WSR 04-17-109



(Medical Assistance Administration)

[ Filed August 17, 2004, 1:42 p.m. ]

Original Notice.

Preproposal statement of inquiry was filed as WSR 04-13-104.

Title of Rule and Other Identifying Information: Outpatient prospective payment system (OPPS), (Part 1 of 2), new sections WAC 388-550-7000 Outpatient prospective payment system (OPPS) -- General, 388-550-7050 OPPS -- Definitions, 388-550-7100 OPPS -- Exempt hospitals, 388-550-7200 OPPS -- Payment method, 388-550-7300 OPPS -- Payment limitations, 388-550-7400 OPPS APC relative weights, 388-550-7500 OPPS APC conversion factor, and 388-550-7600 OPPS payment calculation.

Hearing Location(s): Office Building 2 Auditorium (DSHS headquarters), 1115 Washington, Olympia, WA 98504 (public parking at 11th and Jefferson), on September 21, 2004, at 10:00 a.m.

Date of Intended Adoption: Not sooner than September 22, 2004.

Submit Written Comments to: DSHS Rules Coordinator, P.O. Box 45850, Olympia, WA 98504, delivery 4500 10th Avenue S.E., Lacey, WA, e-mail, fax (360) 664-6185, by 5:00 p.m., September 21, 2004.

Assistance for Persons with Disabilities: Contact Fred Swenson, DSHS Rules Consultant, by September 17, 2004, TTY (360) 664-6178 or (360) 664-6097.

Purpose of the Proposal and Its Anticipated Effects, Including Any Changes in Existing Rules: To improve the area of outpatient hospital expenditures, the department is implementing a new Medicaid payment method for outpatient hospital services provided to Medicaid clients. The outpatient prospective payment system (OPPS) uses claims and cost data to calculate reimbursement to hospitals for the facility component of outpatient services, and uses ambulatory payment classifications (APCs) as the primary basis of payment.

Reasons Supporting Proposal: OPPS is expected to provide consistency for providers when billing for outpatient hospital services that are reimbursed by state agencies. OPPS will also improve DSHS's/MAA's efficiency while managing expenditures in relationship to the federal upper payment limits.

Statutory Authority for Adoption: RCW 74.08.090 and 74.09.500.

Statute Being Implemented: RCW 74.08.090 and 74.09.500.

Rule is not necessitated by federal law, federal or state court decision.

Agency Comments or Recommendations, if any, as to Statutory Language, Implementation, Enforcement, and Fiscal Matters: OPPS has been implemented by state Department of Labor and Industries (L&I) and the Health Care Authority (HCA), and by the federal Centers for Medicare and Medicaid Services (CMS). The department developed its OPPS rules to be consistent and equitable with the L&I, HCA, and CMS OPPS.

Name of Proponent: Department of Social and Health Services, governmental.

Name of Agency Personnel Responsible for Drafting: Kathy Sayre, P.O. Box 45533, Olympia, WA 98504, (360) 725-1342; Implementation and Enforcement: Cynthia Smith, P.O. Box 45510, Olympia, WA 98504, (360) 725-1839.

No small business economic impact statement has been prepared under chapter 19.85 RCW. The department has analyzed the proposed rule amendments and concludes that they will impose no new costs on small businesses. The preparation of a comprehensive small business economic impact statement is not required.

A cost-benefit analysis is required under RCW 34.05.328. A preliminary cost-benefit analysis may be obtained by contacting Cynthia Smith, P.O. Box 45510, Olympia, WA 98504, phone (360) 725-1830, fax (360) 753-9152, e-mail

August 13, 2004

Brian H. Lindgren, Manager

Rules and Policies Assistance Unit

WAC 388-550-7000   Outpatient Prospective Payment System (OPPS) -- General.   (1) The medical assistance administration's (MAA's) outpatient prospective payment system (OPPS) uses an ambulatory payment classification (APC) based reimbursement methodology as its primary reimbursement method. MAA is basing its OPPS on the Centers for Medicare and Medicaid Services (CMS) Prospective Payment System for Hospital Outpatient Department Services.

(2) For a complete description of the CMS outpatient hospital prospective payment system, including the assignment of status indicators (SIs), see 42 CFR, Chapter IV, Part 419. The Code of Federal Regulations (CFR) is available from the CFR website and the Government Printing Office, Seattle office. The document is also available for public inspection at the Washington state library (a copy of the document may be obtained upon request, subject to any pertinent charge).


WAC 388-550-7050   OPPS -- Definitions.   The following definitions and abbreviations and those found in WAC 388-550-1050 apply to the medical assistance administration's (MAA's) outpatient prospective payment system (OPPS):

"Alternative outpatient payment" means a payment calculated using a method other than the ambulatory payment classification (APC) method, such as the outpatient hospital rate or the fee schedule.

"Ambulatory payment classification (APC)" means a grouping that categorizes outpatient visits according to the clinical characteristics, the typical resource use, and the costs associated with the diagnoses and the procedures performed.

"Ambulatory payment classification (APC) weight" means the relative value assigned to each APC.

"Ambulatory payment classification (APC) conversion factor" means a hospital-specific dollar amount that is one of the components of the APC payment calculation.

"Budget target" means the amount of money allocated by the legislature or through MAA's budget process to pay for a specific group of services.

"Budget target adjustor" means the MAA specific multiplier applied to all payable ambulatory payment classifications (APCs) to allow MAA to reach and not exceed the established budget target.

"Discount factor" means the percentage applied to additional significant procedures when a claim has multiple significant procedures or when the same procedure is performed multiple times on the same day. Not all significant procedures are subject to a discount factor.

"Medical visit" means diagnostic, therapeutic, or consultative services provided to a client by a healthcare professional in an outpatient setting.

"Modifier" means a two-digit alphabetic and/or numeric identifier that is added to the procedure code to indicate the type of service performed. The modifier provides the means by which the reporting hospital can describe or indicate that a performed service or procedure has been altered by some specific circumstance but not changed in its definition or code. The modifier can affect payment or be used for information only. Modifiers are listed in fee schedules.

"Observation services" means services furnished by a hospital on the hospital's premises, including use of a bed and periodic monitoring by hospital staff, which are reasonable and necessary to evaluate an outpatient's condition or determine the need for possible admission to the hospital as an inpatient.

"Outpatient code editor (OCE)" means a software program published by 3M Health Information Systems that MAA uses for classifying and editing claims in ambulatory payment classification (APC) based OPPS.

"Outpatient prospective payment system (OPPS)" means the payment system used by MAA to calculate reimbursement to hospitals for the facility component of outpatient services. This system uses ambulatory payment classifications (APCs) as the primary basis of payment.

"Pass-throughs" means certain drugs, devices, and biologicals, as identified by Centers for Medicare and Medicaid Services (CMS), for which providers are entitled to additional separate payment until the drugs, devices, or biologicals are assigned their own ambulatory payment classification (APC).

"Significant procedure" means a procedure, therapy, or service provided to a client that constitutes the primary reason for the visit to the healthcare professional.

"Status indicator (SI)" means a one-digit identifier assigned to each service by the outpatient code editor (OCE) software.

"SI" see "status indicator."


WAC 388-550-7100   OPPS -- Exempt hospitals.   The medical assistance administration (MAA) exempts the following hospitals from the initial implementation of MAA's outpatient prospective payment system (OPPS). (Refer to other sections in chapter 388-550 WAC for alternative outpatient payment methods MAA uses to pay hospital providers that are exempt from MAA's OPPS.)

(1) Cancer hospitals;

(2) Critical access hospitals;

(3) Free-standing psychiatric hospitals;

(4) Out-of-state hospitals (Bordering-city hospitals are considered in-state hospitals. See WAC 388-550-1050.);

(5) Pediatric hospitals;

(6) Peer group A hospitals;

(7) Rehabilitation hospitals; and

(8) Veterans' and military hospitals.


WAC 388-550-7200   OPPS -- Payment method.   (1) This section describes the payment methods the medical assistance administration (MAA) uses to pay for covered outpatient hospital services.


(2) MAA uses the APC method when the Centers for Medicare and Medicaid Services (CMS) has established weight(s) to pay for covered:

(a) Medical visits;

(b) Significant procedures that are not subject to multiple procedure discounting;

(c) Significant procedures that are subject to multiple procedure discounting;

(d) Nonpass-through drugs or devices;

(e) Observation services; and

(f) Ancillary services.


(3) MAA uses the OPPS fee schedule to pay for covered:

(a) Services that are exempted from the APC payment methodology or services for which there are no established weight(s);

(b) Procedures that are on the CMS inpatient only list;

(c) Items, codes, and services that are not covered by Medicare;

(d) Corneal tissue acquisition;

(e) Drugs or biologicals that are pass-throughs; and

(f) Devices that are pass-throughs.


(4) MAA uses the hospital outpatient rate described in WAC 388-550-4500 to pay for the services listed in subsection (3) of this section for which MAA has not established a maximum allowable fee.


WAC 388-550-7300   OPPS -- Payment limitations.   (1) The medical assistance administration (MAA) limits payment for covered outpatient hospital services to the current published maximum allowable units of services listed in the outpatient prospective payment system (OPPS) fee schedule and published in the OPPS section of MAA's hospital billing instructions, subject to the following:

(a) When a unit limit for services is not stated in the OPPS fee schedule, MAA pays for services according to the program's unit limits stated in applicable WAC and published issuances.

(b) Because multiple units for services may be factored into the ambulatory payment classification (APC) weight, MAA pays for services according to the unit limit stated in the OPPS fee schedule when the limit is not the same as the program's unit limit stated in applicable WAC and published issuances.

(2) MAA does not pay separately for covered services that are packaged into the APC rates. These services are paid through the APC rates.


WAC 388-550-7400   OPPS APC relative weights.   The medical assistance administration (MAA) uses the ambulatory payment classification (APC) relative weights established by the Centers for Medicare and Medicaid Services (CMS). MAA updates the APC relative weights at least quarterly in conjunction with the outpatient code editor (OCE) updates.


WAC 388-550-7500   OPPS APC conversion factor.   The medical assistance administration (MAA) uses the ambulatory payment classification (APC) conversion factors established by the Centers for Medicare and Medicaid Services (CMS) and in effect on November 1, 2004, as MAA's initial APC conversion factors. MAA updates its APC conversion factors at least biannually.


WAC 388-550-7600   OPPS payment calculation.   (1) The medical assistance administration (MAA) follows the discounting and modifier policies of the Centers for Medicare and Medicaid Services (CMS). MAA calculates the ambulatory payment classification (APC) payment as follows:

APC payment =

APC relative weight x APC hospital-specific conversion factor x

Discount factor (if applicable) x Units of service (if applicable) x

Budget target adjustor
(2) The total OPPS claim payment is the lesser of the:

(a) Allowed charges for the claim; or

(b) Sum of the APC payments plus the sum of payments for non-APC services.


Legislature Code Reviser 


Washington State Code Reviser's Office