HCFA Tightens Eligibility Requirements for Provider-Based Status

Healthcare Financial Management, June, 2000 by Mohan V. Kirtane

On October 10, 2000, HCFA will implement new eligibility standards for all off-campus entities with a provider-based designation. Providers that wish to retain the provider-based status of their ambulatory care facilities need to take action to more fully integrate the ambulatory care facilities with their main facilities. In addition, the provider will need to show that 75 percent of the patient population served by the ambulatory care facility also is served by the provider's main facility.

Ambulatory care facilities that are designated as provider-based generally receive a higher rate of Medicare payment than those designated as free-standing. This designation and its advantages, however, soon will be more difficult to obtain. HCFA has announced its intention to implement new, more stringent eligibility standards for conferring provider-based status on ambulatory care facilities that are owned by a parent healthcare organization, which HCFA refers to as a provider.

The new standards are outlined in the recently released final rule for the Medicare outpatient prospective payment system (PPS). [a] Comments on the portions of regulations that have changed from the proposed regulations originally published on September 8, 1998, will be considered if received before June 6, 2000. The new eligibility standards will become effective October 10, 2000.

HCFA has been concerned that many providers have sought a provider-based designation for their ambulatory facilities primarily to maximize Medicare payment, and that, as a result of such designations, patients' co-payments are higher than they would be for comparable physician office visits. The agency also has been concerned that certain patient care issues, such as adequate quality assurance and supervision of employees conducting diagnostic tests and procedures, are not being adequately addressed due to lack of sufficient physician oversight in off-campus facilities. HCFA believes that the more rigorous eligibility requirements for provider-based status, particularly with regard to greater clinical integration, will help to address these issues.

The new standards primarily will affect off-campus ambulatory care facilities, but are not limited to such facilities. The standards technically apply to any ambulatory care facility whose costs, when included among the provider's costs, would increase the provider's total costs (as reflected on the provider's cost report) by at least 5 percent.

All new requests for provider-based designation will be reviewed for compliance with the new eligibility requirements. HCFA does not plan to systematically review all current designations, but such reviews may be performed on a case-by-case basis (for example, if the agency receives a complaint regarding an alleged inappropriate designation).

If HCFA determines that an ambulatory care facility should not be afforded provider-based status, the facility will not be allowed to bill Medicare at the higher rate afforded to provider-based facilities, and the provider will not be permitted to include costs of the facility on its cost report. Facilities that lose their provider-based designation will be paid according to the formula applied to physicians' offices, which accounts for site-of-service adjusted professional fees only, rather than the professional fees plus the ambulatory payment classification (APC) of the services provided. Thus, depending on the volume of Medicare patients seen in the ambulatory care facility, providers may see a significant payment reduction.

Integration Requirements

In the outpatient PPS final rule, HCFA tightened the requirements regarding the degree of integration that must exist between a provider and an ambulatory care facility for the latter to be eligible for provider-based status. While these integration requirements are broad and may prove costly, they are within the ability of the provider to meet. These requirements involve organizational, operational, clinical, and financial integration.

Organizational integration. The ambulatory care facility should be established as an integral and subordinate part of the overall organization with regard to ownership and governance. The final rule specifically prohibits the provider and ambulatory care facility from operating as a joint venture. In addition, a facility operated under a management contract would be considered provider-based only if it were to meet specific requirements related to staff employment and day-to-day control of operations, and if the provider itself, rather than a parent organization, were to hold the management contract.

Operational integration. The provider must have primary responsibility for administrative decisions regarding the ambulatory care facility. The policies and procedures of the facility must include documentation showing its reporting relationships within the provider's administrative structure. The facility's signage must clearly indicate that the facility is a department of the provider. In addition, medical records must be "integrated into the unified records system of the provider." To facilitate such integration, the off-site facility ideally should use the same medical record numbering system as that of the provider so that the necessary infrastructure is in place to create a single medical record for each patient.