On November 7, 2008, the Centers for Medicare and Medicaid Service (CMS) published a final rule that more closely aligns the Medicaid and Medicare definitions of outpatient hospital services. The final rule addresses the ambiguity in the Medicaid definition of outpatient hospital services which allowed for a high possibility of overlap between outpatient hospital facility services and other covered Medicaid benefits.

Under Section 1905(a)(2)(A) of the Social Security Act, outpatient hospital services are listed as a mandatory benefit for most eligible Medicaid populations. The federal regulations provide no specific definition of Medicaid outpatient hospital services. According to CMS, the purpose of the final rule is to establish consistency between the definition of Medicaid outpatient hospital services and the applicable upper payment limit for them, to provide more transparency in determining available hospital coverage in any state, and to clarify the scope of services available under the outpatient hospital services benefit category.

Effective December 8, 2008, the definition of Medicaid outpatient hospital facility services is amended as follows:

42 C.F.R. § 440.20 Outpatient hospital facility (including outpatient hospital clinic) services and rural health clinic services.

Outpatient hospital services means preventive, diagnostic, therapeutic, rehabilitative, or palliative services that:

• Are furnished to outpatients; 
• Are furnished by or under the direction of a physician or a dentist; 
• Are furnished in a facility that –
  (i) is licensed or formally approved as a hospital by an officially designated authority for State standard-setting; and
  (ii) meets the requirements for participation in Medicare as a hospital; 
• Are limited to the scope of facility services that –
  (i) Would be included, in the setting delivered, in the Medicare outpatient prospective payment system (OPPS) as defined under §419.2(b) of this chapter or are paid by Medicare as an outpatient hospital service under an alternate payment methodology;
  (ii) Are furnished by an outpatient hospital facility, including an entity that meets the standards for provider-based status as a department of a provider set forth in §413.65 of this chapter;
  (iii) Are not covered under the scope of another Medical Assistance service category under the State Plan; and
• May be limited by a Medicaid agency in the following manner: A Medicaid agency may exclude from the definition of “outpatient hospital services” those types of items and services that are not generally furnished by most hospitals in the State.

Hospitals should also note that the final rule also clarifies the Illinois Medicaid rule regarding offsite hospital-based departments. Previously, the Illinois rule required that a hospital outpatient department must be located adjacent to or on the premises of the hospital. However, the Medicare hospital-based rules provided that a hospital outpatient department can be located as far as 35 miles from the main hospital. The final rule clarifies that qualifying Medicare outpatient departments up to 35 miles from the hospital also qualify as Medicaid outpatient departments that may render Medicaid outpatient department services.

For further information, please contact your regular Hinshaw attorney. 

This alert has been prepared by Hinshaw & Culbertson LLP to provide information on recent legal developments of interest to our readers. It is not intended to provide legal advice for a specific situation or to create an attorney-client relationship.