Hospital Provider-Based
Compliance Issues
R. Michael Barry, Partner
Keith A. Mauriello, Partner
Arnall Golden Gregory LLP
Introduction
 Why are we talking about provider-based
issues?
– Background and Current Posture
 Overview of provider-based regulations
 Diligence and compliance efforts
 What should you be looking for when there is a
transaction involving provider-based issues
© 2014. Arnall Golden Gregory LLP
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Provider-Based Rules – The
Background and Current Posture
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Treat subordinate facility for Medicare payment as either:
– Part of the hospital (provider-based), or
– Freestanding
Payment
– Higher reimbursement amounts (including a technical and a
professional fee) than a non-facility based service
– The hospital fee under APPS (the APC payment) is more than
would be paid if the services were furnished in a standard clinic
setting
– Beneficiary obligations are also higher – coinsurance /
deductible in a hospital setting
Coverage
– Qualifying as provider-based is required for coverage of most
services provided in hospital outpatient departments
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Provider-Based Rules – The
Background and Current Posture
 Current compliance efforts/audit coverage?
 HHS OIG Work Plan (FY 2014)
 Compliance
– Failure to satisfy provider-based
requirements could lead to False Claims Act
allegations
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Provider-Based Rules – FY 2014 HHS
OIG Work Plan
Impact of provider-based status on Medicare billing

Policies and Practices. We will determine the impact of subordinate
facilities in hospitals billing Medicare as being hospital based (provider
based) and the extent to which such facilities meet CMS’s criteria.

Context—Provider-based status allows a subordinate facility to bill as part
of the main provider. Provider-based status can result in additional
Medicare payments for services furnished at provider-based facilities and
may increase beneficiaries’ coinsurance liabilities.

In 2011, the Medicare Payment Advisory Commission (MedPAC)
expressed concerns about the financial incentives presented by providerbased status and stated that Medicare should seek to pay similar amounts
for similar services. (OEI; 04-12-00380; 04-12-00381; expected issue date:
FY 2014; work in progress)
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Provider-Based Rules – FY 2014 HHS
OIG Work Plan
Comparison of provider-based and free-standing clinics (new)
 Policies and Practices. We will review and compare Medicare
payments for physician office visits in provider-based clinics and
free-standing clinics to determine the difference in payments made
to the clinics for similar procedures and assess the potential impact
on the Medicare program of hospitals‘ claiming provider-based
status for such facilities.
 Context—Provider-based facilities often receive higher payments
for some services than do freestanding clinics. The requirements to
be met for a facility to be treated as a provider-based facility are at
42 CFR § 413.65(d). (OAS; W-00-14-35724; expected issue date:
FY 2014; new start)
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Provider-Based Rules – The Rules
 Regulations found at 42 C.F.R. § 413.65
 Program Memorandum (Intermediaries)
Transmittal A-03-030 (April 18, 2003)
 Provider-based rules apply for purposes
of both Medicare and Medicaid program
payments
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Provider-Based Rules – The Rules
 Where do the Provider Based Rules
Apply?
– On campus of hospital
– Off campus of hospital
– Multi-campus facilities
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Provider-Based Rules – The Rules

How is “campus” defined?
– Physical area immediately adjacent to provider’s main
building
– Other areas and structures that are not strictly contiguous
to the main buildings but are located within 250 yards of
the main buildings
 Encompass not only institutions that are located in selfcontained, well defined settings, but other locations
where there may be a group of buildings that function
as a campus but are not strictly contiguous and may
even be crossed by public streets
– Other areas determined on an individual basis by CMS
RO
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Provider-Based Rules – The Rules

More Key Definitions
– Provider: A hospital, critical access hospital, skilled nursing facility, compressive
outpatient rehab facility, home health agency, hospice
– Main Provider: A Provider that either creates or acquires ownership of another
entity to deliver additional healthcare services under its name, ownership and
financial and administrative control.
– Provider-Based Entity: A provider of health care services that is either created
by or acquired by a Main Provider for the purpose of furnishing health care
services of a different type from those of the main provider under the ownership
and administrative and financial control of the Main Provider.
– Department of the Hospital: A facility or organization that is created by or
acquired by a Main Provider for the purpose of furnishing health care services of
the same type as those furnished by the Main Provider, under the name,
ownership and administrative and financial control of the Main Provider.
– Provider Based Status: Provider Based Entity or Department of the Hospital that
complies with the Provider-Based Requirements.
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Provider-Based Rules – The Rules

What Standards are applicable to both locations? (and how is each applied
in “real life”?)
– Licensure – operated under same license
– Clinical integration
 Professional staff have clinical privileges at main provider
 CMS reads COPs and provider-based rules to require a
single, cohesive medical staff (thus, separate medical staffs
likely doesn’t work)
 Monitoring and oversight by and reporting relationship to main
provider (same as any other department)
 Medical staff committees at main provider are responsible for
medical activities
 Medical records and inpatient/outpatient services are integrated
 Unified retrieval system for medical records – how does that
work for paper records?
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Provider-Based Rules – The Rules

Standards applicable to both locations (cont’d)
– Financial integration – fully integrated with main provider financial
system
– Public awareness
 CMS requires that the provider-based facility be “clearly identified”
as part of the main provider
 DBA/signage of facility represents to the public and other payers
that the location is part of the main provider (not just affiliated)
 CMS has indicated that advertisements that only show the
facility to be part of or affiliated with the main provider’s
network or healthcare system are not sufficient
 When patients enter provider-based facility, they should be aware
that they are entering the main provider and are billed accordingly
© 2014. Arnall Golden Gregory LLP
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Provider-Based Rules – The Rules

Standards applicable to both locations (cont’d)
– Other Obligations for hospital outpatient department and hospital-based
entities
 EMTALA (on-campus, off-campus plus dedicated ED)
 Physician services must be billed with correct site-of-service
 Comply with hospital’s provider agreement
 No discrimination
 Hospital outpatient departments must treat all Medicare patients for
billing purposes as hospital outpatients (can’t treat some as
physician office patients)
 For patients subsequently admitted to hospital as inpatient,
payments for services are subject to payment window rules
 Notice of co-insurance liability
 Hospital outpatient departments must meet applicable hospital
health and safety rules, including LSC
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Provider-Based Rules – The Rules

When providing care at an Off-Campus facility, must provide prior
written notice to beneficiary that s/he will incur an insurance liability
for an outpatient visit to the hospital as well as for the physician
service
– Set forth the amount of the beneficiary’s financial liability OR
– An explanation that the beneficiary will incur a coinsurance
liability that s/he would not incur if the facility were not hospitalbased
 An estimate based upon typical or average charges
 A statement that the patient’s actual liability will depend upon
the actual services furnished
– Plain English
– Timing will vary based upon patient’s condition (e.g.,
unconscious, unable to read, etc.)
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Provider-Based Rules – The Rules
 What Standards apply to off-campus only?
– Operation and control under the main
provider
 100% owned by main provider (no JV)
 Same governing body
 Common organizational documents
 Main provider has final responsibility for
administrative decisions
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Provider-Based Rules – The Rules

Standards applicable to off-campus (cont’d)
– Administration and Supervision
 Facility is under direct supervision of main provider
 Same monitoring and oversight
 Administrative functions are integrated (billing,
records, HR, payroll, employee benefits, salary
structure, purchasing services)
 Note use of leased employees – some CMS
officials have questioned how one could show
integration without being directly employed?
© 2014. Arnall Golden Gregory LLP
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Provider-Based Rules – The Rules

Standards applicable to off-campus (cont’d)
– Administration and Supervision (cont’d)
 Things to do: review the list of provider based
departments, facilities and services delivered at
each location
 review hospital privileges
 review service agreements to make sure that
the meet the supervision requirements
 Supervision requirements apply only to hospital
outpatient services; NOT inpatient services
© 2014. Arnall Golden Gregory LLP
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Provider-Based Rules – The Rules

Standards applicable to off-campus (cont’d)
– Location
 EMTALA obligations do not apply to off campus if no dedicated ED
 35-mile radius of main campus
 Has DSH greater than 11.75% and (i) is owned or operated by state
or local government, (ii) public or non-profit that is granted
governmental powers by state or local government, or (iii) has
contract with state or local government to assure access of health
care services for low-income individuals
 75% patient population tests
 75% of facility patients reside in same zip code areas as 75%
of main provider’s patients
 75% of facility patients who require inpatient care received
such care from main provider
 Other (e.g., rural children’s hospital neonatal intensive care unit)
© 2014. Arnall Golden Gregory LLP
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Provider-Based Rules – The Rules

Rules for Joint Ventures
– Must be partially owned by at least one provider
 How does this look for licensure purposes
– Must be located on the main campus of the provider
who is a partial owner
– Must be provider based as to the one provider whose
campus on which the facility is located
– Must meet all the requirements of provider based
facilities as set forth in the rules
 Can it meet financial integration given very nature
of JV? Tension noted by CMS; proper cost
reporting is key
© 2014. Arnall Golden Gregory LLP
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Provider-Based Rules – The Rules

Management Contracts
– Off-Campus Locations
– Must meet all of the applicable standards
– Must also meet the following requirements:

Main Provider (or an organization that also employs the staff of the Main
Provider and that is NOT the management company) employs staff of the
facility 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
 Main Provider may not utilize the services of “leased” employees that
are directly involved in the delivery of patient care

Administrative functions of facility are integrated with those of Main Provider

Main Provider has significant control over operations of facility

Management agreement is held by main provider itself, not a parent
organization that has control over Main Provider and facility
© 2014. Arnall Golden Gregory LLP
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Provider-Based Rules – The Rules
 Management contracts for on-campus facilities
are acceptable
 Existence of management contract rule infers
that for sites other than off-campus where there
is a management contract, no need to employ
patient care personnel, assuming compliance
with clinical integration requirements
 What if you have a management contract with a
JV – do JV provisions also apply?
© 2014. Arnall Golden Gregory LLP
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Provider-Based Rules – The Rules

Under Arrangements
– Facility may NOT qualify for provider based status if
ALL patient care services furnished at facility are
furnished under arrangements
– In 2000, CMS recognized that the rules do not
prohibit providers from furnishing “selective services”
under arrangements
– What is the difference between a management
agreement and an agreement for services “under
arrangements”? CMS is not clear on such
© 2014. Arnall Golden Gregory LLP
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Provider-Based Rules – Attestation

Since October 1, 2002, CMS has not expressly required
providers to obtain an affirmative provider-based
determination from CMS RO
– Facilities for which such determinations are made
include departments, remote locations, and satellite
facilities
– But not made for ASCs, CORFs, HHAs, SNFs,
hospices, inpatient rehab units, IDTFs, ESRDs, nonhealthcare service departments (e.g., laundry),
ambulances, RHCs
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Provider-Based Rules – Attestation
 Compliance measure/best practice to ensure
appropriate billing of site
 Put it on the shelf?
 Given inconsistencies with operating
requirements for a JV and possible
interpretations of rules, attestation would
resolve any concerns/risks
 Timing – few months to over a year
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Provider-Based Rules – Shared Space
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Provider-based sites can be located in a building with space that is
not provider-based
– Common halls, bathrooms, and entrances do not appear to
present problems
– Shared waiting rooms and reception desks – “maybe” ok
– Need appropriate allocation for cost reporting purposes
Time-sharing arrangements
– CMS misgivings (public awareness, financial integration,
storage of medical records)
Case-by-case analysis by CMS
Cahaba seems unwilling to preview proposals
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Provider-Based Rules – Origination of
the Provider Based Facility
The new facility may originate:
1. Organically
2. Asset Acquisition from Third Party
3. Affiliation Agreement with Third Party
And may include:
1. Ongoing ancillary services (e.g., billing, staffing)
2. Particular “unwind” options
BUT MUST adhere to:
1. Stark Law
2. Anti-Kickback Statute
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Provider-Based Rules – A Transaction
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What does a provider based transaction look like?
– “You’ve seen 1 deal, you’ve seen 1 deal”
– Beware of “ALL provider-based transactions look like
this”
Requires commitment by all parties to the transaction
MAY be viewed as a bridge to greater integration
MUST be accepted by all parties as a material
transaction
What are the standard agreements applied to a provider
based transaction?
© 2014. Arnall Golden Gregory LLP
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Provider-Based Rules – An ASC to
HOPD Transaction
 Why Attractive?
– To Hospitals
– To Physicians
 Provider Based Hurdles
 CON and Licensure Issues
 Other Regulatory Hurdles
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Provider-Based Rules – Due Diligence
1. Financial Diligence
a) Does the transaction make sense?
b) What financial pre-closing conditions must be satisfied in
order to meet all assumptions of success?
2. Regulatory Diligence
a) What are the terms of the transaction?
b) Do ALL of the components of the transaction satisfy the
fraud and abuse thresholds?
c) What about CON requirements?
d) What if the arrangement does NOT satisfy the Provider
Based Rules?
3. Organizational Diligence
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Provider-Based Rules – Due Diligence
Important Pre-Closing Obligations/Conditions to Closing
 FMV Reports
 Review of Commercially Reasonableness
 Licensure Update
 Coordination of compliance at this facility
 Employee training
 Preparation of post-closing monitoring/operational
qualification
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Provider-Based Rules – Post Closing
Operations
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On-going compliance/training
Annual review of FMV (if includes PSA component)
Annual review of ancillary services (similar to other
vendor relations)
Adjustments based upon actual performance versus
proposed performance
Development of “best practices” library related to such
arrangements
Team-based commitment to successful integration and
operation
© 2014. Arnall Golden Gregory LLP
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QUESTIONS
Keith A. Mauriello
keith.mauriello@agg.com
404.873.8732
R. Michael Barry
michael.barry@agg.com
404.873.8698
All rights reserved.
This presentation is intended to provide general information on
various regulatory and legal issues. It is NOT intended to serve as
legal advice or counsel on any particular situation or circumstance.
© 2014. Arnall Golden Gregory LLP