Under Medicare, payments for services performed in provider-based facilities may be fifty (50) percent higher than payments for the same services performed in a freestanding facility. This increased cost is is effectively transferred to the entire Medicare program, impacting both Medicare and its beneficiaries.
“Provider based” is a Medicare payment designation established by the Social Security Act that allows facilities owned by and integrated with a hospital to bill Medicare as a hospital outpatient department, resulting in these facilities generally receiving higher payments than freestanding facilities. Provider-based facilities, which may be on or off the main hospital campus, must meet certain requirements (e.g., the facility generally must operate under the same license as the hospital). In addition, under current policy, hospitals may, but are not required to, attest to CMS that their provider-based facilities meet requirements to bill as a hospital outpatient department. (See the OIG Report, CMS IS TAKING STEPS TO IMPROVE OVERSIGHT OF PROVIDER-BASED FACILITIES, BUT VULNERABILITIES REMAIN).
Electronic Health Records Integration of Provider Based Facilities, Unified Retrieval System
Importantly, a high level of clinical and financial integration between the main facility and the provider based facility including the Medical records is required. Now that nearly all providers use an electronic health record (E.H.R.) system. Patients patients treated in the facility or organization must be integrated into a unified retrieval system (or cross reference) of the main provider. (See 42 CFR § 413.65(d)(v)).
42 CFR § 413.65 (a) (1)(ii) provides that provider based facilities may be:
(A) Ambulatory surgical centers (ASCs).
(B) Comprehensive outpatient rehabilitation facilities (CORFs).
(C) Home health agencies (HHAs).
(D) Skilled nursing facilities (SNFs) (determinations for SNFs are made in accordance with the criteria set forth in § 483.5).
(E) Hospices.
(F) Inpatient rehabilitation units that are excluded from the inpatient PPS for acute hospital services.
(G) Independent diagnostic testing facilities furnishing only services paid under a fee schedule, such as facilities that furnish only screening mammography services (as defined in section 1861(jj) of the Act), facilities that furnish only clinical diagnostic laboratory tests, other than those clinical diagnostic laboratories operating as parts of CAHs on or after October 1, 2010, or facilities that furnish only some combination of these services.
(H) Facilities, other than those operating as parts of CAHs, furnishing only physical, occupational, or speech therapy to ambulatory patients, throughout any period during which the annual financial cap amount on payment for coverage of physical, occupational, or speech therapy, as described in section 1833(g)(2) of the Act, is suspended by legislation.
(I) ESRD facilities (determinations for ESRD facilities are made under § 413.174 of this chapter).
(J) Departments of providers that perform functions necessary for the successful operation of the providers but do not furnish services of a type for which separate payment could be claimed under Medicare or Medicaid (for example, laundry or medical records departments).
(K) Ambulances.
(L) Rural health clinics (RHCs) affiliated with hospitals having 50 or more beds.
42 CFR § 413.65(d) – (i) provide specific requirements to meet the provider based designation. 42 CFR § 413.65(j) provides remedies to Medicare if it is discovered that a facility does not meet provider-based Standards.
Electronic Health Records Integration
A high level of integration between the main facility and the provider based facility including the Medical records. Now that nearly all providers use an electronic health record (E.H.R.) system. Patients patients treated in the facility or organization must be integrated into a unified retrieval system (or cross reference) of the main provider. (See 42 CFR § 413.65(d)(v).
These are as follows:
(d) Requirements applicable to all facilities or organizations. Any facility or organization for which provider-based status is sought, whether located on or off the campus of a potential main provider, must meet all of the following requirements to be determined by CMS to have provider-based status:
(1) Licensure. The department of the provider, the remote location of a hospital, or the satellite facility and the main provider are operated under the same license, except in areas where 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. 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.
(2) Clinical services. The clinical services of the facility or organization seeking provider-based status and the main provider are integrated as evidenced by the following:
(i) Professional staff of the facility or organization have clinical privileges at the main provider.
(ii) The main provider maintains the same monitoring and oversight of the facility or organization as it does for any other department of the provider.
(iii) The medical director of the facility or organization seeking provider-based status maintains a reporting relationship with the chief medical officer or other similar official of the main provider that has the same frequency, intensity, and level of accountability that 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, and is under the same type of supervision and accountability as any other director, medical or otherwise, of the main provider.
(iv) Medical staff committees or other professional committees at the main provider are responsible for medical activities in the facility or organization, including quality assurance, utilization review, and the coordination and integration of services, to the extent practicable, between the facility or organization seeking provider-based status and the main provider.
(v) Medical records for patients treated in the facility or organization are integrated into a unified retrieval system (or cross reference) of the main provider.
(vi) Inpatient and outpatient services of the facility or organization and the main provider are integrated, and patients treated at the facility or organization 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.
(3) Financial integration. The financial operations of the facility or organization are fully integrated within the financial system of the main provider, as evidenced by shared income and expenses between the main provider and the facility or organization. The costs of a facility or organization that is a hospital department are reported in a cost center of the provider, costs of a provider-based facility or organization other than a hospital department are reported in the appropriate cost center or cost centers of the main provider, and the financial status of any provider-based facility or organization is incorporated and readily identified in the main provider’s trial balance.
(4) Public awareness. The facility or organization seeking status as a department of a provider, a remote location of a hospital, or a satellite facility is held out to the public and other payers as part of the main provider. When patients enter the provider-based facility or organization, they are aware that they are entering the main provider and are billed accordingly.
(5) Obligations of hospital outpatient departments and hospital-based entities. In the case of a hospital outpatient department or a hospital-based entity, the facility or organization must fulfill the obligations of hospital outpatient departments and hospital-based entities described in paragraph (g) of this section.
(e) Additional requirements applicable to off-campus facilities or organizations. Except as described in paragraphs (b)(2) and (b)(5) of this section, any facility or organization for which provider-based status is sought that is not located on the campus of a potential main provider must meet both the requirements in paragraph (d) of this section and all of the following additional requirements, in order to be determined by CMS to have provider-based status.
(1) Operation under the ownership and control of the main provider. The facility or organization seeking provider-based status is operated under the ownership and control of the main provider, as evidenced by the following:
(i) The business enterprise that constitutes the facility or organization is 100 percent owned by the main provider.
(ii) The main provider and the facility or organization seeking status as a department of the main provider, a remote location of a hospital, or a satellite facility have the same governing body.
(iii) The facility or organization is 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 main provider where it is based.
(iv) The main provider has 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 or code of conduct), and final approval for medical staff appointments in the facility or organization.
(2) Administration and supervision. The reporting relationship between the facility or organization seeking provider-based status and the main provider must have the same frequency, intensity, and level of accountability that exists in the relationship between the main provider and one of its existing departments, as evidenced by compliance with all of the following requirements:
(i) The facility or organization is under the direct supervision of the main provider.
(ii) The facility or organization is operated under the same monitoring and oversight by the provider as any other department of the provider, and is 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 –
(A) Maintains a reporting relationship with a manager at the main provider that has the same frequency, intensity, and level of accountability that exists in the relationship between the main provider and its existing departments; and
(B) Is accountable to the governing body of the main provider, in the same manner as any department head of the provider.
(iii) The following administrative functions of the facility or organization are integrated with those of the provider where the facility or organization is based: billing services, records, human resources, payroll, employee benefit package, salary structure, and purchasing services. Either the same employees or group of employees handle these administrative functions for the facility or organization and the main provider, or the administrative functions for both the facility or organization and the entity are –
(A) Contracted out under the same contract agreement; or
(B) Handled under different contract agreements, with the contract of the facility or organization being managed by the main provider.
(3) Location. The facility or organization meets the requirements in paragraph (e)(3)(i), (e)(3)(ii), (e)(3)(iii), (e)(3)(iv), (e)(3)(v), or, in the case of an RHC, paragraph (e)(3)(vi) of this section, and the requirements in paragraph (e)(3)(vii) of this section.
(i) The facility or organization is located within a 35-mile radius of the campus of the hospital or CAH that is the potential main provider.
(ii) The facility or organization is owned and operated by a hospital or CAH that has a disproportionate share adjustment (as determined under § 412.106 of this chapter) greater than 11.75 percent or is described in § 412.106(c)(2) of this chapter implementing section 1886(d)(5)(F)(i)(II) of the Act and is –
(A) Owned or operated by a unit of State or local government;
(B) A public or nonprofit corporation that is formally granted governmental powers by a unit of State or local government; or
(C) A private hospital that has a contract with a State or local government that includes the operation of clinics located off the main campusof the hospital to assure access in a well-defined service area to health care services for low-income individuals who are not entitled to benefits under Medicare (or medical assistance under a Medicaid State plan).
(iii) The facility or organization demonstrates a high level of integration with the main provider by showing that it meets all of the other provider-based criteria and demonstrates that it serves the same patient population as the main provider, by submitting records showing that, during the 12-month 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 –
(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; or
(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).
(iv) If the facility or organization is unable to meet the criteria in paragraph (e)(3)(iii)(A) or paragraph (e)(3)(iii)(B) of this section because it was not in operation during all of the 12-month period described in paragraph (e)(3)(iii) of this section, the facility or organization is located in a zip code area included among those that, during all of the 12-month period described in paragraph (e)(3)(iii) of this section, accounted for at least 75 percent of the patients served by the main provider.
(v) The facility or organization meets all of the following criteria:
(A) The facility or organization is seeking provider-based status with respect to a hospital that meets the criteria in § 412.23(d) for reimbursement under Medicare as a children’s hospital;
(B) The facility or organization meets the criteria for identifying intensive care type units set forth in the Medicare reasonable cost reimbursement regulations under § 413.53(d).
(C) The facility or organization accepts only patients who are newborn infants who require intensive care on an inpatient basis.
(D) The hospital in which the facility or organization is physically located is in a rural area as defined in § 412.64(b)(1)(ii)(C) of this chapter.
(E) The facility or organization is located within a 100-mile radius of the children’s hospital that is the potential main provider.
(F) The facility or organization is located at least 35 miles from the nearest other neonatal intensive care unit.
(G) The facility or organization meets all other requirements for provider-based status under this section.
(vi) Both of the following criteria are met:
(A) The facility or organization is an RHC that is otherwise qualified as a provider-based entity of a hospital that has fewer than 50 beds, as determined under § 412.105(b) of this chapter; and
(B) The hospital with which the facility or organization has a provider-based relationship is located in a rural area, as defined in § 412.64(b)(1)(ii)(C) of this subchapter.
(vii) A facility or organization may qualify for provider-based status under this section only if the facility or organization and the main providers are located in the same State or, when consistent with the laws of both States, in adjacent States.
(f) Provider-based status for joint ventures. In order for a facility or organization operated as a joint venture to be considered provider-based, the facility or organization must –
(1) Be partially owned by at least one provider
(2) Be located on the main campus of a provider who is a partial owner;
(3) Be provider-based to that one provider whose campus on which the facility or organization is located; and
(4) Also meet all the requirements applicable to all provider-based facilities and organizations in paragraph (d) of this section. For example, where a provider has jointly purchased or jointly created a facility under joint venture arrangements with one or more other providers, and the facility is not located on the campus of the provider or the campus of any other provider engaged in the joint venture arrangement, no party to the joint venture arrangement can claim the facility as provider-based.
(g) Obligations of hospital outpatient departments and hospital-based entities. To qualify for provider-based status in relation to a hospital, a facility or organization must comply with the following requirements:
(1) The following departments must comply with the antidumping rules of §§ 489.20(l), (m), (q), and (r) and 489.24 of this chapter:
(i) Any facility or organization that is located on the main hospital campus and is treated by Medicare under this section as a department of the hospital; and
(ii) Any facility or organization that is located off the main hospital campus that is treated by Medicare under this section as a department of the hospital and is a dedicated emergency department, as defined in § 489.24(b) of this chapter.
(2) Physician services furnished in hospital outpatient departments or hospital-based entities (other than RHCs) must be billed with the correct site-of-service so that appropriate physician and practitioner payment amounts can be determined under the rules of Part 414 of this chapter.
(3) Hospital outpatient departments must comply with all the terms of the hospital’s provider agreement.
(4) Physicians who work in hospital outpatient departments or hospital-based entities are obligated to comply with the non-discrimination provisions in § 489.10(b) of this chapter.
(5) Hospital outpatient departments (other than RHCs) must treat all Medicare patients, for billing purposes, as hospital outpatients. The department must not treat some Medicare patients as hospital outpatients and others as physician office patients.
(6) 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 PPS set forth at § 412.2(c)(5) of this chapter and at § 413.40(c)(2), respectively.
(7) When a Medicare beneficiary is treated in a hospital outpatient department that is not located on the main provider’s campus, the treatment is not required to be provided by the antidumping rules in § 489.24 of this chapter, and the beneficiary will incur a coinsurance liability for an outpatient visit to the hospital as well as for the physician service, the following requirements must be met:
(i) The hospital must provide written notice to the beneficiary, before the delivery of services, of –
(A) The amount of the beneficiary’s potential financial liability; or
(B) If the exact type and extent of care needed are not known, an explanation that the beneficiary will incur a coinsurance liability to the hospital that he or she would not incur if the facility were 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 upon the actual services furnished by the hospital.
(ii) The notice must be one that the beneficiary can read and understand.
(iii) If the beneficiary is unconscious, under great duress, or for any other reason unable to read a written notice and understand and act on his or her own rights, the notice must be provided, before the delivery of services, to the beneficiary’s authorized representative.
(iv) In cases where a hospital outpatient department provides examination or treatment that is required to be provided by the antidumping rules of § 489.24 of this chapter, notice, as described in this paragraph (g)(7), must be given as soon as possible after the existence of an emergency has been ruled out or the emergency condition has been stabilized.
(8) Hospital outpatient departments must meet applicable hospital health and safety rules for Medicare-participating hospitals in part 482 of this chapter.
(h) Management contracts. A facility or organization that is not located on the campus of the potential main provider and otherwise meets the requirements of paragraphs (d) and (e) of this section, but is operated under management contracts, must also meet all of the following criteria:
(1) The main provider (or an organization that also employs the staff of the main provider and that is not the management company) employs the staff of the facility or organization who are directly involved in the delivery of patient care, except for management staff and staff who furnish patient care services of a type that would be paid for by Medicare under a fee schedule established by regulations at part 414 of this chapter. Other than staff that may be paid under such a Medicare fee schedule, the main provider may not utilize the services of “leased” employees (that is, personnel who are actually employed by the management company but provide services for the provider under a staff leasing or similar agreement) that are directly involved in the delivery of patient care.
(2) The administrative functions of the facility or organization are integrated with those of the main provider, as determined under criteria in paragraph (e)(2)(iii) of this section.
(3) The main provider has significant control over the operations of the facility or organization as determined under criteria in paragraph (e)(2)(ii) of this section.
(4) 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.
(i) Furnishing all services under arrangement. A facility or organization may not qualify for provider-based status if all patient care services furnished at the facility or organization are furnished under arrangements.
(j) Inappropriate treatment of a facility or organization as provider-based –
(1) Determination and review. If CMS learns that a provider has treated a facility or organization as provider-based and the provider did not request a determination of provider-based status from CMS under paragraph (b)(3) of this section and CMS determines that the facility or organization did not meet the requirements for provider-based status under paragraphs (d) through (i) of this section, as applicable (or, in any period before the effective date of these regulations, the provider-based requirements in effect under Medicare program regulations or instructions), CMS will –
(i) Issue notice to the provider in accordance with paragraph (j)(3) of this section, adjust the amount of future payments to the provider for services of the facility or organization in accordance with paragraph (j)(4) of this section, and continue payments to the provider for services of the facility or organization only in accordance with paragraph (j)(5) of this section; and
(ii) Except as otherwise provided in paragraphs (b)(2), (b)(5), or (j)(2) of this section, recover the difference between the amount of payments that actually was made and the amount of payments that CMS estimates should have been made, in the absence of compliance with the provider-based requirements, to that provider for services at the facility or organization for all cost reporting periods subject to reopening in accordance with §§ 405.1885 and 405.1889 of this chapter.
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