CMS releases 2008 OPPS final rule

Rebecca Napoleon, for Briefings on APCs, November 6, 2007
In addition to finalizing most of its proposals, CMS created a new type of APC in its 2008 OPPS final rule (CMS-1392-FC) released Thursday, November 1. The rule takes effect on January 1, 2008.

To view the 2008 OPPS final rule, visit of

This is the first year hospitals have seen a radical change to packaging and other methodologies to control the rapidly growing healthcare expenditures under OPPS, says William L. Malm, ND, practice director of revenue cycle management at HCPro, Inc., in Marblehead, MA. The final rule introduces the new concept of composite APCs, which in certain circumstances provide a single payment to cover services across the entire patient encounter.

"This final rule appears to contain the most radical changes to OPPS payment policy since its inception in August 2000," says Jugna Shah, MPH, president of Nimitt Consulting in Washington, DC. "Some of the changes are positive, but many others are likely to result in significant financial and operational impact for providers."

The following are some noteworthy aspects of the final rule.

Broad packaging of services
Both Shah and Malm point out that CMS stayed the course with its proposed packaging proposal despite the comments received from providers, industry, and trade associations. CMS is moving forward with expanded packaging in each of the following categories:
  • Guidance services
  • Image processing services
  • Intraoperative services
  • Imaging supervision and interpretation services
  • Diagnostic radiopharmaceuticals
  • Contrast media

By expanding its packaging logic, CMS will no longer pay hospitals separately in 2008 for a large number of services for which hospitals currently receive separate payment. "I'm definitely surprised at how much of a hard line CMS has taken given all of the comments, including the recommendations from the APC Advisory Panel," Shah says. "This final rule seems to reflect CMS' goals of controlling outpatient expenditures and volume, while moving towards value-based purchasing," says Shah.

You can find a complete list of all packaged HCPCS codes that fall into the seven packaged categories in Table 10 on p. 313 of the OPPS rule. This table indicates whether a code has a status N (packaged services) or Q (packaged services which are subject to separate payment under certain OPPS payment criteria). Also note that radiology imaging and guidance is a major packaging item.

Diagnostic radiopharmaceuticals
Note that on p. 249 of the final rule, CMS finalized the decision to package all diagnostic radiopharmaceuticals, despite all of the comments it received against this proposal, including the APC Advisory Panel's recommendation.

The APC Advisory Panel recommended continuing separate payments for diagnostic radiopharmaceuticals greater than $200. CMS did not elect to adopt this and instead will package all diagnostic radiopharmaceuticals. This may have a large financial impact on hospitals that provide specific nuclear medicine procedures.

One positive change for providers is related to diagnostic radiopharmaceuticals. CMS will implement edits in the OCE for services furnished on and after January 1, 2008 related to claims for nuclear medicine procedures that are submitted without a HCPCS code or charge for a diagnostic radiopharmaceutical. Shah notes that this is a positive step as it will allow providers to fix their claims and ensure CMS has complete data for future rate-setting.

Separately payable drugs and pharmacy handling
On p. 721, CMS finalized its proposal to pay for most separately payable drugs at the average sales price plus 5 percent, which is a 1 percent reduction from current payment policy. In addition, CMS backed off of its proposal to require hospitals to report pharmacy handling/overhead costs separately. "This is a mixed bag of news; it's a relief that CMS did not move forward with its original proposal to require pharmacy handling to be reported separately however, the 1 percent reduction is a problem for two reasons," Shah says. Hospitals are already struggling with their drug reimbursement, and this creates a site of service differential between the physician setting (they are reimbursed at ASP+6 percent) and the hospital setting (ASP+5 percent).

"The most significant change in the CMS packaging proposal from the proposed rule to the final rule has to do with separately payable observation services," says Shah.

CMS had proposed to package all observation services, which meant the agency was going to eliminate the existing separately payable observation APC. Fortunately, CMS instead came out with a new concept in the final rule. CMS created two new composite APCs. To find a discussion of this new type of APC, see p. 274 of the final rule. You can find the final summary of observation on p. 906.

Malm sees this as a beneficial move in light of their packaging methodology. With the creation of composite APCs, all requirements under the current observation regulations were maintained, with the exception of diagnosis codes. "With this change, observation services can now apply to any disorder, not just chest pain, asthma and congestive heart failure," Malm says.

CMS still has not created national E/M guidelines, but did release 11 guidelines for hospitals to follow when developing and implementing their own internal guidelines. With the release of these 11 principles, CMS has provided a roadmap of expectations, Malm says. CMS also stated that it will audit hospitals to ensure that they adhere to these guidelines. You can find the 11 principles on p. 872 of the final rule.

For 2008, CMS also stated that hospitals are not precluded from using or adapting physician E/M guidelines. For further clarification see p. 876 of the final rule.

In the final rule, CMS includes new technical changes to hospital incident-to regulations, a subject of some recent controversy. You can find these changes on p. 920 of the rule. This new provision stresses that coverage comes before payment, notes Malm.

Composite APCs
Take note that in the final rule, CMS created the four following composite APCs:
  • 8000--Cardiac Electrophysiologic Evaluation and Ablation Composite
  • 8001--LDR Prostate Brachytherapy Composite
  • 8002--Level I Extended Assessment and Management Composite
  • 8003--Level II Extended Assessment and Management Composite

The final rule indicates that both MedPAC and the APC Advisory Panel support the implementation of composite APCs. These composite APCs enable the use of more multiple claims data and enable the payment system to better reflect how services are commonly furnished, the rule says. Malm points out that MedPAC indicated its support because it believes it will increase incentives for efficiency and serve as a starting point for payment bundles. For more information see p. 285-286.

Conversion factor
Malm says that the conversion factor for 2008 was revalued and recalculated. According to the final rule. "After consideration of the public comment received, we are finalizing our CY 2008 proposal, without modification, to update the conversion factor by the FY 2008 IPPS market basket increase update factor of 3.3 percent, resulting in a final conversion factor of $63.694."

Editor's note: All comments are based on CMS-1392-FC. There may be minor differences in the content that appears in the Federal Register. This early interpretation is based on the pre-publication version.

Rebecca Napoleon is the editor of Briefings on APCs. She may be reached at This story first appeared as a breaking news item from the editors of Briefings on APCs, a monthly newsletter by HCPro Inc. For information on all of HCPro's products, visit




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