What Does OPPS Stand For in Medical Billing?

The Outpatient Prospective Payment System (OPPS) is a key component of Medicare’s reimbursement structure for hospital outpatient services. It dictates how these services are paid, affecting both healthcare providers and patient access to care.

Defining the Outpatient Prospective Payment System (OPPS)

OPPS stands for the Outpatient Prospective Payment System. It is the payment system Medicare uses to reimburse hospitals for most outpatient services provided to Medicare beneficiaries. The Centers for Medicare and Medicaid Services (CMS) established this system to manage program expenditures and promote efficiency in healthcare delivery.

The purpose of OPPS is to set payment rates in advance, rather than basing them on the hospital’s actual costs. This “prospective payment” means a predetermined, fixed amount is paid for a service regardless of the intensity or cost of care. This contrasts with older cost-based reimbursement models that incentivized higher spending.

OPPS began on August 1, 2000, authorized by the Balanced Budget Act of 1997. It replaced the previous fee-for-service system for many outpatient services, aiming to control rising healthcare costs and encourage hospitals to provide services more economically.

How OPPS Determines Hospital Outpatient Payments

OPPS determines payment using the Ambulatory Payment Classification (APC) system. APCs are groups of clinically similar services that require similar resources, serving as foundational building blocks for calculating OPPS payments.

Each APC has an assigned payment rate, which CMS updates annually based on national data. This base rate is adjusted for geographic wage differences. When a hospital provides a service, it uses Healthcare Common Procedure Coding System (HCPCS) codes (which include Current Procedural Terminology or CPT codes) to identify the service. Medicare then assigns this service to an appropriate APC based on its HCPCS/CPT code.

This APC assignment dictates the fixed payment the hospital receives. The system incentivizes hospitals to manage costs effectively, as they receive a set amount regardless of their actual expenditures. Payments are made to hospitals when a Medicare outpatient is discharged from an emergency department or clinic, or transferred to another non-affiliated hospital.

Key Components of OPPS Payment Calculation

Building upon the APC framework, several elements refine and adjust the final OPPS payment amount. One such element is “packaging,” where certain ancillary services, drugs, and supplies are included within the payment for the primary service, meaning a single payment covers a bundle of related services. For example, routine supplies used during a procedure might be packaged into the payment for the procedure itself.

Another adjustment is “discounting,” which applies when multiple procedures are performed on the same patient during the same outpatient encounter. Medicare reduces the payment for subsequent procedures, recognizing that some costs are shared across concurrent services, thus preventing overpayment.

Status Indicators (SIs) are alphabetic codes assigned to CPT/HCPCS codes that signal how a service is paid under OPPS. These indicators show whether a service is separately paid or packaged.

Other adjustments include outlier payments and rural hospital adjustments. Outlier payments provide additional funds for unusually high-cost cases where the cost of care significantly exceeds the standard APC payment rate. Rural hospital adjustments may also apply to certain facilities, such as sole community hospitals, to account for unique operational challenges.

Services Covered Under OPPS

The Outpatient Prospective Payment System covers a broad range of services provided in hospital outpatient departments. This includes common services such as emergency department visits, outpatient surgical procedures, and observation services. Many diagnostic tests, like X-rays, laboratory tests, MRI scans, and CT scans, are also paid under OPPS.

Additionally, OPPS covers clinic visits, certain preventive services, and therapeutic services such as chemotherapy and radiation therapy. For example, an initial preventive physical examination performed within the first year of Medicare Part B coverage is included. These services represent a significant portion of the care Medicare beneficiaries receive in an outpatient setting.

However, certain services are specifically excluded from OPPS. Physician services, for instance, are generally reimbursed under a different payment methodology, the Medicare Physician Fee Schedule, not OPPS. Services paid under other prospective payment systems, such as those for skilled nursing facilities or home health agencies, are also excluded. Furthermore, some services where the hospital is not the primary billing entity, or those statutorily excluded by Medicare, are not paid under OPPS.