a physician-owned hospital to submit claims and receive Medicare payment for services referred by a physician owner or investor (or a physician whose family member is an owner or investor), the physician-owned hospital must satisfy all of the requirements of either the whole hospital exception or the rural provider exception to the physician self-referral law, commonly referred to as the “Stark Law.”

To qualify for the rural provider or whole hospital exception, a physician-owned hospital may not increase the aggregate number of operating rooms, procedure rooms, and beds above that for which the hospital was licensed on March 23, 2010 (or, in the case of a hospital that did not have a provider agreement in effect as of March 23, 2010, but did have a provider agreement in effect on December 31, 2010, the effective date of such agreement), unless CMS has granted an exception to the prohibition on expansion. A hospital may request an exception to the prohibition on expansion of facility capacity using the process established in the CY 2012 OPPS/ASC final rule.

In the CY 2021 OPPS/ASC final rule, CMS removed certain provisions in the expansion exception process that are applicable to hospitals that qualify as “high Medicaid facilities” because such provisions are not mandated by Section 1877 of the Act. Specifically, CMS removed 1) the cap on the number of additional operating rooms, procedure rooms, and beds that can be approved in an exception and 2) the restriction that the expansion must occur only in facilities on the hospital’s main campus. In addition, a high Medicaid facility may now apply for an exception more than once every two years from the time of a decision by CMS, provided that the hospital submits only one expansion exception request at a time. The final regulations also provide that, for purposes of determining the number of beds in a hospital’s baseline number of operating rooms, procedure rooms, and beds, a bed is included if the bed is considered licensed for purposes of State licensure, regardless of the specific number of beds identified on the physical license issued to the hospital by the State. This will provide additional flexibility to physician-owned hospitals that qualify as high Medicaid facilities, which, by definition, serve more Medicaid inpatients than other hospitals in the counties in which they are located.


Updates to Hospital and Critical Access Hospital Reporting

In order to address the ongoing public health emergency, CMS is finalizing a new requirement for the nation’s 6,200 hospitals and critical access hospitals to report information about their inventory of therapeutics to treat COVID-19. This reporting will provide the information needed to track and accurately allocate therapeutics to the hospitals that need additional inventory to care for patients and meet surge needs.

Also in order to address the ongoing public health emergency, CMS is finalizing a new requirement for the nation’s hospitals and critical access hospitals to report information about the impact of acute respiratory illnesses, such as seasonal influenza, on hospital resources.  Treatment of acute respiratory illnesses uses many of the same resources necessary for treatment of COVID-19, and this new reporting requirement will provide the necessary information to distribute resources to hospitals under strain.

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