The acronym OPPS in healthcare refers to the Outpatient Prospective Payment System. This is the mechanism the Centers for Medicare and Medicaid Services (CMS) uses to reimburse hospitals for the majority of outpatient services provided to Medicare beneficiaries. Implemented in 2000, OPPS replaced older, cost-based reimbursement methods that lacked consistency and predictability. The system standardizes payments for the facility component of care, such as hospital equipment, supplies, and staff time, by setting fixed payment rates in advance of service delivery to promote efficiency and control healthcare costs.
Defining the Outpatient Prospective Payment System (OPPS)
The Outpatient Prospective Payment System is a method of determining a fixed payment amount for a specific service before the service is delivered. This contrasts with retrospective payment models, where the hospital would bill Medicare based on its reported costs after the patient’s visit. OPPS applies to hospital outpatient departments (HODs) and is distinct from the payment systems used for inpatient stays, which are based on Diagnosis-Related Groups (DRGs).
The system was mandated by the Balanced Budget Act of 1997 to bring predictability and standardization to Medicare’s outpatient spending. Under a prospective system, the financial risk is partially shifted to the hospital, creating an incentive for providers to deliver care efficiently and keep their costs below the predetermined payment rate. This mechanism helps to ensure that payments for similar services are consistent across different facilities nationwide.
The OPPS payment covers the hospital’s overhead, including nursing services, medical supplies, and the use of the facility itself. The OPPS payment does not cover the professional fee for the physician or other qualified practitioner; those professionals are reimbursed separately through the Medicare Physician Fee Schedule. The entire system is continuously reviewed and updated annually by CMS to adjust payment rates and incorporate new medical services and technology.
The Role of Ambulatory Payment Classifications (APCs) in Payment
The fundamental building blocks of the OPPS are the Ambulatory Payment Classifications (APCs). APCs are a grouping system where clinically similar outpatient services that require comparable resources are bundled together for payment purposes. Each APC is assigned a single, predetermined payment rate, which Medicare pays to the hospital when the service is rendered.
This classification system allows CMS to simplify the complex array of services provided in an outpatient setting. Services are categorized based on their Healthcare Common Procedure Coding System (HCPCS) codes, which include CPT codes for procedures and Level II codes for supplies and drugs. The APC payment rate is calculated based on the national average cost of providing all the services within that specific group.
The payment amount for an APC is determined by multiplying an annually updated relative weight, which reflects the resource intensity of the service, by a national conversion factor. This calculated payment is then adjusted for the local wage index to account for geographic differences in labor costs. For certain costly procedures, a single Comprehensive APC (C-APC) payment may be made, which bundles the primary service and all related items, such as diagnostic tests and supplies, into one payment.
Scope of Services and Financial Implications for Patients
The OPPS covers a wide array of services delivered in hospital outpatient departments, which are often grouped into categories like surgical procedures, diagnostic tests, and medical treatments. Common services paid under OPPS include emergency department visits, outpatient surgeries, observation services, chemotherapy administration, and various diagnostic imaging procedures like X-rays and CT scans. The system does not cover services like inpatient hospital stays, physician professional fees, or services provided by certain non-hospital entities, such as skilled nursing facilities.
For the Medicare beneficiary, the OPPS structure dictates their financial responsibility for the hospital portion of the service. Patients are generally responsible for a co-payment or coinsurance amount, which is typically 20 percent of the APC payment rate. This coinsurance amount is capped and cannot exceed the amount of the inpatient hospital deductible for that year.
Because the payment rate for a service is fixed and known in advance through the APC, the patient’s financial liability is also more predictable. This prospective payment structure ensures that Medicare and the patient know the facility charge for a given service, regardless of the hospital’s actual costs. The annual updates to the OPPS payment rates directly affect the amount hospitals are reimbursed and, consequently, the patient’s out-of-pocket costs.