What Are Provider-Based Rules and Regulations?
Hospitals and other healthcare providers often are faced with the decision of whether to treat locations or sites outside the four walls of their main provider location as part of the main provider or as freestanding entities—in other words, the decision to make them provider-based to the main provider. “Provider-based” is a Medicare payment designation established by the Social Security Act that allows facilities owned by and integrated with a healthcare provider (usually a hospital) to bill Medicare as a department of that healthcare provider, often historically resulting in these facilities receiving higher payments than they would as freestanding facilities.[3] Hospitals are the type of healthcare provider that most commonly elect to treat such locations or sites as provider-based, but other types of healthcare providers (e.g., skilled nursing facilities, federally qualified health centers, and rural health clinics) can also have locations that are considered provider-based to the main provider. This article focuses primarily on hospitals and their provider-based locations, since that is the most common use of provider-based status and that is where the Centers for Medicare & Medicaid Services (CMS) recent rulemaking efforts have focused.
Being designated as provider-based allows hospitals to treat certain departments and facilities located outside of the hospital as part of the hospital for Medicare—and, depending on state law, sometimes Medicaid and commercial payer—billing and payment purposes. Services furnished in a location meeting the applicable provider-based requirements are considered by Medicare to be hospital outpatient services, but they may not be paid under the Medicare Outpatient Prospective Payment System (OPPS), depending on the circumstances, as discussed later in this article.
A number of possible reasons exist for making a location outside the hospital provider-based to the hospital. It could be to address capacity and space issues within the hospital itself; improve patient convenience and access to hospital-level care in locations other than where the main hospital is located; for quality purposes; to permit the location to participate in hospital contracts (including payer contracts); and/or to permit the provider-based location to participate in the 340B drug discount program (as the provider-based location of the hospital will be included on the hospital’s cost report and may qualify to be a child site for 340B drug discount program purposes).
When a location has provider-based status, the hospital can bill Medicare for the services provided in the location just as it would for other hospital services. Under the Medicare system, that means the hospital bills for its facility fee or technical fee, and the physician separately bills for the professional services. (The same is not true for many commercial payers that do not allow a “split bill.” Payer rules will need to be consulted to determine how to bill each payer in this situation.) This ability to charge the facility fee is where the primary financial benefit of provider-based status is for hospitals. If the same services furnished in a hospital-based clinic were instead provided in a physician office, no facility fee could be billed; only the physician’s professional fee, using the place of service (POS) code 11 to reflect physician office, could be billed to Medicare. The physician’s reimbursement under the Medicare Physician Fee Schedule (MPFS) is higher when POS code 11 is used than when services are provided in a hospital facility location and billed using one of the applicable hospital POS codes.[4] This is because when the physician furnishes services in a hospital facility location, Medicare assumes that the physician is not incurring the same amount of overhead that the physician incurs for services provided in the physician’s private office. The hospital’s overhead and other expenses are reimbursed through the facility fee or technical fee that the hospital bills to Medicare for the visit. Taken together, the physician’s professional fee, combined with the hospital’s facility fee, usually results in a higher combined reimbursement for the service than Medicare would have paid if the services were provided in a nonhospital setting. In addition, the Medicare beneficiary who receives services from a location that is provider-based to the hospital will often have two cost-sharing liabilities—one for the hospital bill and another for the physician bill.
Historically, there has been a payment differential, known as the site differential, for services provided in hospital outpatient departments or clinics versus freestanding clinics and physician offices, but many of those payment differentials have been eliminated in recent years, especially for newer locations. Even with many of the payment differentials eliminated, there are still other advantages to being provider-based to a hospital that may make it advantageous to pursue provider-based status. Yet with those advantages there are also certain responsibilities and compliance risks.
Risk Area Governance
The Medicare regulation setting forth the requirements for provider-based status is 42 C.F.R. § 413.65 —“Requirements for a determination that a facility or an organization has provider-based status” (referred to herein as the “provider-based regulation”).[5] The provider-based regulation is divided into several sections, some of which have general applicability for all provider-based departments and locations, and others whose applicability only apply to hospitals or otherwise depend on particular facts and circumstances.
In addition to the specific requirements of the provider-based regulation, embedded within it are additional legal requirements with which provider-based locations of hospitals must also comply, since they are considered part of the hospital. These include the Emergency Medical Treatment and Labor Act (EMTALA) ( 42 U.S.C. § 1395dd ) and the Medicare Conditions of Participation (COPs) for hospitals ( 42 C.F.R. § 482 ).[6] [7]
Provider-Based Regulation Definitions
The provider-based regulation applies to all facilities for which provider-based status is sought. The provider-based regulation includes a number of definitions for terms used throughout the regulation. They include:[8]
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Provider-based status: The “relationship between a main provider and a provider-based entity or a department of a provider, remote location of a hospital, or satellite facility.”
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Freestanding facility: An “entity that furnishes health care services to Medicare beneficiaries and that is not integrated with any other entity as a main provider, a department of a provider, remote location of a hospital, satellite facility, or a provider-based entity.”
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Main provider: The “provider that either creates, or acquires ownership of, another entity to deliver…health care services under its name, ownership, and financial and administrative control.”
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Provider-based entity: A provider of healthcare services “that is either created by, or acquired by, a main provider for the purpose of furnishing health care services of a different type from those of the main provider under the ownership and administrative and financial control of the main provider.” (emphasis added)
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Department of a provider: A “facility or organization that is either created by, or acquired by, a main provider for the purpose of furnishing health care services of the same type as those furnished by the main provider.” (emphasis added)
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Remote location of a hospital: A “facility or an organization that is either created by, or acquired by, a hospital that is a main provider for the purpose of furnishing inpatient hospital services under the name, ownership, and financial and administrative control of the main provider.” It comprises both the physical facility that is the site of service and the personnel and equipment used to deliver the service and does not include a “satellite facility.”
Provider-based entities, departments of a provider, and remote locations of a hospital include the physical facility that serves as the site of services of a type that could be claimed under the Medicare or Medicaid program and the personnel and equipment needed to deliver the services at that facility.
Provider-Based Determinations
The provider-based regulation makes clear that a facility or organization is not entitled to be treated as provider-based just because it believes it is provider-based. Such a facility or organization must meet all of the applicable regulatory requirements in order to be appropriately treated as provider-based. Under current CMS policy, healthcare providers may, but are not required to, seek a determination from CMS that their facilities meet the requirements of the provider-based regulation.
However, CMS will not make determinations of provider-based status for payment purposes for the following types of facilities, since such determinations would not affect either Medicare payment or Medicare beneficiary liability or scope of benefits:[9]
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Ambulatory surgery centers
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Comprehensive outpatient rehabilitation facilities
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Home health agencies
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Skilled nursing facilities (determinations are made in accordance with 42 C.F.R. § 483.5 instead)
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Hospices
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Inpatient rehabilitation units that are excluded from the inpatient prospective payment system for acute hospital services
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Independent diagnostic testing facilities furnishing only services paid under a fee schedule, facilities that furnish only clinical diagnostic tests (excluding clinical diagnostic laboratories that are parts of critical access hospitals (CAHs)), and facilities that furnish only some combination of these services
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Facilities (except those operating as part of CAHs) furnishing only physician, occupational, or speech therapy to ambulatory patients during any period when the annual payment cap for coverage of such services is suspended by legislation (see Section 1833(g)(2) of the Social Security Act for more information)
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End-stage renal disease facilities (determinations are made in accordance with 42 C.F.R. § 413.174 )
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Departments of providers that perform necessary functions but do not provide services of a type for which separate payment could be claimed under Medicare or Medicaid (examples include laundry and medical records department)
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Ambulances
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Rural health clinics affiliated with hospitals with 50 or more beds
Healthcare providers that seek a determination of provider-based status must submit an attestation to CMS that documents compliance with the requirements of the provider-based regulation. The applicable requirements vary depending on whether the facility is on the campus of the main provider or not and whether the main provider is a hospital. Attestations for off-campus facilities must include documentation supporting the attestations made by the main provider as to how the facility complies with the applicable requirements of the provider-based regulation. While providers are not required to submit an attestation seeking a determination of provider-based status, the advantage to doing so is that CMS approval of the facility as provider-based eliminates the risk of retrospective recoveries should CMS later determine that the facility did not actually meet all of the requirements to be treated as provider-based.
CMS Provider-Based Requirements
The following requirements are applicable to all provider-based facilities and organizations, and all of the requirements must be met to qualify for provider-based status. These requirements expect the provider-based location to act, operate, and look like the main provider does in all that they do in order to be integral to the main provider. Any deviation in how the provider-based location operates from the main provider could jeopardize an organization’s provider-based status, and thus provider-based reimbursement. To help prepare an organization, use the CMS provider-based attestation document that the applicable Medicare administrative contractor (MAC) has posted on its website as a guide to comply with these rules.[10]
Licensure
The provider-based location must do so under the same licensure of the main provider unless state law indicates differently. Not all states license hospitals, and some states require separate licensure of the provider-based entity, so it is important to verify the applicable state law regarding licensure.
Clinical Integration
Integration of clinical service means that the provider-based location handles clinical services in the same manner as the main provider by doing the following:
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All clinical staff must have the same level of medical staff privileges as those at the main provider. For example, the physicians at the provider-based location must have the same privileges as the same type of physicians at the hospital.
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The same level of monitoring and oversight must take place at the provider-based location like it does at the main provider. These locations cannot be “on an island on their own,” with no supervision by the main provider.
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The medical directors of the provider-based location must report to someone at the main provider and have the same expectations (including responsibilities, supervision, and accountability) as any other main location medical director.
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Committees (such as medical director or a comparable committee) at the main provider must be responsible for the provider-based location. These committees must treat medical activities such as utilization review, quality, and coordination the same as the main provider.
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All medical records must be in the main provider’s unified medical record system.
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Patients from the provider-based location must have access to all inpatient and outpatient services at the main provider.
Financial Integration
Financial operations must also be integrated with the main provider, and proof of this integration must exist. Examples of financial integration include shared income/expenses along with the costs of the provider-based location being reported on the main provider’s cost report. Financial integration proof may be required when submitting a provider-based attestation via a trial balance report showing the integration truly exists.
Public Awareness
The provider-based location must present itself as a location of the main provider. When patients walk in to the provider-based location, it must be obvious that they are entering a location of the main provider and that they will receive a bill from the main provider.
In addition to entry signage, other forms of marketing and advertising, such as website information, internal wayfinding signs, patient documents (e.g., registration and letterhead), and advertisements, must include the evidence that the provider-based location is part of the main provider. In the event of submitting an attestation, proof of public awareness is required to be submitted in the form of pictures.
Public awareness and signage are also important for CMS enrollment procedures as well as provider-based rules. CMS uses a separate contractor (National Site Visit Contractor (NSCV)) to make site visits to Medicare-enrolled providers to ensure the site truly exists, that the site is capable of providing services as expressed on the enrollment documents, etc.[11] Proper and obvious signage of a provider-based location can also assist in assuring the enrollment process is seamless.
Public awareness includes how the phones are answered—do the patients know that they are calling a provider-based location? The enrollment departments of CMS also verify how the phones are answered during the enrollment process.
Lastly, patient signage is not only important in meeting the spirit of the various rules mentioned, but for the simple matter of avoiding patient confusion. If patients enter a multi-tenant building with more than one Medicare provider, signage simply helps patients understand where they are at, where they will receive services from, and where they will get a bill from. All it takes is one patient complaint about getting a bill from a hospital they feel they never visited to launch an inspection from CMS or a state agency.
Pay special attention to any state law on signage requirements as well—some states have specific rules on signage requirements for provider-based locations. The state of Washington, for example, has rules on signage and other requirements for provider-based facilities.[12]
Requirements Applicable to Off-Campus Hospital Outpatient Departments (HOPDs) and Hospital-Based Entities
Ownership and Control
The provider-based location must be 100% owned and operated by the main provider and have the same governing body (i.e., the hospital board).[13] This also means that the provider-based locations fall under the same rules, including human resources (HR) policies, contract approvals, and bylaws, as the main provider as further evidence that the location is truly part of the main provider.
Administrative and Supervision
All administrative operations and supervision of the provider-based location must also be performed by the main provider and its existing departments.[14] This includes the leadership of the provider-based location reporting up to someone from the main provider, in the same fashion as reporting occurs by employees of the main provider, with the same level of intensity and frequency.
All administrative operations (such as billing, human resources, medical records, finance, and supply chain) must be integrated with the main provider. This should be evidenced in the form of operations (e.g., the provider-based location should not have a separate HR department or a separate process for purchasing), and this should be documented on organizational charts. The leadership from the main provider is ultimately responsible for the operations of the provider-based location.
Location
CMS requires the provider-based location to be located within 35 miles of the main provider.[15] Measurement of the distance between the main provider and a potential provider-based location does not have to done via driving directions; the measurement can be done via a measurement of distance as the crow flies. In addition, there are exceptions to the 35-mile rule that account for whether the provider-based location is owned by a disproportionate share hospital (DSH) with an adjustment of 11.75% or greater or if at least 75% of the patients served at the provider-based location reside in the same zip code.[16] A careful analysis of the location exceptions is necessary if a facility does not meet the 35-mile rule.
Special Rules for HOPDs and Hospital-Based Entities to Qualify for Provider-Based Status
EMTALA: The Emergency Medical Treatment and Labor Act, also known as the “anti-dumping” rule, requires all patients be provided a medical screening exam and stabilization of an emergent medical condition and, if necessary, transfer to another facility, regardless of their ability to pay.[17]
Physician billing using correct POS codes:[18]
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To assure appropriate payment based on the provider-based location where the services were provided, the correct POS must be appended to the professional claim form (the CMS-1500 claim form).[19] If the location is an off-campus hospital, POS code 19 would be required, whereas POS code 22 would be used for on-campus hospital. Use of POS code 11 (office) would be inappropriate and would cause an overpayment to the physician.
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When working with independent providers in these locations, expressing this requirement in a written agreement would be advisable to assure these providers understand what type of location they are treating patients at and bill Medicare appropriately.
Provider-based locations of hospitals must comply with the hospitals’ Medicare provider agreements, which incorporate the conditions of participation:[20] This includes the prohibition about sharing of clinical space and compliance with life safety code as set forth in 42 C.F.R. § 482 .
Compliance with the nondiscrimination requirements must be met by all providers working in the provider-based location:[21] The main provider should already have a policy in place to assure compliance with 42 C.F.R. § 489.10 , with which the provider-based location must also comply. At a high level, this condition of participation prohibits discrimination based on race, color, national origin, age, and disability.
Must treat all Medicare patients as hospital outpatients:[22] Patients treated in the provider-based locations must be treated as hospital outpatients at all times; there should not be times where some are treated as physician office and others as hospital outpatients. Remember, hospital space is hospital space 24/7, and this is the same for any type of patient.
Three-day payment window:[23] Under the three-day payment window rule, any outpatient services provided within three days of a hospital admission must be included on the inpatient claim (i.e., they will not be paid separately). When thinking about provider-based clinics of a hospital, payment for services provided in these locations would be affected by the three-day rule.
Required written notice of beneficiary coinsurance liability:[24]
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When a patient is treated at an off-campus provider-based location of a hospital, the hospital must provide a notice of coinsurance prior to the service being provided. This notice is to inform the patient that the services they are about to receive will be subject to a coinsurance from both the physician and the hospital and to advise the patient of the amount of the potential financial liability. Many patients are surprised and upset by this when they receive two bills. This is likely one of the biggest issues with provider-based billing—patients feel they are being double-billed.
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If an exact amount of the patient’s potential financial liability is not known, an estimate can be given.
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If the patient is unable to receive the notice, this notice can be given to the patient’s representative.
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If the services provided to the patient were in accordance with EMTALA, the notice can be given after the patient has been stabilized.
Additional Provider-Based Requirements Depending on Particular Facts
Under Arrangements
Medicare COPs require hospitals to provide certain minimum services in order to qualify as a hospital. Hospitals do not have to provide all of those services themselves though. Hospitals can arrange for some required services to be provided “under arrangements” with another entity by entering into an agreement with that entity. However, the provider-based regulation prohibits facilities and organizations from qualifying for provider-based status if all patient care services furnished at the facility or organization are furnished under arrangements.[25]
Special Rules for Joint Ventures
In order for a facility or organization operated as a joint venture to be considered provider-based, it must meet the following additional requirements:[26]
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Must “be partially owned by at least one provider” and
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Must “be located on the main campus of a provider who is a partial owner” and be provider-based to that provider.
Special Rules for Management Contracts
Off-campus facilities or organizations that wish to be treated as provider-based must meet the following additional requirements if operated under a management contract:[27]
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The main provider (or an organization that employs the staff of the main provider and is not the management company) must employ the staff who are directly involved in the delivery of patient care:
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Exception: Management staff and staff who furnish patient care of a type that would be paid for by Medicare on a fee schedule.
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May not use “leased” employees from the management company for the delivery of patient care (except for staff paid on a fee schedule as described above);
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“The administrative functions of the facility or organization are integrated with those of the main provider.”
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“The main provider has significant control over the operations of the facility or organization.”
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The management contract must be held by the main provider itself and not by a parent organization.
Medicare Payment Implications of Provider-Based Status for HOPDs and Hospital-Based Entities
As mentioned previously, Medicare payments for services furnished in provider-based clinics and departments of hospitals were historically often significantly higher than payments for the same services furnished in a freestanding facility or physician office. This payment differential was a motivation for hospitals to designate off-site locations (often physician offices) as provider-based to the hospital. But this payment differential also often resulted in higher beneficiary coinsurance liability, because two claims are submitted to Medicare—one by the hospital and one by the physician or other professional—both of which carry beneficiary coinsurance liability, which in most cases is 20% of the Medicare payment.
In light of the higher Medicare reimbursement for these services furnished in provider-based locations and the higher beneficiary costs, provider-based status has been targeted for review and reform in recent years. Dating back to 1999, the Office of Inspector General (OIG) has expressed concerns about and identified vulnerabilities associated with the provider-based status designation.[28] These include oversight challenges and increased costs to Medicare and its beneficiaries, with no documented benefits. Although CMS had taken some steps to address concerns raised by the OIG over the years, it was Section 603 of the Bipartisan Budget Act (BBA) of 2015 that truly changed the course for hospital provider-based departments.[29] Section 603 of the BBA applies to any provider-based off-campus departments that were not billing as a hospital department as of November 2, 2015 (the effective date of the 2015 BBA). As a result, effective January 1, 2017, any hospital off-campus outpatient departments that were not billing Medicare as a hospital department under the OPPS as of November 2, 2015, are subject to “site-neutral” payments, meaning that the hospital’s services are not reimbursable under the OPPS and will instead be paid under another system, the Medicare physician fee schedule.[30] However, the BBA of 2015 carved out certain exceptions to this site-neutral payment rule, allowing certain off-campus hospital outpatient departments to continue to receive the higher OPPS payments. As of January 1, 2017, no off-campus hospital outpatient department may be paid under the Medicare OPPS unless (i) it is a dedicated emergency department (DED), and (ii) it is excepted.[31]
All services furnished at DEDs continue to be reimbursed under the OPPS. For purposes of the provider-based rule and OPPS reimbursement, a DED is defined by the EMTALA definition as:[32]
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Licensed by the state as an emergency room or emergency department,
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Held out to the public as a place that provides care for emergency medical conditions on an urgent basis without requiring an appointment, or
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Providing at least one-third of all of its outpatient visits for the treatment of emergency medical conditions.
The 21st Century Cures Act (Cures Act),[33] which was signed into law on December 13, 2016, revised Section 603 of the BBA of 2015 and established three new exceptions to the site-neutral payment rule established in the BBA of 2015 for off-campus hospital provider-based locations.[34][35] The first exception addressed off-campus provider-based departments that were under development but not billing as provider-based for services as of November 2, 2015 (the effective date of the BBA of 2015) and submitted a voluntary provider-based attestation to CMS before December 2, 2015.[36] This category of off-campus provider-based departments was only temporarily grandfathered and able to continue OPPS payments through 2017.
The second exception was for off-campus provider-based departments that were “mid-build” as of November 2, 2015.[37] Under the Cures Act, “mid-build” meant that the provider entered into a binding written agreement with an unrelated third party for the actual construction of an off-campus provider-based department prior to November 2, 2015. These off-campus provider-based departments were permitted to bill for services under the OPPS as of January 1, 2018, if they:[38]
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Submitted a certification to CMS from their chief executive officer or chief operating officer by February 13, 2017, certifying that the off-campus provider-based department met the definition of “mid-build.”
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Submitted an attestation to CMS by February 13, 2017, stating that the off-campus provider-based department meets the requirements of being provider-based.
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Added the new off-campus provider-based department to the hospital’s Medicare enrollment form.
Many hospitals took advantage of the mid-build exception and submitted the required certification and attestation and added the new off-campus provider-based department to their Medicare enrollment form. In early 2021, CMS issued determinations on whether those hospital off-campus departments qualified for the mid-build exception and were eligible to receive OPPS reimbursement.[39]
The third exception from the Cures Act added an exemption for certain cancer hospitals as long as the cancer hospital submitted an attestation to CMS within 60 days of the latter of either February 13, 2017, or the date the cancer hospital met the provider-based requirements.[40]
Excepted versus Nonexcepted Status
What does it mean to be “excepted” for purposes of the provider-based rule and OPPS reimbursement? Excepted provider-based locations are:[41]
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Off-campus HOPDs that were furnishing OPPS services prior to November 2, 2015, that have not impermissibly relocated or changed ownership;
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Off-campus HOPDs that qualify under the mid-build or cancer hospital exception; and
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HOPDs on the campus or within 250 yards of the main hospital or a remote location of a multi-campus hospital.Note: Remote locations are considered off-campus of the main hospital, but locations within the distance (i.e., within 250 yards) of a remote location are excepted.
If an excepted HOPD loses its excepted status for any reason, it will not be able to regain excepted status and will no longer be eligible for OPPS reimbursement.
Effect of Relocation on Excepted Status
As indicated previously, off-campus HOPDs that were furnishing OPPS services prior to November 2, 2015, that have not impermissibly relocated are considered excepted. The BBA of 2015 did not address whether excepted off-campus HOPDs can physically relocate and keep excepted status, but CMS (based on its belief that the intent of the BBA of 2015 was to except only off-campus HOPDs as they existed prior to November 2, 2015) stated in the 2017 Medicare OPPS final rule that if an excepted off-campus hospital outpatient department moved from the address on its CMS enrollment form as of November 1, 2015, to a new address, including a change of unit or suite number, the entire off-campus HOPD loses its excepted status.[42] CMS finalized a limited exception for relocation of excepted off-campus provider-based departments due to extraordinary circumstances, such as natural disasters and seismic building code requirements for public health or public safety reasons but not for business reasons such as loss of lease.[43] To use this exception, hospitals must submit a request for an extraordinary circumstances relocation request to CMS within 30 days of the date the “extraordinary circumstance” occurred.[44] The CMS Regional Offices have responsibility for approving/denying these relocation requests.[45]
Effect of Change of Ownership on Excepted Status
Changes of ownership can also affect a provider-based HOPD’s excepted status. Excepted off-campus HOPDs that undergo a change in ownership will retain their excepted status and continue OPPS payments if:[46]
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The same entity acquires the entire hospital, including the off-campus provider-based department, and
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The new owner accepts assignment of the hospital’s Medicare provider agreement.
An excepted off-campus HOPD cannot be transferred from one hospital to another and maintain excepted status. In addition, if an operator combines two certified entities under one provider number, the off-campus HOPDs of the nonretained hospital would lose excepted status.
Medicare Billing and Reimbursement for Services Provided in Excepted and Nonexcepted Provider-Based Departments of Hospitals
As noted previously, on-campus HOPDs and excepted off-campus HOPDs are paid by Medicare under the OPPS for most services. Since CMS does not maintain a list of excepted and nonexcepted HOPDs, excepted off-campus HOPDs must affix the PO modifier to their claims to indicate their excepted status, even if the particular service being billed isn’t paid under the OPPS or there’s no payment difference for the particular item or service.[47] Nonexcepted off-campus hospital outpatient departments are paid at the lower rate under the Medicare Physician Fee Schedule and must add the PN modifier to their claims to indicate their nonexcepted status. CMS expects hospitals to report the PN modifier with each nonexcepted line item and service including those for which payment will not be adjusted, such as separately payable drugs, clinical laboratory tests, and therapy services.
The most commonly billed HOPD code under the OPPS is G0463 (hospital outpatient clinic visit for assessment and management of a patient). Historically, this code paid significantly more than the equivalent office visit codes under the Medicare Physician Fee Schedule. In November 2018, CMS released the 2019 OPPS final rule finalizing its proposal to make payments for clinic visits “site-neutral” by reducing payments for clinic visits in excepted hospital off-campus provider-based departments by 60%, which is the Medicare Physician Fee Schedule equivalent rate and the same rate it currently pays for the clinic visits furnished in nonexcepted off-campus hospital outpatient departments.[48] The payment reduction was phased in so that payments for the G0463 code were reduced by half of the total reduction in 2019 (equal to payment at 70% of the OPPS rate) and again by half of the total reduction in 2020 (equal to 40% of the OPPS rate).[49]
Options for Expanding Hospital Outpatient Services
With the inability to open new provider-based HOPDs that are reimbursed by Medicare under the OPPS since the passage of BBA of 2015, hospitals have looked for ways to provide more services in their existing provider-based locations and still be paid under the OPPS. What can hospitals do to expand their outpatient hospital services outside the four walls of the hospital?
Focus on On-campus Expansion
Because the Medicare payment cuts apply only to off-campus HOPDs, hospitals can add new provider-based departments on-campus (i.e., within 250 yards of any point on the main hospital buildings or a remote location of a hospital) and receive OPPS reimbursement.
Expand the Services in Existing Provider-Based Locations
CMS has twice proposed regulations (first in the 2017 OPPS proposed rule and again in the 2019 OPPS proposed rule) that would have limited hospitals’ ability to expand the services provided at existing grandfathered HOPDs to what CMS referred to as the same “clinical family” of services that the hospital was providing at the location as of a specified baseline period. Under the proposed rules, if an excepted off-campus HOPD was to furnish services from any clinical family of services from which it did not previously furnish services during the baseline period, the services from the new clinical family would not be covered by Medicare as outpatient department services and would not be paid under OPPS. They would instead be paid under the Medicare Physician Fee Schedule (MPFS). However, CMS chose not to finalize the clinical family of services rule both times, instead indicating that it would continue monitoring the expansion of services in off-campus provider-based departments and that it may propose to adopt a limitation on the expansion of excepted services in the future.
Reconfigure Existing Off-Campus Provider-Based Locations
The BBA of 2015 bars hospitals from relocating most excepted off-campus HOPDs from the United States Postal Service address, including suite number, indicated on the CMS Form 855A and in the hospital’s Medicare enrollment records as of January 1, 2015.[50] If an excepted HOPD impermissibly relocates, the hospital will lose OPPS reimbursement for the location. Limited reconfiguration of a suite or building may be permitted to expand the footprint of an existing post office address (e.g., adding an addition or taking over an adjacent suite and incorporating it into the existing postal address). While CMS has not commented as to the permissibility of such an expansion, it is not prohibited under the rules and guidance CMS has issued to date.
Expand the Services Furnished in Freestanding Emergency Departments
Services furnished at dedicated emergency departments (DEDs) continue to be reimbursed under the OPPS, and there is no rule that all of the services furnished in a DED have to be furnished on an emergent basis rather than on a scheduled or other nonemergent walk-in basis. In fact, under the EMTALA definition of DED, only a minimum of one-third of all of the DED’s outpatient visits need to be for the treatment of emergency medical conditions to qualify as a DED.[51] That creates an opportunity for hospitals with satellite freestanding DEDs to furnish other outpatient services in those locations. CMS has noted its concerns about significant growth in the number of healthcare facilities located apart from hospitals that are devoted primarily to emergency department services and overall growth in emergency department services. As a result, CMS implemented a policy requiring that hospitals report the modifier ER on all claim lines for all outpatient hospital services (both emergency and nonemergency) furnished in an off-campus provider-based emergency department on the UB-04 form (CMS Form 1450).[52] The new modifier “ER” will allow CMS to collect data on the types of services furnished in off-campus emergency departments, which are exempt from the payment reductions affecting nonexcepted off-campus HOPDs, but currently has no effect on the rate of payment.[53]
Common Compliance Risks
Given the detailed requirements of the provider-based regulation ( 42 C.F.R. § 413.65 ), there is a number of areas where it is easy to go wrong and fall out of compliance with the requirements. Some of the compliance risks related to provider-based status follow.
Licensure
The hospital must ensure that the provider-based location is operated under the same license, unless the state requires a separate license for the department of the provider, the remote location of a hospital, or the satellite facility, or, in states where state law does not permit licensure of the provider and the prospective department of the provider, the remote location of a hospital, or the satellite facility under a single license.[54] In addition, how a state’s cost review commission or rate-setting agency treats the HOPD may be an issue—if such commission or agency finds that a particular facility or organization is not part of the main provider, CMS will determine that the facility or organization does not have provider-based status.
Clinical Integration with Main Provider
Common trouble spots with this requirement include:
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Ensuring that professional staff of the HOPD have clinical privileges at the main hospital
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Ensuring that the level of monitoring and oversight of the HOPD is the same as that for other departments of the main provider
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Ensuring that the responsibilities and relationships between the medical director of the HOPD, the chief medical officer of the main provider, and the medical staff committees at the main provider are the same as far as frequency, intensity, and level of accountability as other medical directors of the hospital
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Being able to demonstrate that the medical records of patients of the HOPD are integrated into a unified retrieval system (or cross-reference) of the main provider
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Ensuring that patients treated at the HOPD who require further care have full access to all services of the main provider and are referred where appropriate to the corresponding inpatient or outpatient department or service of the main provider
Financial Integration with the Main Provider
CMS has indicated that the appropriate financial integration between the HOPD and the main provider can be shown through documentation, such as a copy of the appropriate section of the main provider’s chart of accounts or trial balance that would show the location of the HOPD’s revenues and expenses.
Public Awareness
This can be particularly troublesome for hospitals, especially when a HOPD was formerly a physician office. Proof that the provider-based location is held out to the public as part of the main provider can be shown via a shared name (this means the name of the hospital should be included in the provider-based location’s name), patient registration forms, letterhead, advertisements, signage, and inclusion on the main provider’s website. CMS has stated that advertisements that only show the facility to be part of or affiliated with the main provider’s network or healthcare system (rather than being a part of the hospital itself) are insufficient in meeting the public awareness requirement.[55]
Proper Billing for Physician Services Furnished in HOPDs
Although the hospital may not have any direct control over the professional billing by physicians that furnish services in the hospital’s provider-based HOPDs, CMS imputes responsibility for the proper billing by such physicians to the hospitals to ensure that Medicare does not overpay for services furnished in provider-based departments. For physicians, this means that their Medicare claims must include the appropriate POS code corresponding to the location of the provider-based department (POS code 19 for off-campus outpatient hospital or POS code 22 for on-campus outpatient hospital; not POS code 11 for office) on the CMS 1500 claim form. CMS confirmed its position that hospitals have an obligation to ensure that physicians bill these claims properly in its response to a public comment in the 2000 final OPPS rule: “We agree that physicians (or those to whom they assign their billing privileges) are responsible for appropriate billing, but note that physicians who practice in hospitals, including off-site hospital departments, do so under privileges granted by the hospital. Thus, we believe the hospital has a role in ensuring proper billing.”[56] A best practice implemented by many hospitals to ensure that physicians’ Medicare claims include the correct POS code is to include the requirement to use the appropriate POS code in any contract with the physician/physician practice as well as a limited right to audit a small number of claims periodically to confirm that the claims are being submitted properly.
Compliance with Hospital Provider Agreement Requirements and Applicable Hospital Health and Safety Rules
One area where compliance with the hospital conditions of participation and applicable hospital health and safety rules may be jeopardized if the hospital does not monitor for compliance is when a HOPD may be sharing space with other nonhospital healthcare providers. The Medicare COPs for hospitals permit hospitals to colocate with other hospitals or healthcare entities.[57] But, when a hospital department or facility is in the same location (campus or building) as another hospital or healthcare entity, each entity is responsible for demonstrating separate and independent compliance with the hospital COPs. What this means for provider-based locations of hospitals is that they are expected to have defined and distinct spaces of operation for which the hospital maintains control at all times. Distinct spaces would include clinical spaces designated for patient care specific to the provider-based department that protects the hospital’s patients, including their right to personal privacy and to receive care in a safe environment under 42 C.F.R. §§ 482.13(c)(1) and (2) , and the right to confidentiality of patient records under 42 C.F.R. § 482.13(d) . In particular, CMS has expressed concerns that sharing of space with other healthcare facilities could pose a risk to the safety of a patient as the entities would have two different infection control plans and that shared clinical space could jeopardize the patient’s right to personal privacy and confidentiality of their medical records. In multi-tenant buildings where a hospital’s provider-based department is located among other nonhospital healthcare tenants, this requirement can be a challenge to meet, especially in open-concept buildings. In May 2019, CMS published draft guidance on space sharing that applies to provider-based locations of hospitals.[58] The draft guidance defines “shared spaces” as those “public spaces and public paths of travel that are utilized by both the hospital and the co-located healthcare entity.” Examples of shared spaces include public lobbies, public restrooms, staff lounges, elevators, main corridors in a building, and waiting rooms/reception areas (with separate check-in areas and clear signage). Both entities would be individually responsible for complying with the COPs in those spaces. Under the draft guidance, travel “between separate entities utilizing a path through clinical spaces of a hospital by another entity co-located in the same building would not be considered acceptable as it could create patient privacy, security, and infection control concerns.” “Clinical space” is defined as “any non-public space in which patient care occurs.”
Treat all Medicare Patients as Hospital Outpatients for Billing Purposes
The provider-based location cannot treat some Medicare patients as hospital patients and others as physician office patients. This may be an issue, for example, when a patient expresses dissatisfaction with being charged a facility fee (and related coinsurance) and the treating physician requests that the hospital waive its facility fee.
Notice of Potential Coinsurance Liability
All hospital off-campus locations billing as provider-based must provide notice to Medicare beneficiaries informing them of the coinsurance liability for the service provided by the hospital and also for any physician service. This written notice must be provided to Medicare beneficiaries before the delivery of the services and must be in a format that the beneficiary can read and understand. Under the provider-based regulation, if the actual amount of the beneficiary’s financial liability is not known, the hospital must provide the beneficiary with an explanation that the beneficiary will incur a coinsurance liability to the hospital that would not be incurred if the facility was not provider-based, an estimate based on typical or average charges for visits to the facility, and a statement that the patient’s actual liability will depend on the actual services furnished. This requirement can be difficult to meet since the exact services to be furnished (and thus the related coinsurance amount for such services) is not always known before the services are furnished. (Note: This notice is not required if the facility furnishes only services for which the beneficiary will not incur any deductible or coinsurance liability, or services for which the beneficiary liability is the same in both the provider-based and freestanding settings (e.g., screening mammography.))
Proper Billing by Facility
In addition to ensuring that physicians who furnish services in provider-based departments of hospitals use the appropriate POS codes on their Medicare claims, hospitals also need to be sure that their own Medicare claims comply with the Medicare billing rules. This means ensuring that the appropriate modifier (PO or PN) is included on all off-campus HOPD claims to reflect the department’s excepted or nonexcepted status.
Addressing Compliance Risks
Addressing compliance risks with the provider rules seems both easy and daunting at the same time. CMS is very clear in the expectations of the provider-based rules, but there are a lot of rules to make sure all of your provider-based locations (and the people at these locations) are following. In addition, it is sometimes challenging getting other leaders in the organization to understand the “why” behind the rules they need to follow. The key to success is getting organized, getting the leadership team on board, and making sure the operations team understands the CMS rules, and then conduct internal audits to assure compliance.
Master Listing of all Provider-Based Departments
One of the most important steps is to develop a master listing of all on- and off-campus provider-based locations. This is a bit time-consuming but is a critical step in the process. Take a look at the following data sources to identify all of the locations that are acting as provider-based and getting paid as provider-based (remember to include both on- and off-campus locations in the master list):
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Hospital cost report
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Department listing in the electronic medical record (EMR)
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Hospital website page of locations where services are provided
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CMS enrollment applications (form 855A)
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Hospital real estate contracts (review to identify spaces that the hospital owns/leases)
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Hospital accreditation documents (review, as most accrediting bodies will list all locations on the accreditation application)
Looking at these data sources should help the organization develop a complete list of locations that need to be audited for compliance.
Create an Audit Template
The next step is to create an audit template of the risk areas to focus on when auditing these areas. Compliance with all of the provider-based rules is mandatory, but if the organization has identified a specific risk area, breaking the audit down and focusing on that risk area may be more relevant. The sample template Resource: Provider-Based Compliance Audit Checklist is included after this article as a tool to use. Please note, this template is not intended to be an all-inclusive list of the required elements—it was developed as a high-level guide. Always use the CMS provider-based attestation document as a guide to what is required.
One of the best ways to audit for provider-based compliance is by conducting walk-through visits of the organization’s provider-based locations. These visits are comparable to what patients see and hear when they are receiving services at the provider-based locations.
Public Awareness
Another important audit step is reviewing compliance with the public awareness requirement of the provider-based rule. CMS requires that a provider-based department is “held out to the public and other payers as part of the main provider” and that when “patients enter the provider-based facility or organization, they are aware that they are entering the main provider and are billed accordingly.”[59] This means that it must be obvious to patients which hospital they are receiving services from and whom they will get a bill from. In a large network with several hospitals and numerous outpatient departments, this may be very confusing, yet a main complaint from patients is not understanding why they received a bill from a particular hospital.
The public awareness responsibilities should always include the marketing and communications team, as the marketing goals should be consistent with the public awareness requirements and be included in the overall marketing plan. Also, including the construction and facilities’ management teams in this understanding is critical—as new builds and renovations take place, proper signage must be part of the plan.
Public awareness can also be problematic in multi-tenant buildings or buildings that co-locate with another provider. Shared space has been an uphill battle with providers across the country as the CMS rules make it very difficult to share space compliantly. This is also where one should analyze the CMS conditions of participation rule on colocation as well as provider-based rules. As explained previously, in 2019, CMS released draft subregulatory guidance proposing changes to the colocation rule that essentially would allow two providers to share some space, just not clinical space.[60] This draft guidance clarifies the permissibility of sharing common, nonclinical space such as entrances, waiting rooms, break rooms, and public paths of travel. While this clarification would be good news for the hospital industry, this could be an area where increased scrutiny regarding public awareness may occur as a result of the relaxation on space sharing.
The following list provides some areas to focus on regarding public awareness, matching the naming convention used by the provider-based department submitting on the CMS-855A enrollment application:
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Media: All brochures, advertisement, and marketing campaigns should include the main provider name (this could be different if you are marketing an entire network of hospitals).
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Entryway signs: It should be obvious when the patient enters a specific area of a multi-tenant building that they are entering a location of the main provider. All entrances should include the main provider’s name and logo in addition to the specific facility’s name to emphasize the connection to the main provider.
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Hospital website: Make sure the main provider’s website includes in its master listing of locations all provider-based departments. In a large network of several hospitals and provider-based departments, the website should include the provider-based department along with the main provider it is tied to (e.g., “Main Street Imaging, a service of Main Hospital”).
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Patient-facing documents: Assure documents printed and given to patients include the main provider name. This should include letterhead, emails, and appointment reminders.
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Telephone: Staff should answer the phone in a manner that indicates to all callers that they are calling a department of the main provider.
Space Sharing
Auditing of space sharing is interrelated to the public awareness requirements in that space sharing in the current rule is not permissible. Proper signage in buildings with more than one medical provider tenant is critical to avoid patient confusion and designate the space belonging to the provider-based facility. In buildings that include more than one provider, it is imperative that there is clear demarcation of the space and independent compliance with the CMS conditions of participation. According to CMS, all certified hospital space, departments, services, and/or locations “must be under hospital’s control 24/7,” “[c]annot be ‘part time’ part of hospital and ‘part time’ another hospital, ASC [ambulatory surgery center], physician office, or any other activity” and are “required to be ‘the hospital’ 24/7.”[61]
When auditing space, looking at physical space, staff, and operations should be part of the review. Below are some tips and areas to review:
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Are there separate waiting rooms?
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Are there separate staff to register different patients presenting for hospital versus nonhospital providers?
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Can a patient obtain the services they presented for without having to walk through another provider’s space? (e.g., does a patient have to walk through a physician office to get to the outpatient department?)
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Are there separate supply closets?
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Are there separate entrances using separate doors with proper signage?
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Are there suite numbers?
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Do the floorplans/blueprints show clear delineation via walls, doors, etc. of the space?
As a reminder, the space-sharing rule could be changed based on what CMS ultimately does regarding the 2019 draft guidance.
Claims Auditing
Auditing of claims is another area to focus on routinely—are claims billed with the correct main provider, and are the professional claims billed with the correct POS code? Assuring use of the correct POS code is oftentimes problematic, as the use of the correct codes affects the professional services payment. When reviewing hospital claims, proper use of the PO and PN modifiers can also be confusing if the revenue cycle team does not understand the proper usage based on the specific provider-based department. Development of a master document of all provider-based departments and the corresponding correct POS code and modifier for each would assist in an overall understanding.
Contracting with Independent Physicians
To ensure that the hospital is best positioned to ensure compliance with the provider-based regulation requirement that professional claims for services furnished in provider-based locations are submitted using the correct POS code, the hospital’s legal office or other department responsible for contracting with independent physicians understands where the independent physicians will be furnishing services. Having this information is necessary to ensure that independent physicians are contractually required to use the appropriate POS code and that a limited right to audit a small number of the independent physicians’ claims periodically to confirm that the claims are being submitted properly is included in the contracts. Audit the physician contract auditing process periodically to ensure these provisions are being included appropriately in physician contracts.
CMS 855 Enrollment
Provider-based departments and locations of hospitals must be included on the hospital’s CMS-855A Medicare enrollment form. Using the master list of provider-based locations discussed previously, audit the list and the hospital’s Medicare enrollment files against each other to ensure they match.
Policies
As a department of the main provider, provider-based locations should generally operate under the policies and procedures of the main provider in order to demonstrate the requisite level of integration. To the extent separate policies are necessary for a particular provider-based location, the provider-based location’s policies should not be inconsistent with the policies of the main provider and should still demonstrate integration with the main provider. Audit any separate policies of provider-based locations to ensure such policies do not contradict policies of the main provider or create the appearance that the provider-based location operates independently rather than as part of the main provider.
Possible Penalties
If a hospital’s department or location that the hospital has considered to be provider-based is determined to be out of compliance with the provider-based regulation, the primary impact will be on its reimbursement by Medicare. If a facility is found not to be provider-based to the hospital, the services of the facility will not be considered hospital services. The facility would need to be removed from the hospital’s Medicare cost report, which would in turn affect the facility’s ability to be a child site of the main hospital for 340B Drug Discount Program purposes. In addition, depending on the area of noncompliance, such noncompliance may result in survey findings/deficiencies as well as Medicare overpayments that would need to be refunded.
False claims and/or civil monetary penalty liability is also a possibility if the hospital acted with the requisite knowledge and intent in submitting claims for the services as outpatient hospital services when they knew or should have known they did not qualify as such. For the calendar year 2020, the penalty range under the False Claims Act[62] is up to three times the federal healthcare programs’ loss plus $11,665 to $23,331 per false or fraudulent claim.[63][64] OIG also has authority to impose administrative sanctions under the civil monetary penalties law (CMPL) against a healthcare provider for submitting false or fraudulent claims.[65] Per claim penalties under the CMPL for false or fraudulent claims were $20,866 in 2020.[66] In addition, the OIG has permissive exclusion authority that allows it to seek to exclude a healthcare provider from participation in federal healthcare programs for submission of false or fraudulent claims.[67]
Compliance Resources
For additional information on the history of provider-based status and further discussion on compliance risks and vulnerabilities of provider-based facilities from the OIG’s and Medicare Payment Advisory Commission’s (MedPAC) perspective, see the following resources.
U.S. Department of Health & Human Services Office of Inspector General
CMS is Taking Steps to Improve Oversight of Provider-based Facilities, but Vulnerabilities Remain
MedPAC
Report to the Congress: Medicare and the Health Care Delivery System
Pages 27–56 of this MedPAC report published in June 2013 discuss Medicare payment differences across ambulatory settings.
MAC Websites
Each region’s Medicare administrative contractor (MAC) posts additional information and resources about provider-based status on their respective websites:
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CGS: https://www.cgsmedicare.com/parta/enrollment/provider_based.html
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Noridian Healthcare Solutions: https://med.noridianmedicare.com/web/jea/provider-types/provider-based-facilities
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WPS Government Health Administrators: https://www.wpsgha.com/wps/portal/mac/site/audit/guides-and-resources/provider-based-attestations-general-guidance
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Novitas Solutions: https://www.novitas-solutions.com/webcenter/portal/MedicareJL/pagebyid?_adf.ctrl-state=mdhl86i14_9&contentId=00004157
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First Coast Service Options: https://medicare.fcso.com/pard_news/0338897.asp
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National Government Services: https://ngsservices.com
Risk Takeaways
Main points of interest:
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Key definitions in the provider-based regulation,
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Medicare payment implications of provider-based status,
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Proper billing of services furnished in provider-based hospital outpatient departments, and
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Centers for Medicare & Medicaid Services (CMS) rulemaking affecting provider-based facilities.
Areas to watch:
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Final CMS guidance on space sharing;
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Possible additional Medicare policy changes affecting reimbursement to provider-based locations, such as nonemergency services furnished in dedicated emergency departments and/or further implementation of the site-neutral payment policy;
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Will CMS eventually finalize a clinical families policy to prevent expansion of services within existing hospital outpatient departments (HOPDs)?
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Will CMS publish guidance that prohibits expansion of the footprint of an excepted HOPD?
Laws that apply:
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Requirements for a Determination That a Facility or an Organization Has Provider-Based Status, 42 C.F.R. § 413.65
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Bipartisan Budget Act of 2015, 42 U.S.C. § 1395l(t)(21)
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Definition of Excepted Items and Services, 42 C.F.R. § 419.48
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Emergency Medical Treatment and Labor Act (EMTALA), 42 U.S.C. § 1395dd
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Medicare Conditions of Participation (COPs) for Hospitals, 42 C.F.R. § 482
Addressing compliance risks:
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Keep track of the organization’s provider-based locations.
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Perform periodic self-audits, including building walk-throughs, to assess compliance with provider-based regulation requirements.
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Periodically audit facility and professional claims for services furnished in provider-based locations to confirm compliance with billing rules.
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Monitor CMS rulemaking and information guidance issuances to ensure continued compliance in this changing regulatory environment.