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CMS Issues Changes to Method of Calculating Reimbursement for Outside Contractor Services


PG Alert

February 16, 2018

Anna Stewart Whites (Anna Whites Law Office, Frankfort, KY)
Sharon C. Peters (Lewis Brisbois Bisgaard Smith LLP, Portland, OR)

This Alert is brought to you by AHLA’s Behavioral Health Task Force.

On January 12, 2018, the Centers for Medicare & Medicaid Services (CMS) issued changes to reimbursement for outside contractor services, including behavioral health services.1 The changes apply to all services (other than physicians' services) furnished by an outside supplier to a Medicare-participating hospital, skilled nursing facility, home health agency, clinic, rehabilitation agency, comprehensive outpatient rehabilitation facility, community mental health center, or public health agency.

The transmittal memo provides that CMS will pay the reasonable cost of the services of physical, occupational, speech, and other therapists” who are outside contractors (or others who are not employees) at a rate that “may be greater per unit of time than salary-related amounts, if the greater paymentis, in the aggregate, less than the amount that would have been paid had a therapist been employed on a full-time or regular part-time salaried basis.”2 Previously, the payment rates were calculated using “salary data compiled by the Bureau of Labor Statistics (BLS) in their triennial surveys along with data from several other sources of hospital and nursing home data.”3

The guidelines are applicable to “outside suppliers,” which include “an individual therapist or other health-related specialist, a contracting organization, or another provider, such as a hospital, skilled nursing facility, home health agency, clinic, rehabilitation agency, or public health agency.”4

Updated reasonable cost tables are provided as an appendix to the revision. The changes indicate that “reasonable cost” is expected to be adjusted upward over time. CMS intends to continue ensuring that the reimbursement reflects changes in the economy and the cost of providing services.

This amendment expands the types of providers affected to include community mental health centers and comprehensive outpatient rehabilitation facilities.5 In addition, it allows the contractor to determine what the reasonable level and reasonable cost of services is for its region, rather than the rate being nationwide.6 Contractors are encouraged to use the BLS data, but are not required to find that appropriate in their contracted region.7 Providers must satisfy the contractor that the type and quality of services support the charges billed.8

Reimbursement determination appeals shall be made to the contractor only after submission of the provider’s cost report and receipt of the notice of program reimbursement reflecting the determination. The provider appeal must be made in accordance with CMS Pub. 15-1, Chapter 29, § 2906.

The revision may be in furtherance of the quality measures CMS is using to review provider care and use of best value and evidence-based practices.9 The revision may also indicate that providers need to remain in communication with contractors to ensure that provider input is a consideration in the determination of reasonable supplier reimbursement.

1 See CMS Transmittal 477, “Provider Reimbursement Manual Part 1, Chapter 14, Reasonable Cost of Therapy and Other Services Furnished by Outside Suppliers” January 12, 2018, available at
2 42 C.F.R. § 413.106(a).
3 CMS Transmittal 477, Section 1402.1.
4 Id., Section 1403.
5 Id.
6 Id., Section 1407.3.
7 See, e.g., id., Section 1414.2.
8 Id., Section 1412.
9 See
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