Regulatory Recap: Site-Neutral Payments for New Off-Campus Hospital Departments

A version of this article previously appeared at Health Care Law Today.

Effective January 1, 2017, new off-campus hospital departments will be subject to site-neutral payments under Section 603 of the Bipartisan Budget Act of 2015.

The section applies to any provider-based off-campus departments that were not billing as a hospital department as of November 2, 2015. As of the effective date, such services at impacted department locations will not be reimbursable under the Medicare Outpatient Prospective Payment System (OPPS). Rather, they will need to be paid under another system, such as the Medicare Physician Fee Schedule or the Ambulatory Surgical Center (ASC) fee schedule.

Section 603 was passed to cut payments to hospital departments in order to provide funding to lift the federal debt ceiling, increase domestic spending in fiscal year 2016, and keep Medicare Part B premiums down.

Section 603 Does Not Apply To:

  • On-campus outpatient departments, whether old or new
  • Grandfathered departments—see below
  • Separately certified, hospital-based HHAs (Home Health Agencies), Hospice Centers, CAHs (Critical Access Hospitals), RHCs (Rural Health Clinics), or FQHCs (Federally Qualified Health Clinics), except for certain look-alike FQHCs
  • Inpatient remote locations of a hospital
  • DEDs (Dedicated Emergency Departments)

Under Section 603, grandfathered departments are off-campus hospital departments that were billing as an outpatient hospital department under OPPS prior to November 2, 2015. These grandfathered facilities continue to be eligible for the higher payments as outpatient departments of the hospital.


Although Section 603 reduces payments for off-campus hospital departments to the physician or ASC fee schedule, hospitals and health systems can still set up off-campus hospital departments for other purposes, such as 340B program eligibility and the three-day Diagnosis-Related Group (DRG) payment window.

Although there is no payment differential between a new off-campus hospital outpatient department and a physician practice, providers should still consider reporting their off-campus department in the ancillary services or outpatient services section of the Medicare cost report. Doing so confirms your facility is a department of the hospital and eligible for the 340B program. This outpatient department would not be treated as a non-reimbursable department in the Medicare cost report.

Because the Centers for Medicare & Medicaid Services (CMS) and Health Resources and Services Administration (HRSA) have not weighed in on the impact of Section 603, there remains some uncertainty in the provider community around these critical planning issues.

Issues Still to Be Resolved

CMS will need to develop instructions to states and Medicare Administrative Contractors (MACs) on how to implement Section 603. Several questions remain to be resolved:

  • Will the Medicaid payment system follow Medicare for those states that pay more for services in hospital outpatient departments?
  • Will states continue to license off-site locations as provider-based?
  • Will there be a consistent definition of what constitutes off-campus in each state?
  • What happens if a grandfathered department undertakes significant changes to the scope of service, the facility, or its location?
  • Will CMS interpret the statute differently?

CMS is expected to issue clarifications in the proposed rules in the coming months. They may have some commentary in the federal fiscal year 2017 Inpatient Prospective Payment System (IPPS) rule typically issued in April; however, CMS has stated that we will receive the first guidance in the calendar-year 2017 OPPS proposed rule, issued in June or July.

We're Here to Help

If you missed our earlier webcast on Section 603, jointly presented with Foley & Lardner LLP, it is now available to watch on demand.

We can help you analyze your hospital-owned departments to determine if any are subject to Section 603 and evaluate your cost-report treatment, billing arrangements, and compliance with state provider-based licensure rules.

Contact your Moss Adams or Foley & Lardner health care professional to learn more about the implementation of Section 603 and next steps for your organization.

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