Provider Based Facilities Integration

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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Michael F. Arrigo

Michael Arrigo, an expert witness, and healthcare executive, brings four decades of experience in the software, financial services, and healthcare industries. In 2000, Mr. Arrigo founded No World Borders, a healthcare data, regulations, and economics firm with clients in the pharmaceutical, medical device, hospital, surgical center, physician group, diagnostic imaging, genetic testing, health I.T., and health insurance markets. His expertise spans the federal health programs Medicare and Medicaid and private insurance. He advises Medicare Advantage Organizations that provide health insurance under Part C of the Medicare Act. Mr. Arrigo serves as an expert witness regarding medical coding and billing, fraud damages, and electronic health record software for the U.S. Department of Justice. He has valued well over $1 billion in medical billings in personal injury liens, malpractice, and insurance fraud cases. The U.S. Court of Appeals considered Mr. Arrigo's opinion regarding loss amounts, vacating, and remanding sentencing in a fraud case. Mr. Arrigo provides expertise in the Medicare Secondary Payer Act, Medicare LCDs, anti-trust litigation, medical intellectual property and trade secrets, HIPAA privacy, health care electronic claim data Standards, physician compensation, Anti-Kickback Statute, Stark law, the Affordable Care Act, False Claims Act, and the ARRA HITECH Act. Arrigo advises investors on merger and acquisition (M&A) diligence in the healthcare industry on transactions cumulatively valued at over $1 billion. Mr. Arrigo spent over ten years in Silicon Valley software firms in roles from Product Manager to CEO. He was product manager for a leading-edge database technology joint venture that became commercialized as Microsoft SQL Server, Vice President of Marketing for a software company when it grew from under $2 million in revenue to a $50 million acquisition by a company now merged into Cincom Systems, hired by private equity investors to serve as Vice President of Marketing for a secure email software company until its acquisition and multi $million investor exit by a company now merged into Axway Software S.A. (Euronext: AXW.PA), and CEO of one of the first cloud-based billing software companies, licensing its technology to Citrix Systems (NASDAQ: CTXS). Later, before entering the healthcare industry, he joined Fortune 500 company Fidelity National Financial (NYSE: FNF) as a Vice President, overseeing eCommerce solutions for the mortgage banking industry. While serving as a Vice President at Fortune 500 company First American Financial (NYSE: FAF), he oversaw eCommerce and regulatory compliance technology initiatives for the top ten mortgage banks and led the Sarbanes Oxley Act Section 302 internal controls I.T. audit for the company, supporting Section 404 of the Sarbanes Oxley Act. Mr. Arrigo earned his Bachelor of Science in Business Administration from the University of Southern California. Before that, he studied computer science, statistics, and economics at the University of California, Irvine. His post-graduate studies include biomedical ethics at Harvard Medical School, biomedical informatics at Stanford Medical School, blockchain and crypto-economics at the Massachusetts Institute of Technology, and training as a Certified Professional Medical Auditor (CPMA). Mr. Arrigo is qualified to serve as a director due to his experience in healthcare data, regulations, and economics, his leadership roles in software and financial services public companies, and his healthcare M&A diligence and public company regulatory experience. Mr. Arrigo is quoted in The Wall Street Journal, Fortune Magazine, Kaiser Health News, Consumer Affairs, National Public Radio (NPR), NBC News Houston, USA Today / Milwaukee Journal Sentinel, Medical Economics, Capitol ForumThe Daily Beast, the Lund Report, Inside Higher Ed, New England Psychologist, and other press and media outlets. He authored a peer-reviewed article regarding clinical documentation quality to support accurate medical coding, billing, and good patient care, published by Healthcare Financial Management Association (HFMA) and published in Healthcare I.T. News. Mr. Arrigo serves as a member of the board of directors of a publicly traded company in the healthcare and data analytics industry, where his duties include: member, audit committee; chair, compensation committee; member, special committee.

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