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Will Medicare Pay Your Facility?
The Provider-Based Rules and
Why They Are Important To You
Thomas W. Coons
Ober|Kaler
Baltimore, Maryland
I.
Background.
On April 7, 2000, the Centers for Medicare and Medicaid Services (CMS) (then
named HCFA) issued requirements for provider-based departments and entities as
part of the final rule implementing the prospective payment system for outpatient
hospital services. 65 Fed. Reg. 18,433 (Apr. 7, 2000) (codified at 42 C.F.R. §
413.65). The regulation was later amended at 65 Fed. Reg. 47,670, 47,677
(Aug. 3, 2000); 66 Fed. Reg. 59,856, 59,911-14 (Nov. 30, 2001), implementing §
404 of the Benefits Improvement and Protection Act of 2000 (Dec. 21, 2000)
(BIPA); and 67 Fed. Reg. 49,982, 50,078-96 (Aug. 1, 2002). CMS provided more
explanation of its policies in Program Memorandum A-03-030 (Apr. 18, 2003),
together with a sample attestation form.
II.
Why Is Provider-Based Status Important?
Provider-based status has significance for payment, coverage, and compliance.
A.
Payment Ramifications.
From the payment perspective, provider-based means that the entity is
considered part of the hospital and that services furnished in that entity
may be billed as “hospital services.” Historically this meant that the
provider-based unit could appear on the hospital’s cost report and receive
an allocation of the hospital’s overhead costs. Given that most providerbased entities, such as hospital outpatient and distinct part units, were
reimbursed under a cost-based system, this allocation was important. As
more and more entities moved away from cost-based payments, however,
this allocation consideration was of dwindling significance. Nevertheless,
provider-based status continues to have a significant payment impact.
Medicare will pay hospitals for services under OPPS or IPPS only if the
hospital furnishes the services directly or under arrangements. This means
that the hospital is generally paid a “technical” component or facility fee
in addition to the physician’s professional fee (which fee is reduced due to
the higher site-of-service reduction). Nonhospital services, such as clinic
services furnished in a non-provider outpatient setting, by comparison, are
generally reimbursed only under the physician fee schedule (employing
the site-of-service practice expense). The hospital facility fee under OPPS
(the APC payment) combined with the physician fee schedule payment is
typically more than what would be paid were the services furnished in the
clinic setting and reimbursed only under the physician fee schedule.
B.
Coverage Ramifications.
From the coverage perspective, certain services must be furnished in a
particular setting in order to be covered. For example, partial
hospitalization services must be furnished in a certified Community
Mental Health Center (CMHC) or a hospital in order to be covered. More
significantly, CMS reimburses hospitals for outpatient therapeutic services
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only if those services are furnished in the hospital or a department of a
hospital that has provider-based status in relation to the hospital. 42
C.F.R. § 413.27(a)(1)(iii). Thus, therapeutic services – as opposed to
diagnostic services – may not be furnished under arrangements in a
nonhospital setting and billed by the hospital as outpatient hospital
services.
C.
Compliance Considerations.
There have been cases in which providers’ alleged failures to satisfy
provider-based criteria have given rise to False Claims Act charges.
III.
How Is Provider-Based Status Different From “Under Arrangements”
Contracts?
A.
As noted above, a location that is provider-based is considered to be part
of the hospital, and the services furnished in that location are considered to
be hospital services. “Under arrangements,” by comparison, is a payment
concept that allows the hospital to obtain services for hospital patients
from a third-party and then assume financial responsibility for those
services. In those instances, the third-party entity bills the hospital. The
hospital, in turn, bills Medicare, and the hospital pays the contracted entity
for the service, often on a per-service basis.
B.
Unlike the provider-based requirements, the under arrangements
requirements do not mandate that the vendor that is furnishing services
under arrangements to hospital patients be integrated with the hospital.
Instead, what is required is:
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1.
Payment of the hospital must discharge the liability of the
beneficiary or any other person to pay for the service.
2.
The hospital may not “merely serve as a billing mechanism” for
the performing entity but rather “must exercise professional
responsibility over the arranged-for-services.” (Medicare General
Information, Eligibility and Entitlement Manual, CMS Pub. 10001, Chapter 5, § 10.3).
3.
The hospital must supervise the arranged-for services using many
of the same quality controls as are applied to services furnished by
the hospital’s employees.
4.
The hospital must accept the patient for treatment in accordance
with its admission policies.
5.
The hospital must maintain a complete and timely clinical record
on the patient, including diagnoses, medical history, physician’s
orders and progress notes relating to all services received.
6.
The hospital must maintain communications with the patient’s
attending physician concerning the patient’s progress and need for
any revised orders.
7.
The hospital’s utilization review and quality assurance programs
must apply to the service.
C.
Note that not all services may be furnished “under arrangements.” Blue
Cross, in a 1979 Administrative Bulletin, stated that certain “core
services” – coronary intensive care, pharmacy drugs central supply items,
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IV solutions and operating rooms – may not be obtained under
arrangements.
Moreover, Medicare coverage limitations may restrict
where certain services may be delivered, requiring that they be delivered
in the hospital.
IV.
To Whom Do the Provider-Based Rules Apply?
A.
General Rule.
The rules apply to:
(i) provider-based entities (such as rural health clinics), which provide
services that are different from those of the main provider;
(ii) departments1 of a hospital (defined as a facility or organization that
provides the same type of services as furnished by the main hospital);
(iii) remote locations of a hospital, such as an inpatient facility for
specialty services located many miles away from the main provider
(Medicare conditions of participation do not apply to remote locations as
independent entities); and
(iv) satellite facilities as defined elsewhere in the Medicare regulations
(4.2 C.F.R. §§ 412.25(h)(i) and 412.25(e)(i)).
B.
Multi-Campus Hospitals.
Multi-campus hospitals must meet the provider-based criteria. Originally,
CMS stated that this meant that one campus had to be designated as the
“main provider,” with the remaining campuses being remote locations.
Recently, however, CMS has suggested that hospitals could have more
1
A department comprises both the physical facility and the personnel and equipment needed to
deliver the services.
5
than one main campus. 74 Fed. Reg. 60316, 60585, Col. 3 (Nov. 20,
2009).
C.
If No Payment Effect.
Where provider-based versus freestanding status has no payment
ramification and does not affect beneficiary liability, CMS will not apply
the provider-based rules and will not make a status determination. CMS
has instructed its Regional Offices not to make provider-based
determinations for:
1.
Ambulatory Surgery Centers (ASCs);
2.
Comprehensive Outpatient Rehabilitation Facilities (CORFs);
3.
Home Health Agencies (HHAs);
4.
Skilled Nursing Facilities (SNFs);
5.
Hospices;
6.
Inpatient rehabilitation units excluded from acute care IPPS;
7.
(a)
Independent diagnostic testing facilities (IDTFs) furnishing
only services paid under a fee schedule (e.g., screening
mammography),
(b)
Facilities that furnish only clinical diagnostic laboratory
tests, and
(c)
Facilities that furnish only some combination of IDTF and
clinical laboratory services;
8.
Ambulances;
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9.
Departments of provider that furnish no service of a type for which
separate payment would be made by Medicare (e.g., laundry and
medical records departments). 42 C.F.R. § 413.65(a).
D.
End Stage Renal Disease (ESRD) Facilities.
ESRD facilities do not have to meet the requirements of 42 C.F.R. §
413.65.
They must satisfy, however, the more limited hospital-based
provisions of 42 C.F.R. § 413.174(c) if they wish to be paid the hospitalbased rate.
E.
Exception for FQHCs and “Look Alikes.”
A facility does not have to satisfy the provider-based criteria if: (1) (i) on
or before April 7, 2000, it received a § 330 Public Health Service Act
grant, or is receiving funding from such a grant under a contract with the
grant’s recipient and meets the requirements to receive such a grant, or,
(ii) based on a recommendation from PHS, was determined by CMS on or
before April 7, 2000, to meet the requirement for receiving such a grant;
and (2) since April 7, 1995, it furnished only services that were billed as
if they had been furnished by a department of the provider.
V.
Distinction Between On-Campus And Off-Campus Sites
CMS has made important distinctions between on-campus and off-campus sites,
imposing greater requirements on off-campus sites. As a result, the definition of
“campus” has elevated importance. CMS defines “campus,” in part, as “the
physical area immediately adjacent to the provider's main buildings, other areas
and structures that are not strictly contiguous to the main buildings but are located
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within 250 yards of the main buildings, and any other areas determined on an
individual case basis, by the CMS regional office, to be part of the provider's
campus.” 42 C.F.R. § 413.65(a)(2). Through this definition, CMS has provided a
fairly clear standard (250 yards from main buildings), but has also stated that this
standard is not absolute and that CMS' regional offices will be given the
discretion to allow other locations that are beyond 250 yards to qualify as “oncampus.” Hence, it will be most important for providers with locations that do
not meet the 250-yard test but that are “close to the line” to seek guidance from
their regional offices.
VI.
Standards Applicable To On-Campus and Off-Campus Locations.
The provider-based regulation requires all provider-based entities to satisfy all of
the following requirements:
A.
Licensure.
1.
Departments of the provider, remote locations of a hospital, and
satellite facilities must be operated under the same license as the
main provider, except in areas where the state requires a separate
license for the site. If the state does not permit licensure for the
particular type of facility together with the main provider, CMS
will not require that the licensure standard be met.
2.
“Same license” requirement is not applicable to “entities,” such as
HHAs, SNFs, and CORFs, which are separately licensed, or to
FQHCs and RHCs.
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3.
If a state health facilities’ cost review commission or other agency
that has authority to regulate the rates charged by hospitals or other
providers in a state “finds that a particular facility or organization
is not part of a provider,” CMS will determine that the facility or
organization does not have provider-based status. 42 C.F.R. §
413.65(d)(1). This is applicable primarily to Maryland hospitals.
B.
Clinical Integration.
1.
The professional staff of the facility or organization must have
staff privileges at the main provider. (One way requirement.)
2.
The main provider must maintain the same monitoring and
oversight of the facility or organization as it does for any other
department of the provider.
3.
The medical director of the facility or organization seeking
provider-based status must maintain a reporting relationship with
the Chief Medical Officer or other similar official of the main
provider, and that relationship must have the same frequency,
intensity, and level of accountability as exists in the relationship
between the medical director of a department of the main provider
and the Chief Medical Officer or other similar official of the main
provider. The medical director of the facility or organization
seeking provider-based status must be under the same type of
supervision and accountability as any other director, medical or
otherwise, of the main provider.
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4.
Medical staff committees or other professional committees at the
main provider must be responsible for medical activities in the
facility or organization, including quality assurance, utilization
review, and coordination and integration of services (to the extent
practicable) between the facility or organization seeking providerbased status and the main provider.
5.
Medical records for patients treated in the facility or organization
will be integrated into a unified retrieval system (or cross
reference) of the main provider. What this means is that those
professionals practicing at either the main provider or the providerbased site must be able to “obtain relevant medical information
about care in the other setting.” 65 Fed. Reg. 18,515.
6.
Inpatient and outpatient services of the facility or organization and
the main provider must be integrated, and patients treated at the
facility or organization who require further care must have full
access to all services of the main provider and be referred where
appropriate to the corresponding inpatient or outpatient department
or service of the main provider. CMS may look at frequency of
referrals. The farther away the provider-based location is from the
main campus, the more problematic this may be.
C.
Financial Integration.
1.
The financial operations of the facility or organization must be
fully integrated within the financial system of the main provider, as
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evidenced by shared income and expenses between the main
provider and the facility or organization.
2.
The costs of the facility or organization must be reported in a cost
center(s) of the provider, and the financial status of the facility or
organization must be incorporated and readily identified in the
main provider’s trial balance.
D.
Public Awareness.
1.
The facility or organization seeking status as a department of a
provider, remote location, or satellite facility must be held out to
the public and other payers as part of the main provider.
2.
The name of the site should include the name of the hospital. How
much the names must match is open to question. In the case of
Johns Hopkins Hospital, for example, CMS rejected a providerbased entity’s application because it was named “Johns Hopkins at
Greenspring” and not “Johns Hopkins Hospital at Greenspring.”
The Departmental Appeals Board, however, rejected that position.
3.
All
information
(advertisements,
signs,
web-sites,
patient
registration forms, letterhead) should reflect that the site is part of
the hospital.
If the hospital and health system have different
names, the provider-based location should use the hospital name.
CMS has said that it is not sufficient for advertisements to show
that the site is part of, or affiliated with, the provider’s network or
health care system.
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4.
When patients enter the provider-based facility or organization,
they must be aware that they are entering the main provider and
will be billed accordingly. This does not mean, however, that
facility must bill all patients as though the facility were providerbased (although all Medicare patients must be billed by the facility
to reflect the provider-based status of the site).
VII.
Additional Standards Applicable To Off-Campus Locations.
Off-campus sites must satisfy all of the requirements applicable to on-campus
sites. In addition, off-campus sites must satisfy standards relating to ownership,
administration and supervision, and proximity.
A.
Operation Under Ownership and Control of the Main Provider.
1.
The “business enterprise” that constitutes the facility or
organization must be 100 percent owned by the provider.
2.
The main provider and the facility or organization seeking status as
a department of the provider, remote location, or satellite facility
must have the same governing body.
3.
The facility or organization seeking status as a department, remote
location, or satellite must be operated under the same
organizational documents as the main provider. For example, the
facility or organization seeking provider-based status must be
subject to common bylaws and operating decisions of the
governing body of the provider where it is based.
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4.
The main provider must have final responsibility for administrative
decisions, final approval for contracts with outside parties, final
approval for personnel actions, final responsibility for personnel
policies (such as fringe benefits/code of conduct), and final
approval for medical staff appointments in the facility or
organization.
5.
Note that CMS has said that “common control of two separate
entities by the same parent organization ... [is not] sufficient to
meet a requirement for ownership and control by the main
provider.” 65 Fed. Reg. 18,514.
6.
The ownership requirement applies to the “business enterprise”;
physical assets do not have to be owned and may be leased. 65
Fed. Reg. 18,514.
B.
Administration and Supervision.
The reporting relationship between the facility or organization seeking
provider-based status and the main provider does not have to be daily, but
it must have the same frequency, intensity, and level of accountability that
exists in the relationship between the main provider and one of its
departments. Specifically:
1.
The facility or organization must be under the direct supervision of
the main provider.
2.
The facility or organization must be operated under the same
monitoring and oversight by the provider as any other department
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of the provider, and it must be operated just as any other
department of the provider with regard to supervision and
accountability. The facility or organization director or individual
responsible for daily operations at the entity must:
a.
Maintain with a manager at the main provider a reporting
relationship that has the same frequency, intensity, and
level of accountability that exists in the relationship
between
the
main
provider
and
its
departments
(organization chart should support this); and
b.
Be accountable to the governing body of the main provider
in the same manner as any department head of the provider
is accountable.
3.
Administrative
functions—billing
services,
records,
human
resources, payroll, employee benefits package, salary structure,
and purchasing services—of the facility or organization must be
integrated with those of the provider where the facility or
organization is based. The same employees or group of employees
must handle these administrative functions for the facility or
organization and the main provider.
Alternatively, the
administrative functions for both the facility or organization and
the entity must be:
a.
Contracted out under the same contract; or
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b.
Handled under different contracts, with the contracts of the
facility or organization being managed by the main
provider.
Note that while the discussion regarding administrative integration
suggests that employees must be W-2 employees, CMS has said that the
regulations “do not explicitly prohibit the use of leased employees.” 65
Fed. Reg. 18,511.
C.
Location in Immediate Vicinity.
1.
The facility or organization and the main provider must be located
on the same campus.
2.
Alternatively, the facility or organization must be located not more
than 35 miles from the main campus of the hospital or critical
access hospital.
Distance is determined using straight-line
distance, not road miles.
3.
Alternatively, the facility or organization must demonstrate a high
level of integration with the main provider by showing that it
meets all of the other provider-based criteria and by demonstrating
that it serves the same patient population as the main provider. It
must do this by submitting records showing that, during the 12month period immediately preceding the first day of the month in
which the application for provider-based status is filed with CMS
and for each subsequent 12-month period:
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a.
At least 75 percent of the patients served by the facility or
organization reside in the same zip code areas as at least 75
percent of the patients served by the main provider;
b.
At least 75 percent of the patients served by the facility or
organization who required the type of care furnished by the
main provider received that care from that provider (for
example, at least 75 percent of the patients of an RHC
seeking provider-based status received inpatient hospital
services from the hospital that is the main provider); or
c.
If the facility or organization is unable to meet the criteria
of a or b above because it was not in operation during all of
the 12-month period described, the entity must show that
the facility or organization is located in a zip code area
among those that accounted for at least 75 percent of the
patients served by the main provider during all of the 12month period described.
4.
A facility or organization is not considered to be in the “immediate
vicinity” of the main provider unless the facility or organization
and the main provider are located in the same state or, where
consistent with the laws of both states, adjacent states.
5.
Facilities are deemed to comply with the “immediate vicinity”
requirement if the main provider has a disproportionate share
adjustment percentage greater than 11.75% or is described in 42
16
C.F.R. § 412.106 (c)(2) (urban hospital with more than 100 beds
and more than 30% of inpatient revenue is from state and local
government payments for indigent care) and is: (1) a government
owned or operated hospital; (2) a public or private nonprofit
corporation that is formally granted governmental powers by a unit
of state or local government; or (3) a private hospital that has a
contract with a state or local government that includes the
operation of clinics located off the main campus of the hospital to
ensure access in a well-defined service area to health care services
for low-income individuals who are not entitled to Medicare or
Medicaid.
6.
There is a special exception for certain neonatal intensive care
units that are located within 100 miles of a rural children’s hospital
that serves as the main provider.
VIII. Additional Requirements (“Obligations”).
A.
EMTALA.
Hospital outpatient departments (not SNFs or other non-hospital entities)
located on the main premises of the hospital, as well as those located off
the main hospital campus but that serve as dedicated emergency
departments, must comply with the anti-dumping rules.
B.
Site of Service.
Physician services furnished in hospital outpatient departments or
hospital-based entities (other than RHCs) must be billed with the correct
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site-of-service indicator, so that applicable site-of-service reductions to
physician and practitioner payment amounts can be applied. CMS expects
hospitals to monitor physicians who practice in the hospital, including offsite departments, to ensure proper billing using the correct site-of-service
indicator. 65 Fed. Reg. 18,519. On line 24b of the CMS 1500 form,
therefore, the physician should record “22” for the hospital outpatient
setting or “23” for the hospital emergency room rather than “11” for office
setting.
C.
Provider Agreement.
Hospital outpatient departments must comply with all the terms of the
hospital’s provider agreement.
D.
Nondiscrimination.
Physicians who work in hospital outpatient departments or hospital-based
entities are obligated to comply with the non-discrimination provisions of
Title XVIII.
E.
Billing of Medicare Patients.
1.
Hospital outpatient departments must treat all Medicare patients as
hospital outpatients for billing purposes. In other words, the
hospital must bill a facility charge to Medicare beneficiaries. The
department must not treat some Medicare patients as hospital
outpatients and others as physician office patients.
2.
The uniformity in billing requirement applies only to the billing of
Medicare patients. Hospitals may “bill other payers in whatever
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manner is appropriate under those payers’ rules.” 65 Fed. Reg.
18,519. Thus, the hospital generally must furnish a “split bill”
when billing Medicare for Medicare-covered patients (that is, bill
the professional component to the Medicare Carrier using the CMS
1500, while billing the facility overhead and technical component
to the Medicare Intermediary using the UB-92), but it need not
“split bill” private or managed care payers. Often, these payers do
not recognize split billing for clinic services, whether or not the
clinic is hospital-based, and they will pay a physician fee schedule
amount irrespective of the site of service.
3.
Complying with the uniformity in billing requirement can get
tricky if the outpatient department “shares space” with another
entity, such as a non-provider clinic. CMS has suggested that this
can be done, but said that the regional offices will have to look at
the fact pattern of each case. 65 Fed. Reg. 18,515. The space
sharing arrangement, if it is to be approved, presumably will have
to delineate the specific times that the space is considered to be
“provider-based” and make clear that the space satisfies all
provider-based criteria during those times. Sharing of the same
space at the same time on an “as-needed” basis will run afoul of
these limitations and of other requirements such as those relating to
public awareness. See Section XIII C, infra.
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F.
Payment Window.
In the case of a patient admitted to the hospital as an inpatient after
receiving treatment in the hospital outpatient department or hospital-based
entity, payments for services in the hospital outpatient department or
hospital-based entity are subject to the payment window provisions
applicable to PPS hospitals and to hospitals and units excluded from acute
care PPS.
G.
Informing Beneficiaries (Off-Campus Only).
1.
When a Medicare beneficiary is treated in a hospital outpatient
department or hospital-based entity that is not located on the main
provider’s campus and the beneficiary will incur co-payment
liabilities both for the outpatient visit to the hospital and the
physician service, the hospital must inform the beneficiary, in
writing and prior to the delivery of services, of the beneficiary’s
potential financial liability, including coinsurance liability for both
the hospital outpatient visit and the physician services. The notice
must be one that the patient can read and understand. If the
beneficiary is unconscious, under great duress, unable to read, or
for any other reason unable to read a written notice and understand
and act on his or her rights, the written notice must be provided,
prior to the delivery of services, to the beneficiary’s authorized
representative.
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2.
CMS has interpreted this to mean that the hospital must inform the
beneficiary not just of the fact that there will be a liability, but also
the amount of this liability. CMS has recognized, however, that
determining the patient's exact liability may be difficult at times,
such as when the treating physician is in the process of diagnosing
the patient's condition and is unsure of what services might be
ordered. Under such circumstances where the exact type or extent
of care is unknown, CMS has said that the hospital may inform the
beneficiary that there will be a co-insurance liability that he or she
would not incur if the facility were not provider-based, and furnish
an estimate based on typical or average charges for visits to the
facility but at the same time state that the patient’s actual liability
will depend upon the services actually furnished.
See Section XIII D, infra.
3.
In an EMTALA setting, notice of beneficiary liability should be
given as soon as possible after the existence of the emergency has
been ruled out or the patient has been stabilized.
H.
Health and Safety. Hospital outpatient departments must meet applicable
hospital health and safety rules for Medicare participating hospitals.
I.
Physician Supervision of “Incident to” Therapeutic Services and
Supplies (42 C.F.R. § 410.27).
Services and supplies furnished at a location that CMS designates as a
hospital department must be under the direct supervision of a physician.
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“Direct supervision” means that the physician must be present on the
premises and immediately available to furnish assistance and direction
throughout the performance of the procedure. It does not mean that the
physician must be present in the room when the procedure is performed.
How these rules should be applied has been subject to change. Originally,
CMS stated that it would assume that direct supervision exists if the
outpatient department is located on the hospital campus, but that the
assumption would not extend to departments located at off-campus sites.
More recently, however, CMS has retreated from that position and has
stated that there is a supervision requirement for all outpatient services,
not matter where furnished. See Section XIII A, infra.
IX.
Special Rules For Joint Ventures And Management Contracts.
CMS has created special rules for management contracts and joint ventures,
which again turn on whether the site is on or off the campus of the main provider.
A.
Joint Ventures.
In order for a facility or organization to operate as a joint venture, it must:
(1) be partially owned by at least one provider; (2) be located on the main
campus of at least one of the partial owner providers; (3) be providerbased to the main provider on whose campus it is located (even if a
minority owner); and (4) meet all other provider-based requirements.
Thus, joint ventures are permitted for on-campus locations, and the
services they furnish will be billed using the provider number of the main
provider. Note that in order for the services furnished by the joint venture
22
to be provider-based, the clinical integration requirement will mandate that
the provider have complete control over many elements of the joint
venture. Additionally, the public awareness criterion will require signage
to designate the site as part of the main provider.
See Section XIII
E, infra.
B.
Management Contracts.
1.
Management contracts for on-campus sites are permissible. Offcampus locations operated under management contracts, however,
are considered provider-based only if they meet all of the
following criteria:
a.
The staff of the facility or organization, other than
management staff and staff providing services paid under
the physician fee schedule, are employed by the provider
(or by another organization, other than the management
company, which also employs the staff of the main
provider). Other than staff paid under the physician fee
schedule, the main provider may not utilize the services of
“leased” employees who are directly involved in the
furnishing of patient care.
b.
The administrative functions of the facility or organization
are integrated with those of the main provider.
c.
The main provider has significant control over the
operations of the facility or organization.
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d.
The management contract is held by the main provider
itself, not by a parent organization that has control over
both the main provider and the facility or organization.
2.
To conform to these requirements, it is advisable that the
management contract state that the provider has ultimate control
over the facility or organization; that all decisions and policies of
the contractor are subject to hospital review and approval; that all
personnel, whether employed by the hospital or by the contractor,
be required to comply with the hospital policies and rules; and that
the contractor must periodically report in writing to the hospital.
In addition, the agreement should plainly delineate who are
“management employees,” and these individuals should have job
descriptions consistent with that label.
3.
Often the management contract provides for the furnishing of
services also available through the main provider (e.g., billing
services,
computer
services,
accounting
services,
general
administrative staff services). To the extent the main provider can
identify such “like” costs, it must carve out those costs to ensure
that they are not allocated to the department or provider-based
entity. 42 C.F.R. § 413.24(d)(6). If the main provider is unable to
identify the “like” costs, the costs of services purchased through
the management contract must be reclassified to the main
24
provider’s administrative and general cost center and allocated
down to all reimbursable and non-reimbursable cost centers.
X.
Provider-Based Limitations on Use of Under Arrangements Services.
The Medicare statute at 42 U.S.C. § 1395x(w)(1) recognizes that a hospital may
bill for services furnished at non-hospital locations if the services are furnished
“under arrangements.” See also 42 U.S.C. § 1395x(s)(2)(C). CMS recognized
this in the preamble to its 2000 regulation, stating the provider-based rule will not
prevent providers from furnishing “selective services” under arrangement. 65
Fed. Reg. 18,518.
CMS went on to provide, however, that a facility or
organization may not qualify for provider-based status if all services furnished by
the facility are furnished under arrangements. CMS has not been clear about
whether certain specific services might run afoul of this bar, particularly if the
service furnished “under arrangements” may essentially amount to the entire
hospital department.
For example, if the hospital obtains all of its MRI
procedures, hyperbaric oxygen or other specialty services “under arrangements,”
is the bar implicated? CMS has not formally answered that question, although it
has suggested it might allow those services to be furnished “under arrangements.”
XI.
Application To Medicaid.
In the preamble to the final provider-based regulations, CMS stated that since
“hospitals under Medicaid are required to meet the same standards as Medicare
facilities, these final rules would affect the Medicaid definition of these facilities
as well as the Medicare definitions.” 65 Fed. Reg. 18,506. CMS has said,
however, that while facilities or organizations that are not provider-based have to
25
meet the service standards that apply to freestanding entities of their type, States
have considerable flexibility to determine appropriate payment rates in their State
Medicaid plans. CMS has also said that States may adopt higher payment rates
for services at those freestanding entities to reflect special circumstances, which
payment rates could include higher cost structures due to affiliation with a
provider. Thus, a State could pay a site as provider-based even if Medicare does
not. In order to do this, however, the State must provide for such payment in its
State plan. See 67 Fed. Reg. 50,083.
XII.
Approval Process.
A.
Approval not required. Formal CMS approval is not required for oncampus or off-campus sites as a condition of billing and payment. CMS,
however, will consider applications, which it terms “attestations,” and will
approve or reject them.
Providers should seriously consider seeking
approval, the benefit of which is to limit the risk of retrospective
recoveries if CMS subsequently determines that the site is not providerbased. If a site does not have approval and has been billing for services as
provider-based, CMS will recover the excess payments for the entire
period subject to reopening. The risk associated with such a recovery may
be minimal for most on-campus sites, but this is not necessarily the case
for off-campus sites. CMS has stated that there is a presumption that an
off-site clinic is a freestanding location. 42 C.F.R. § 413.65(b)(4).
B.
The attestation process differs depending on whether the site is on-campus
or off-campus. If the site is on-campus, the provider need not submit
26
supporting documentation, but if the site is off-campus, the provider must
submit documentation together with the attestation. Even for on-campus
locations, however, the submission of supporting documentation may be
advisable at times, such as where there is a joint venture. As part of PM
A-03-030, CMS issued a sample attestation format that one may employ.
C.
Attestations may be submitted for the whole site or, if the site houses both
provider-based and freestanding locations, for a portion of a site. A single
attestation may cover multiple facilities (or cost centers). Documentation,
if submitted, and provider statements must be sufficiently specific to
address each facility (or cost center). Thus, a “one size fits all” attestation
will not easily work, particularly for off-campus sites.
D.
The attestation is filed with the fiscal intermediary and the regional office.
The regional office has the authority to approve or reject the attestation.
CMS has said only that it will act “promptly.” There is no deadline for
CMS to act on attestations. Delays of a year or more are not uncommon.
E.
CMS will request additional information if the attestation appears
incomplete or if the agency otherwise has questions.
F.
CMS approval is binding absent “material changes.” CMS has not defined
material change but has given the example of entering into a management
contract.
XIII. Issues For Providers.
A.
Outpatient services and supervision.
1.
General Principles.
27
a.
The supervision requirements apply only to hospital
outpatient services and not inpatient services, at least for
now.
Different rules may apply to therapeutic and
diagnostic services.
b.
What are “therapeutic” services?
(i)
Therapeutic services aid the physician in the
treatment of a patient.
(ii)
Outpatient therapeutic services and supplies include
those services and supplies (including the use of
hospital facilities) that are “incident” to the services
of physicians (and effective January 1, 2010 certain
nonphysician
practitioners
(“NPPs”))
in
the
treatment of patients. 42 U.S.C. § 1395x(s)(2)(B);
42 C.F.R. § 410.27; Medicare Benefit Policy
Manual (MBPM), Chp. 6, § 20.5.1.
(iii)
Although there is some ambiguity regarding this,
CMS’s current view appears to be that “therapeutic”
services also includes those that may have a
separate benefit category for coverage, such as
radiation therapy.
(iv)
Hospital outpatient therapeutic services must be
performed in the hospital or in hospital provider-
28
based departments to be covered for Medicare
payment purposes. 42 C.F.R. § 410.27(a)(1)(iii).
c.
What are outpatient diagnostic services?
(i)
A hospital outpatient diagnostic service is an
examination or procedure to which a patient is
subjected, or that is performed on materials derived
from a hospital outpatient, in order to obtain
information to aid in the assessment of a medical
condition or the identification of a disease.
42
U.S.C. § 1395x(s)(2)(C); 42 C.F.R. § 410.28;
MBPM, Chp. 6, § 20.4.1.
(ii)
Hospital outpatient diagnostic services must be
furnished within the hospital or in a provider-based
department, or provided by another entity in a nonhospital facility and billed by the hospital under
arrangements.
supervision
The services must satisfy the
requirements
of
42
C.F.R.
§ 410.32(b)(3), 42 C.F.R. § 410.28(e).
d.
Hospital outpatient services excluded from the Medicare
general outpatient coverage requirements.
(i)
Hospital outpatient services excluded from the
Medicare general outpatient coverage requirements
are physical therapy, speech-language pathology,
29
and end stage renal disease services. MBPM, Chp.
6, § 20.
2.
Hospital outpatient supervision requirements – pre-2010:
a.
Hospital outpatient therapeutic services.
(i)
As noted above, in the 2000 OPPS final rule, HCFA
stated that physician direct supervision was required
for outpatient therapeutic incident to services
furnished
in
hospital
off-campus
outpatient
departments. 65 Fed. Reg. 18434 (Apr. 7, 2000).
HCFA also stated, however, that the physician
direct supervision requirement does not apply to
therapeutic services furnished in hospital main
buildings and on-campus departments and that the
agency
assumed
that
the
physician
direct
supervision requirement was met because staff
physicians would always be nearby within the
hospital. CMS also stated, by contrast, that direct
supervision would not be assumed in situations
where the services were furnished “incident to” in a
department of a hospital located off the campus of
the hospital.
This position was reinforced by
Intermediary Manual § 3112.4(A),
30
(ii)
In the preambles to the 2009 OPPS proposed and
final rules (73 Fed. Reg. 41416 (July 18, 2008) and
73 Fed. Reg. 68502 (Nov. 18, 2008) respectively),
however, CMS included a “restatement and
clarification” of the physician direct supervision
requirement for outpatient therapeutic services
performed in hospital main buildings and oncampus departments.
It stated that it was
“concerned that some stakeholders may have
misunderstood our use of the term ‘assume’ in the
April 7, 2000 OPPS final rule” and that “[i]t is our
expectation that hospital outpatient therapeutic
services are provided under the direct supervision of
physicians in the hospital and in all provider-based
departments of the hospital, specifically both oncampus
hospital.”
and
off-campus
departments
of
the
See also 73 Fed. Reg. at 68702 and
68703.
b.
Hospital outpatient diagnostic services.
(i)
In the 2000 OPPS final rule, HCFA described that
all hospital outpatient diagnostic services, whether
provided in a hospital’s main buildings, on-campus
departments or off-campus departments, must be
31
furnished under the appropriate level of physician
supervision (general, direct, or personal), as
included in the Medicare Physician Fee Schedule
Relative Value File (“MPFS RVF”). See 42 C.F.R.
§ 410.28(e).
(ii)
For
services
requiring
physician
general
supervision, the procedure is furnished under a
physician’s overall direction and control, but the
physician’s presence is not mandated during the
performance of a procedure. A physician must be
present and immediately available to furnish
assistance and direction throughout the performance
of a procedure requiring direct supervision.
For
those services that require physician personal
supervision, a physician must be in attendance in
the room where the procedure is being performed.
See 42 C.F.R. § 410.32(b)(3).
3.
Hospital outpatient supervision requirements effective January 1,
2010.
a.
Outpatient therapeutic services.
(i)
In the 2010 OPPS final rule, CMS restated the
principle that outpatient therapeutic services must
be furnished in the hospital to be covered for
32
Medicare payment purposes. “In the hospital” is
defined as those areas in the main buildings of the
hospital that are under the ownership, financial, and
administrative control of the hospital; that are
operated as part of the hospital; and for which the
hospital bills the services under the hospital’s CMS
Certification Number. 42 C.F.R. § 410.27(a)(1)(iii)
and (g).
(ii)
CMS,
however,
amended
the
supervision
requirement to provide that physicians, clinical
psychologists, and under specified conditions
certain NPPs, specifically physician assistants,
nurse
practitioners,
clinical
nurse
specialists,
certified nurse-midwives and licensed clinical social
workers (hereinafter referred to as “supervisory
practitioner”) may supervise outpatient therapeutic
services. The exceptions to this general rule are
cardiac rehabilitation services, intensive cardiac
rehabilitation services, and pulmonary rehabilitation
services, all of which require physician supervision,
regardless whether performed in a hospital's main
buildings, on-campus provider-based department, or
off-campus provider-based department.
33
(iii)
Under the amended rule, a supervisory practitioner
may only supervise those therapeutic services that
he/she can properly perform himself/herself under
State law, that are within his/her scope of
knowledge, practice, and skills, and that are within
his/her hospital-granted privileges.
Additionally,
the supervisory practitioner must be immediately
available to furnish assistance and direction
throughout the performance of the procedure. The
supervisory practitioner (1) may not be performing
another procedure or service that he or she could
not interrupt to supervise the outpatient therapeutic
incident to service and (ii) may not be so far away
physically from where the outpatient therapeutic
service is being performed that he or she could not
intervene right away.
(iv)
CMS
also
changed
the
direct
supervision
requirement for outpatient therapeutic services
performed in a hospital's main buildings and oncampus provider-based departments to allow the
supervisory practitioner to be on the same hospital
“campus” during the performance of the procedure.
Thus, the supervisory practitioner may be in the
34
hospital’s main buildings, in any on-campus
provider-based department, or even in on-campus
non-hospital space (e.g., a physician’s office, skilled
nursing facility, or rural health clinic) while the
therapeutic “incident to” service is being performed,
as long as the supervisory practitioner is also
immediately available. 42 C.F.R. § 410.27(a)(1)(iv)(A).
(v)
Different rules apply, however, for outpatient
therapeutic services provided in a hospital’s offcampus provider-based department. For those offcampus locations, as before, the supervisory
practitioner must be present in that provider-based
department during the performance of the procedure
and immediately available to furnish assistance and
direction. 42 C.F.R. § 410.27(a)(1)(iv)(B).
b.
Hospital outpatient diagnostic tests.
(i)
In the 2010 OPPS final rule, CMS provided that the
supervision requirements for hospital outpatient
diagnostic services apply to all outpatient diagnostic
tests provided directly by the hospital or by another
entity under arrangements, whether furnished in a
hospital’s main buildings, on-campus providerbased
departments,
35
off-campus
provider-based
departments, or in non-hospital facilities under
arrangements. 42 C.F.R. § 410.28(e).
(ii)
The level of physician supervision (general, direct,
or personal) for specific diagnostic tests wherever
performed (in the hospital, in an on-campus
provider-based department, in an off-campus
provider-based department, or in a nonhospital
location under arrangement), as in the past, turns on
the supervision levels listed in the Medicare
Physician Fee Schedule.
(iii)
Unlike outpatient therapeutic “incident to” services,
physicians must supervise outpatient diagnostic
tests.
NPPs may not properly supervise these
services.
(iv)
For outpatient diagnostic services that require direct
supervision and are furnished directly or under
arrangements in the hospital or in an on-campus
provider-based
department,
the
supervising
physician must be present on the same campus and
immediately available to furnish assistance and
direction throughout the performance of the
procedure. “In the hospital” means those areas in
the main buildings of the hospital that are under the
36
ownership, financial, and administrative control of
the hospital; that are operated as part of the hospital;
and for which the hospital bills the services under
the hospital’s CMS Certification Number.
(v)
For outpatient diagnostic tests that require direct
supervision and are provided directly or under
arrangements in an off-campus provider-based
department, the physician must be present in that
off-campus
provider-based
department
and
immediately available to furnish assistance and
direction throughout the performance of the
procedure.
(vi)
Note that these supervision requirements apply as
well
to
diagnostic
tests
furnished
arrangements in non-hospital locations.”
“under
For
outpatient diagnostic services that require physician
direct
supervision
and
are
provided
under
arrangements in physicians' offices and other
nonhospital locations, the supervisory physician
must be present in the performing physician group's
office suite or other nonhospital location and he/she
also must be immediately available during the
performance of the diagnostic test.
37
3.
Supervision Gray Areas.
a.
Services with other benefit categories.
(i)
CMS did not expressly state in the 2010 OPPS final
rule that hospital outpatient therapeutic services that
have their own statutory benefit are subject to the
Medicare
outpatient
physician
supervision
requirements. It did say in the preamble to the rule,
however, that “the only statutory basis for payment
of hospital outpatient therapeutic services is
incident to the services of a physician.” 74 Fed.
Reg. 60582; 60583.
This suggests that all
therapeutic services are subject to the supervision
requirements.
b.
Qualifications of Supervisory Personnel
CMS does not define in the regulations the necessary
qualifications that the supervisory personnel for outpatient
therapeutic and diagnostic services must possess. Rather, in
the preamble to the 2010 OPPS final rule, CMS describes
the
characteristics
practitioner/supervisory
of
the
physician
as
supervisory
including
the
following:
(i)
“The
supervising
physician
or
nonphysician
practitioner must be prepared to step in and perform
38
the service, not just to respond to an emergency.”
74 Fed. Reg. at 60584. “This includes the ability to
take over performance of a procedure and, as
appropriate to both the supervisory physician or
nonphysician practitioner and the patient, to change
a procedure or the course of treatment being
provided to a particular patient.” Id.
(ii)
CMS notes that “[t]he [supervising] physician does
not ‘necessarily need to be of the same specialty as
the procedure or service that is being performed.’”
Id. But it also states that, “[i]n order to furnish
appropriate assistance and direction for any given
service or procedure, we continue to believe the
supervisory physician or nonphysician practitioner
must have, within his or her State scope of practice
and hospital-granted privileges, the ability to
perform the service or procedure.” Id. It reinforces
this by stating: “We believe that it is inappropriate
for a supervisory physician or nonphysician
practitioner to be responsible for patients, hospital
staff, and services that are outside the scope of their
knowledge, skills, licensure, or hospital-granted
privileges.” Id. “It would be unreasonable to think
39
that a physician or nonphysician practitioner could
competently assist and direct a procedure for which
they do not have sufficient knowledge and skills to
perform or redirect the procedure or service.” Id.
The supervisor must be a person who is “clinically
appropriate” to supervise the service or procedure.
c.
What is Immediately Available?
CMS has said that “the supervisory physician or
nonphysician practitioner could not be immediately
available while, for example, performing another procedure
or service that he or she could not interrupt.” 74 Fed. Reg.
at 60583.
“It would also be neither appropriate nor
‘immediate’ for the supervisory physician or nonphysician
practitioner to be so physically far away on the main
campus from the location where hospital outpatient
services are being furnished that he or she could not
intervene right away.” Id.
B.
Management Contracts/Under Arrangement.
1.
Management contracts for services furnished in off-campus
locations may pose problems. The manager may not employ any
personnel who directly deliver patient care. Instead, the manager
40
may employ managers and receptionists, clerks, and other
personnel who do not furnish direct patient care.
2.
CMS has not formally stated how to treat personnel who have
management positions but also furnish patient care. In the absence
of further clarification on this issue, the more conservative course
is to have the provider employ at off-campus managed sites all
personnel who deliver patient care services (not reimbursed under
the physician fee schedule) on other than an incidental basis. The
regulation is clear that the provider’s leasing the management
contractor’s employees will not satisfy this requirement.
3.
In some circumstances, the difference between a management
contract and a service obtained “under arrangements” is unclear.
The ambiguity lies in how one distinguishes between a
management contract and an under arrangement service. Despite
requests for clarification on this issue, CMS has not yet clearly
differentiated between a management contract and under
arrangement services. Instead, it has stated its belief that “there is
a substantial difference between the use of management contracts
to obtain some or all input services needed to operate a health care
facility,” including staff and the use of “arrangements by a
provider to obtain specialized health care services that it does not
itself offer.” CMS has also stated in the regulatory text that a site
41
may not qualify for provider-based status if “all patient services . .
. are furnished under arrangements.”
4.
Factors that would likely be viewed by CMS as supporting the
designation of an agreement as a management contract, include:
•
The agreement is titled “management contract.”
•
The agreement requires the vendor to provide management
services.
•
The services are furnished on the provider’s premises or in
space leased by the provider.
•
The certificate of need (CON) for the service, if one is
needed, is held by the provider.
•
The agreement is exclusive to the provider (i.e., the vendor
will not make the service available to competing
providers).
5.
Conversely, factors that appear to favor an agreement being treated
as an under arrangements contract, in addition to the absence of the
factors set forth previously, would be:
•
The agreement is provided on a per service basis.
•
The patient receiving services from the vendor also
receives more than incidental services from other hospital
departments.
42
C.
Shared Space.
1.
The same building can have a number of separate suites, and
nothing in the regulation or CMS’ published policies prohibits a
provider from treating some parts of a building as provider-based
and some not.
2.
When there are provider-based clinics and non-provider-based
clinics in the same building, CMS has not formally said whether
the provider-based and non-provider based clinics may share
waiting areas and reception space. On a case-by-case basis, such
sharing may be allowed. The costs of the shared space need to be
separately identified and properly allocated, of course.
Also,
because this is very fact specific, providers may want to submit an
attestation.
3.
Space in which patient care services are provided, however, is
another matter and will likely be subject to closer scrutiny. If
patient-care related space is to be shared, the space and the time
blocks for the use of that space need to be clearly delineated,
patient records need to be separate, the signage, uniforms and the
like need to be clear to satisfy the “holding out” criteria. Patients
using the shared space should have direct access to public hallways
and, most desirably, to the outside directly from the space.
4.
Concurrent sharing of the same space is unlikely to be permitted.
But space may be blocked leased.
43
D.
Notice of Co-Insurance.
A notice of coinsurance must be issued to Medicare beneficiaries who
utilize off-campus sites; no notice of coinsurance is required for services
furnished on a hospital’s main campus.
1.
The notice obligation applies, according to the regulation, only
when the patient “will incur a coinsurance liability for an
outpatient visit to the hospital as well as for the physician service.”
42 C.F.R. § 413.65(g)(7).
Whether a notice of coinsurance is
required, therefore, it depends on what CMS means when it states
“incur a coinsurance liability for an outpatient visit as well as for
the physician service.”
2.
It is not always clear how CMS’s phrase – “will incur a coinsurance liability from outpatient visit to the hospital as well as
for the physician service” — should be applied to certain facts.
One might argue that a notice of coinsurance should be required
only when the physician service and the service billed by the
hospital are not separable. Under such circumstances, the patient
might not reasonably expect to incur a coinsurance liability for
both the physician service and the hospital-furnished service.
Conversely, if the physician furnished the service in a nonhospital
site or other hospital, the patient should reasonably expect to have
two coinsurance liabilities, and a notice of coinsurance might not
be required. Additionally, if the hospital service is furnished on a
44
day when there is no physician service furnished, one might
maintain that a notice of coinsurance should not be required for the
hospital service. Thus, for example, if the patient receives IV
therapy in a hospital outpatient department over a span of several
weeks, and if there are no billable physician services furnished on
the same day as the IV therapy treatments, then no notice of
coinsurance should be required with respect to those treatments.
The notice must be clear and understandable.
CMS does not
require that the beneficiary sign the notice, but doing so will enable
the hospital to show that it furnished the notice.
E.
Joint Ventures.
1.
The
original
provider-based
regulation
required
that
all
departments – on-campus or off-campus – be under the ownership
and control of the main provider. CMS relaxed that regulation in
2002 to permit on-campus joint ventures to be provider-based. For
a joint venture to qualify as a provider-based department, it must:
1) be partially owned (but not necessarily majority-owned) by at
least one provider; 2) be located on the campus of the provider
with an ownership interest in the joint venture; 3) be providerbased to the provider on whose campus it is located; and 4) “also
meet all the requirements applicable to all provider-based facilities
or organizations in paragraph (d)…” 42 C.F.R. § 413.65(f).
45
2.
If a site is provider-based, Medicare makes payments to the
provider. But if a joint venture is operating a department, then the
joint venture is incurring at least some of the expenses for the
department. The provider must have the ability to transfer some or
all of that money to the joint venture.
3.
One issue that troubles providers is how to reconcile the joint
venture structure and the requirement that departments be
financially integrated with the hospital.
Some or all of the
expenses of the joint venture department will appear initially on
the books of the joint venture.
CMS personnel have stated
informally that a joint venture will meet the financial integration
standard as long as the costs of the joint venture are properly
reported on the provider’s cost report.
4.
Joint ventures, to be provider-based, require that the provider have
considerable control and oversight over the joint venture.
Moreover, the Medicare COPs require the governing board of a
hospital to be “legally responsible” for the entire hospital. 42
C.F.R. § 482.12.
The governing body must “ensure that a
contractor of services (including one for shared services and joint
ventures) furnishes services that permit the hospital to comply with
all applicable conditions of participation and standards for the
contracted services.” 42 C.F.R. § 482.12(e).
46
F.
Attestation Process.
1.
Should one go through the attestation process?
In the preamble to the 2002 amendments to the provider-based
rule, CMS stated that “providers are not obligated to submit
attestations of applications for provider-based status before they
begin billing as provider-based, .… 67 Fed. Reg. 49982, 50086,
col. 3 (Aug. 2, 2002).
2.
Nevertheless, there are times when going through the process is
advisable, particularly for joint ventures and for some or all offcampus locations.
3.
CMS Regional Offices may request additional documentation,
such as floor plans, documents reflecting administrative and
clinical integration and reporting relationships (with their
frequency), and, in the case of ASCs, prior ownership
relationships.
47