Medicare Payment and Reimbursement

Medicare outpatient payments to hospitals won’t rise considerably in 2024, according to a proposed rule

A new coverage category for behavioral health services would become available in ambulatory settings as CMS seeks to provide more options for addressing the prevalence of diagnosed mental health conditions.

July 14, 2023 3:17 pm

Medicare’s newly proposed outpatient payment update for 2024 is unlikely to be greeted with enthusiasm by hospitals.

The update for items and services provided in the hospital outpatient or ambulatory surgical center setting would be 2.8%, mirroring the proposed change for inpatient payments. The base update would be 3%, with a statutorily required productivity adjustment taking the increase down by 0.2 percentage points.

However, CMS projects that payment tweaks through recalibration of ambulatory payment classifications and budget neutrality adjustments in the wage index would bump the average net increase for hospitals back up to 3% (see the table on page 885 of the rule).  

Rural hospitals would fare better, with a projected rate increase of 4.4% after factoring in adjustments related to the wage index. There also would be significant regional variations in payment changes for both rural and urban hospitals, with those in the Middle Atlantic and Pacific regions generally securing a more favorable update.

Nonteaching hospitals would end up with an average update of 3.5%, compared with 2.4% for major teaching hospitals and 3% for minor teaching hospitals. For-profit hospitals as a group would end up with an update of 3.4%, compared with 3% for hospitals categorized as “voluntary ownership” hospitals (generally referring to not-for-profit hospitals) and 2.8% for government-owned hospitals.

The American Hospital Association and Premier issued statements saying the overall increase would be insufficient to help hospitals meet ongoing financial challenges. Recent metrics indicate hospitals continue to encounter elevated expenses — including a year-over-year increase of 3% in May, according to Kaufman Hall’s latest National Hospital Flash Report — compared with what would have been considered “normal” pre-pandemic.

Comments directed to CMS on the proposed rule are due by Sept. 11 at

Changes to quality reporting

As usual, hospitals would lose 2 percentage points off their payment update if they fail to meet quality-reporting requirements.

The measure set would be adjusted in 2024 by removing the Left Without Being Seen measure and modifying measures on COVID-19 Vaccination Coverage Among Healthcare Personnel; Improvement Within 90 Days Following Cataract Surgery; and Appropriate Follow-up Interval for Normal Colonoscopy in Average Risk Patients.

The Left Without Being Seen measure, reflecting patients who leave the emergency department (ED) without being evaluated, is getting removed in part because CMS has seen only limited evidence linking the measure to improved patient outcomes. CMS will rely on the Median Time for Discharged ED Patients measure to gauge ED performance in the quality-reporting program.

The measure on a hospital’s vaccination rates for healthcare personnel is changing to reflect a new definition of being up to date on vaccination per CDC guidance based on available boosters. CMS’s mandate for hospital staff to be vaccinated was withdrawn after the end of the COVID-19 public health emergency, so the agency is using the quality-reporting program to encourage vaccination.

More on 340B

Medicare payment for drugs acquired through the 340B Drug Pricing Program would remain average sales price (ASP) plus 6% in 2024. The rate was restored in late September following a Supreme Court decision after having been lowered to ASP minus 22.5% starting in 2018.

The ruling also led to last week’s CMS proposal that hospitals receive $9 billion in lump-sum payments as a remedy for what the court deemed to be unlawful underpayments spanning 2018 through Sept. 27, 2022. The announcement of the proposed remedy also included CMS’s plan to reduce payments for nondrug items and services by 0.5% annually over 16 years to achieve budget neutrality with respect to the remedy payments.

That reduction would not begin until 2025, meaning hospitals could collect their assigned payment — most likely in late 2023 or early 2024 — without immediately taking a haircut on Medicare revenue for other items and services.

On claims filed for reimbursement of 340B-acquired drugs, CMS is proposing that all hospitals use the TB modifier effective in 2025. The JG modifier would be phased out after 2024.

The change stems from provisions in the Inflation Reduction Act that make drug companies liable for a rebate if prices of certain classes of their manufactured drugs exceed the rate of inflation. CMS says having a single modifier will make it easier for the agency to track and exclude 340B-acquired drugs, which are exempt from the calculation.

A new program for behavioral healthcare

Hospitals, community mental health centers, federally qualified health centers and rural health clinics would be eligible to receive payment under intensive outpatient programs (IOPs), a new designation for behavioral healthcare services. The category was established by the omnibus appropriations bill that Congress passed for 2023 and is meant to address a gap in coverage for Medicare beneficiaries who need behavioral healthcare more frequently than on a standard outpatient basis but less so than in a partial hospitalization program (PHP).

Unlike PHP services, IOP services would not be intended for those who otherwise would need inpatient-level care. Beneficiaries would be eligible for IOPs if a physician certifies that they need at least nine hours of care per week.

Among the covered items and services in IOPs would be individual and group therapy with physicians or psychologists, occupational therapy, drugs and biologicals furnished for therapeutic purposes (not self-administered), and services provided by social workers, psychiatric nurses and other staff. Not covered as part of IOPs would be services provided by physicians, physician assistants, nurse practitioners and clinical nurse specialists.

Coding for IOP services would align with that for PHP services, with level of intensity the differentiating factor between the specific codes (including condition code 41 for PHP services and condition code 92 for IOP services). Group psychotherapy would be added to the list of codes recognized for both programs.

In a separate point related to behavioral healthcare, in-person requirements would be delayed until 2025 for mental health services furnished remotely by hospital staff to home-based beneficiaries.

Expanded coverage of some services

Medicare would begin covering cardiac rehabilitation, intensive cardiac rehabilitation (ICR) and pulmonary rehabilitation services that are supervised by nurse practitioners, physician assistants and clinical nurse specialists. At least for 2024, those clinicians would be allowed to supervise those services via telehealth, as long as the care encounter includes a real-time video component.

In addition, ICR services furnished at an off-campus, non-excepted provider-based department (PBD) of a hospital would be exempt from site-neutral payment, making them payable at the full outpatient rate starting in 2024. CMS said the policy is meant to address “an unintended reimbursement disparity created by application of the off-campus, non-excepted payment rate to ICR services.”

Specifically, such services have been paid at the full outpatient rate when provided in physician offices since 2010. Thus, site-neutral payment policies that apply the physician payment rate have left non-excepted PBDs at an unfair disadvantage going back to when the lower rate was implemented for such settings in 2017.


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