Provider-based Rules Take Effect
By: Thomas W. Coons
After years of buildup, the provider-based rules are finally upon us. For cost reporting periods beginning July 1, 2003, all hospitals will be required to comply fully with the provider-based rules. Thus, it is important to know those rules, which CMS has modified significantly; to appreciate the rules' impact on hospital operations and, potentially, on payment; and to consider whether the hospital should formally qualify as provider-based.
On April 7, 2000, 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 BIPA; and 67 Fed. Reg. 49,982, 50,078-96 (Aug. 1, 2002). Most recently, CMS furnished clarification of its policies in Program Memorandum A-03-030 (Apr. 18, 2003). The current standards resemble, but differ from the prior standards embodied in Program Memorandum (PM) A-96-7 and State Operations Manual (SOM) § 2004.
Why Is Provider-based Status Important?
Provider-based status has significance for payment, coverage, and compliance.
From the payment perspective, provider-based status historically 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 provider-based 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 move away from cost-based payments, however, this allocation consideration is of dwindling significance. Nevertheless, provider-based status generally has a payment impact. Clinic services furnished in a non-provider setting, for example, are generally reimbursed under the physician fee schedule (employing the higher practice expense). Those same services furnished in a provider-based setting are reimbursed to the hospital under the APC payment methodology of outpatient PPS, with the physician receiving a reduced physician fee schedule payment as a result of the lower practice expense (i.e, the site-of-service differential). The hospital APC payment combined with the lower physician fee schedule payment is typically more than what would be paid were the services furnished in the clinic setting. This is not the case, however, for all services. For example, for certain imaging procedures, such as MRI and PET scans, the "freestanding" reimbursement currently exceeds provider-based payment.
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.
There have been cases in which providers' alleged failures to satisfy provider-based criteria have given rise to fraud and abuse charges. As rules become more settled, other cases can be expected, with the government contending that providers knew or should have known the rules.
To Whom Do the Rules Apply?
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) departments of a hospital (a department comprises both the physical facility and the personnel and equipment needed to deliver the services and is 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 (42 C.F.R. §§ 412.25(h)(i) and 412.25(e)(i)).
Multi-campus hospitals must meet the provider-based criteria, with one campus being designated as the "main provider." The remaining campuses are remote locations.
If No Payment Effect
Where provider-based versus freestanding status has no payment ramifications 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: Ambulatory Surgery Centers (ASCs); Comprehensive Outpatient Rehabilitation Facilities (CORFs); Home Health Agencies (HHAs); Skilled Nursing Facilities (SNFs); hospices; inpatient rehabilitation units excluded from acute care PPS; independent diagnostic testing facilities (IDTFs) furnishing only services paid under a fee schedule (e.g., screening mammography), facilities that furnish only clinical diagnostic laboratory tests, and facilities that furnish only some combination of the two; ambulances; and departments of providers 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). CMS has said also that it will not require provider-based recognition of facilities (other than CAHs) that furnish only outpatient physical, occupational, and speech therapy as long as the $1,500 annual cap on those services is suspended. The caps went into effect September 1, 2003. 42 C.F.R. § 413.65(a).
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 hospital-based rate.
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.
What are the Regulation's Effective Dates?
Section 404 of BIPA grandfathered, until October 1, 2002, all sites treated as provider-based as of October 1, 2000. CMS extended grandfathering so that it does not expire until the beginning of a hospital's cost reporting period on or after July 1, 2003. 42 C.F.R. § 413.65(b)(2). CMS has stated that if a site was paid as provider-based, it qualifies for this grandfathering, even if it received no formal CMS approval as provider-based.
Grandfather Provision - What Was Not Further Delayed?
Section 404 does not delay all of the provider-based rules for grandfathered facilities. Notably, the provider-based rules applicable to EMTALA (42 C.F.R. § 489.24 (b) and (i)) and to the obligations of provider-based entities (42 C.F.R. § 413.65(g)) became effective on the first day of the hospital's cost reporting period beginning on or after January 10, 2001. Similarly, the rules regarding physician supervision were not delayed.
Facilities that Are Not Grandfathered
Facilities and organizations that were not grandfathered were required to meet all provider-based requirements and obligations effective with the first day of the facility's cost reporting period beginning on or after January 10, 2001.
Distinction Between On-campus and Off-campus Sites
In the August 2002 changes to the provider-based regulations, CMS made important distinctions between on-campus and off-campus sites, reducing the burdens on on-campus sites. As a result, the definition of campus now 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 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 the agency has also stated that this standard is not absolute and that CMS's regional offices will be given the discretion to allow other locations that are beyond 250 yards to qualify as "on-campus." 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.
Standards Applicable to On-campus Locations
The provider-based regulation requires provider-based entities to satisfy all of the following requirements:
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.
Operation Under Ownership and Control of the Main Provider
The business enterprise that constitutes the facility or organization must be 100 percent owned by the provider.
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:
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.
Location in Immediate Vicinity
Additional Requirements ("Obligations")
Hospital outpatient departments (not SNFs or other non-hospital entities), if located on the main premises of the hospital, must comply with the anti-dumping rules. CMS has eliminated EMTALA's applicability to off-campus locations that are not "dedicated emergency departments." The EMTALA rules continue to apply, however, to dedicated emergency departments located "off the main hospital campus." 42 C.F.R. § 489.24(b).
Site of Service
Physician services furnished in hospital outpatient departments or hospital-based entities (other than RHCs) must be billed with the correct 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 off-site 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.
Hospital outpatient departments must comply with all the terms of the hospital's provider agreement.
Physicians who work in hospital outpatient departments or hospital-based entities are obligated to comply with the non-discrimination provisions of Title XVIII.
Billing of Medicare Patients
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.
Informing Beneficiaries (Off-campus Only)
Health and Safety
Hospital outpatient departments must meet applicable hospital health and safety rules for Medicare participating hospitals.
Physician Supervision of "Incident to" Services and Supplies (42 C.F.R. § 410.27) (Off-campus Only)
Services and supplies furnished at a location (other than an RHC or FQHC) that CMS designates as a hospital department must be under the direct supervision of a physician. 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. CMS will assume that direct supervision exists if the outpatient department is located on the hospital campus, but the assumption does not extend to departments located at off-campus sites. How this applies to multi-campus hospitals is unknown. CMS has said that "any facility not located on a hospital's main campus would be considered to be an 'off-campus' facility." 67 Fed. Reg. at 50,082. This requirement raises a number of questions. What does the direct supervision requirement mean when read in conjunction with this Federal Register language? If in a multi-campus situation whole remote locations are considered to be off-campus, must direct supervision be demonstrated for all outpatient services? What about services and tests for which only general supervision is required?
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.
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 provider-based 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 a joint venture with physicians will present Stark issues. Note as well that, in order for the services furnished by the joint venture 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.
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 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 arrangement. CMS has not been clear about whether certain specific services might run afoul of this bar, particularly if the service furnished under arrangement may essentially amount to the entire hospital department. For example, if the hospital obtains all of its lithotripsy services, 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 arrangement.
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 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.
Unlike under past rules, formal CMS approval is no longer required for on-campus 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 provider-based. 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 a regulatory presumption that an off-site clinic is a freestanding location. 42 C.F.R. § 413.65(b)(4). Thus, if the site is not provider-based, it would be paid under the physician fee schedule.
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 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. As part of PM A-03-030, CMS issued a sample attestation format that may be employed.
Attestation may be submitted for the whole site or, if the location 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.
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 acting on attestations.
CMS will request additional information if the attestation appears incomplete or if it otherwise has questions.
CMS approval is binding absent material changes. CMS has not defined material change but has given the example of entering into a management contract.
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