On November 2, 2015, the President signed into law the Bipartisan Budget Act of 2015 (the Act). The Act includes several health care provisions affecting various interests, including a provision that would exclude hospital off-campus outpatient departments from reimbursement under Medicare’s more favorable outpatient prospective payment system (OPPS). The Act will be effective January 1, 2017 (the Effective Date) and apply to any off-campus site that was not already billing under OPPS as of November 2, 2015 (the Date of Enactment). Currently, Medicare reimburses hospitals qualifying for provider-based status at a higher rate than free-standing sites. The new law will have a negative impact on payments to hospitals and will likely affect the trend of hospital acquisitions of physician practices.

Section 603 of the Act significantly modified the so-called "provider-based" reimbursement rules for hospital services provided "off campus" by eliminating the "35-mile rule." The "35-mile" rule had permitted hospitals to claim provider-based status for any off-campus department or outpatient services that it wholly owns within a 35-mile radius of the hospital’s main campus. After January 1, 2017, new off-campus outpatient departments will have to bill either under the Medicare Physician Fee Schedule or ambulatory surgical center (ASC) schedule; essentially in the same manner that independent physician practices and free-standing ASCs currently bill.

News of the legislation surprised many hospital providers, particularly since it had only been approved by Congress a few days earlier on October 28th. While the speed of the enactment may have come as a surprise, the new provision makes good the government’s desire to establish site-neutral payments for services, regardless of whether they are provided in a hospital or physician practice setting. Critics of the Act assert that the effective result, that is site-neutral payments, does not take into account the difference in overhead and other costs associated with services rendered in a hospital outpatient setting as compared to independent-practice settings, which the old rule was intended to provide additional compensation to cover. The American Hospital Association pointed out that minorities and low-income patients comprise the populations most likely to need the very outpatient departments whose payments are being cut.

The Act grandfathers any off-campus outpatient departments that bill OPPS before the enactment date, i.e., November 2, 2015. Also, the Act does not apply to off-campus emergency department services.