HOSPITALS WITH OFF-SITE CLINICS AND/OR MANAGEMENT CONTRACTS BEWARE: THE MEDICARE PROGRAMS PROVIDER-BASED REGULATIONS ARE HERE
In a move that may have significant impact on the Medicare certification status of both hospital departments and traditional provider-based entities such as skilled nursing facilities, home health agencies and hospices, the Health Care Financing Administration (HCFA) issued new regulations on April 7, 2000 setting forth the requirements to obtain and maintain provider-based status under the Medicare Program. Failure to comply with the regulations requirements may result in (1) a complete denial of Medicare certification status (and reimbursement) for hospital departments that cannot participate in the Medicare program as freestanding providers, or (2) lower Medicare reimbursement for home health agencies, skilled nursing facilities and other entities that may be freestanding facilities but potentially receive greater reimbursement through the overhead allocation process attendant to provider-based status.
As noted by HCFA, a variety of factors have led to the proliferation of provider-based entities. The emergence of integrated delivery systems and "the pressures to enhance revenues have combined to create incentives for providers to affiliate with one another and to acquire control of nonprovider treatment settings, such as physician offices." Accordingly, in order to rationalize the provider-based certification process, the Medicare program published final regulations regarding the establishment of provider-based departments and entities as part of the final publication of the outpatient prospective payment system regulations. Although the new regulations do not go into effect for six months, now is the time for providers to examine their current operations in light of the regulations requirements.
Application of the Provider-Based Criteria
Previous policy statements noted that the provider-based certification requirements were designed to prohibit sham arrangements in which hospitals affiliate with off-site physician offices in order to increase Medicare reimbursement. However, the new regulations apply to any facility or organization that is created by a Medicare participating hospital for the purpose of furnishing health care services under "the name, ownership, and financial and administrative control of the hospital. The provider-based regulations not only apply to entities such as hospital-operated home health agencies, skilled nursing facilities and outpatient clinics, they also apply to hospital departments such as psychiatric units and rehabilitation units. Moreover, the regulations apply regardless of location C i.e., entities located on-campus or off-campus are equally subject to the rules= requirements. For example, if an off-site or on-site outpatient clinic does not meet the provider-based requirements and is not otherwise subject to Medicare certification as a freestanding entity, the clinic may not be eligible to participate in the Medicare program and receive reimbursement for services provided to Medicare patients.
The Requirements
As described by HCFA, the provider-based criteria are designed to ensure that provider-based entities and departments are integrated with and subordinate to their affiliated hospitals C the "main provider." Many of the requirements included in the regulations are similar to those applied in previous Medicare policies and manual provisions. However, as described below, the regulations often provide greater detail on HCFA's definition of "integration" and "subordination."
For example, the regulatory requirements include the following:
Common Licensure. Where allowed by state law, the Medicare program requires that the main provider and the provider-based entity or department be subject to common licensure.
Ownership/Administrative Integration. The entity or department seeking provider-based status must be 100 percent owned by the main provider, subject to the main provider=s governing board and organizational documents. The main provider must have final administrative and supervisory authority over the provider-based entity. The reporting relationship between the provider-based entity or department must be subject to the same "frequency, intensity and level of accountability" that exists in the relationship between the main provider and its other departments.
HCFA has specifically stated that provider-based entities cannot be subject to ownership by a hospital joint venture. Instead, the provider-based entities must be owned directly by the main provider.
Common Resource Utilization. Billing services, records, human resources, employee benefits, salary structure and purchasing services applicable to the provider-based entity or department must be integrated with those applicable to the main provider.
Location in Immediate Vicinity. The provider-based entity or department must be located on the same campus of the main provider or located within the immediate vicinity of the main provider. Generally, if 75 percent of the patients treated by the provider-based entity reside in the same zip code areas as at least 75 percent of the main provider=s patients, the provider-based entity will be considered within the immediate vicinity of the main provider.
Management Contract
As stated in the draft provider-based regulations issued in 1998, HCFA has concluded that hospitals which operate entities subject to management arrangements with third parties will have a difficult time showing that the entities are sufficiently integrated with the hospital to establish provider-based status. Accordingly, HCFA has set forth several provider-based requirements that apply specifically to entities or departments operated subject to management contracts.
Staffing. The staff of the provider-based entity, other than management staff, are employed by the main provider or by another organization, other than the management company, which also employs the staff of the main provider.
Administrative Integration/Control. The requirements regarding ownership and control, and common resource utilization and administrative integration are met.
Direct Contract. The management contract is held by the main provider itself, and not a parent or other organization.
Outpatient Departments
Given that the provider-based requirements were originally designed to prohibit the implementation of "sham" physician clinic arrangements, HCFA has imposed several requirements on outpatient clinic arrangements. For example, all patients treated at the provider-based outpatient clinic must be registered hospital outpatients, all anti-discrimination policies applicable to the main provider are applicable to the provider-based clinic and all anti-dumping rules (EMTALA) apply to the outpatient clinic. Finally, a special notice must be given to outpatient clinic patients prior to the provision of care. This notice must identify the amount of the anticipated financial liability for the patient as a result of receiving care in a hospital outpatient department C i.e., the patient may be subject to copayments for both professional and facility services.
Provider-Based Determinations. According to the new regulations, a facility is not entitled to be treated as provider-based simply because the main provider believes it is provider-based. A main provider must contact HCFA and the entity or department must be deemed provider-based before the main provider bills for services of the facility as a provider-based entity. Specifically, HCFA requires that providers report to HCFA the acquisition of any off-campus facilities or facilities that will increase provider costs by more than 5 percent. In addition, any changes in a provider-based entity must also be reported to HCFA so that HCFA may assess continuing compliance.
If HCFA determines that a provider has not received a prior determination for an entity which has been treated as provider-based, HCFA may subject the entity to review. HCFA may also potentially deny provider-based status for all future cost reporting periods or past periods that are open or subject to reopening as of the effective date of the regulations. HCFA may forego the past recapture of overpayments if it determines that the provider has made a good faith effort to treat the facility as provider-based.
Points of Interest
In reviewing the new regulations, several points are of particular interest.
- The Medicare Program is now requiring that HCFA approval be obtained each time a provider sets up a new service that it intends to operate as a component of its facility. This is required regardless of whether the service is acquired, managed, new, or located off- or on-campus before billing the Medicare program for the service. Although HCFA has acknowledged that this approval process will be costly and time consuming, it has stated that the costs associated with the inappropriate billing for services as a result of not getting a prior provider-based determination, will far outweigh the costs associated with the approval process.
The new regulatory requirements apply to all future provider-based determinations and all provider-based entities currently in existence. However, HCFA has stated that it has no plans to initiate a general review of provider-based entities for compliance. HCFA will "look into any situation that comes to [HCFA's] attention in which it appears that a facility does not meet the requirements of the new regulations but is being treated as provider-based." Accordingly, providers are well advised to review their current arrangements to assess compliance since routine Medicare reimbursement field audits and desk reviews may now include a component to assess such compliance.
Many providers utilize the services of management companies to operate specific hospital components such as psychiatric and rehabilitation units and off-site clinical outpatient services. Based upon the new regulations, it appears that HCFA will hold such managed departments and entities to a very high standard if provider-based status is sought. Moreover, it remains unclear as to whether HCFA would ever acknowledge that a hospital has the appropriate level of oversight and direction when the hospital has entered into a management services arrangement which includes the most typical variety of management requirements. Accordingly, a provider may find that many of these arrangements will require substantial revision in order to maintain designation as a certified component of its related hospital facility.
The specific application of the EMTALA anti-dumping requirements to off-site entities may have a significant impact on hospital operations and the operations of off-site units. The new regulations require that off-site departments and clinics develop procedures that assess the existence of emergency medical conditions, provide screening and necessary stabilization services, provide appropriate transportation back to the hospital's main campus or transfer patients to other facilities in accordance with the EMTALA requirements.
Client Alert is published solely for the interest of friends and clients of Paul, Hastings, Janofsky & Walker LLP and should in no way be relied upon or construed as legal advice. For specific information on recent developments or particular factual situations, the opinion of legal counsel should be sought. PHJ&W is a partnership, including professional corporations.