ACR Bulletin

Covering topics relevant to the practice of radiology

Diagnosing Hospital Payment Policy

This second article in a two-part series on physician reimbursement explores how CMS pays for imaging services inside the Hospital Outpatient Prospective Payment System and the Inpatient Prospective Payment System.

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In this second column, we explore how CMS pays for imaging services inside the Hospital Outpatient Prospective Payment System (HOPPS) and the Inpatient Prospective Payment System (IPPS).

—Gregory N. Nicola, MD, FACR
August 29, 2023

Developing a working knowledge of health policy first requires a basic understanding of how radiologists and imaging services are paid — and the acronyms associated with these payment systems. In the first column of this two-part series, we explored the Medicare Physician Fee Schedule (MPFS). In this second column, we explore how CMS pays for imaging services inside the Hospital Outpatient Prospective Payment System (HOPPS) and the Inpatient Prospective Payment System (IPPS).

Hospital Outpatient Prospective Payment System 

The HOPPS covers services such as the use of hospital outpatient supplies, equipment, clinical labor and indirect facility expenses such as office staff and real estate costs. The services are codified by Ambulatory Payment Classifications (APCs), which are essentially groups of similar Current Procedural Terminology (CPT®) codes. The services in each APC are clinically similar and require similar resources. They are generally paid at the same prospectively fixed rate based on a set of relative weights, a HOPPS conversion factor and adjustments for geographic factors. 

CMS determines the services that are covered under the HOPPS payment program and then assigns each service to an applicable APC group. For example, APCs tend to be modality-specific (e.g., all non-contrast CTs) instead of specific to modality and body part as seen in the MPFS. The payment for these APCs is determined differently than technical payments inside the MPFS, leading to differing payments for similar services. 

Payment determination inside of HOPPS uses geographic mean costs across an entire hospital-based outpatient imaging facility instead of the MPFS methodology of time-dependent activity-based costing. These different methodologies can lead to disparate payments for the same service done in a hospital-owned facility paid via HOPPS versus a physician office paid via MPFS.  

Recently, these differing payment methodologies for technical payments in the MPFS versus HOPPS has become a hot topic in Congress, where Sen. Bernie Sanders, chair of the Senate Committee on Health, Education, Labor and Pension (HELP), introduced a bill that would prohibit hospitals from charging a facility fee — in essence, reducing payments for services performed at a hospital outpatient center to the same rates as those paid for services in a physician office. (Senate HELP committee to consider workforce bill with site-neutral cuts | AHA News.) These legislative concepts have sometimes been called “site-neutral’ payment policy. They have popped up from time to time when Congress needs money and may gain traction in the future.

Inpatient Prospective Payment System 

The final payment system discussed in this column is the IPPS. This system is used to reimburse hospitals for costs incurred while caring for patients admitted to the hospital. These costs include staff and nursing, supplies, room costs and equipment. This system is very different from the other two payment systems in that a single bundled payment is made based on the patient’s medical condition or reason for admission. 

For example, a hospital will receive a single payment for a patient receiving a total knee replacement. That payment will cover all standard costs incurred for caring for the patient during that individual’s admission for the procedure. The rendered services are codified by diagnosis-related groups (DRGs). Each DRG has a payment weight assigned to it, based on the average resources used to treat Medicare patients in that DRG.

A base payment rate is split into labor-related and non-labor components. The labor-related component is adjusted by the wage index assigned to the area where the hospital is located, like the Geographic Practice Cost Index (GPCI) used in the MPFS discussed previously in this two-part series. This base payment rate is then multiplied by a DRG Relative Weight. 

 A disproportionate share hospital (DSH) will also receive an add-on adjustment for treating a high percentage of low-income patients. If the hospital is an approved teaching hospital, it receives a percentage add-on payment for each case paid through IPPS, known as the indirect medical education (IME) adjustment. This adjustment varies depending on the ratio of residents to beds and according to the ratio of residents to average daily census. Finally, outlier cases with unusually high costs may receive an add-on payment in the IPPS to protect hospitals from catastrophic costs incurred with these cases. 

This two-part column was intended to introduce payment policy novices to core concepts of how CMS pays for imaging services. Understanding these basic concepts can also provide insight into unintended and intended market trends created by paying for the same service differently in different healthcare settings. 

Author Gregory N. Nicola, MD, FACR,  chair of the ACR Commission on Economics