|
HCFA Proposes Rules to Limit Provider-based
Status for Outpatient Programs
By Cami Gearhart and Robin Turner
[Febuary 1999]
Introduction
Last September, the Health Care Financing Authority (HCFA) issued
proposed rules that, if implemented, would crack down on the ability
of hospitals and skilled nursing facilities to designate their outpatient
programs as "provider-based" instead of "freestanding."
The proposed rules would make it more difficult for outpatient programs
operated under joint ventures or management services arrangements
to qualify as provider-based, and would require providers to obtain
an advance determination from HCFA of the provider-based status
of their programs. The proposed rules also would create a presumption
that any outpatient program located away from the main provider's
campus is freestanding instead of provider-based.
The proposed rules are drafted so broadly that they conceivably
could be applied to inpatient programs subject to joint ownership
or management services agreements. HCFA's comments in the preamble
to the rules indicate, however, that the rules are designed for
application to outpatient programs.
HCFA's Criticism of Current Practice
HCFA issued the proposed rules in conjunction with its proposed
rules for a prospective payment system (PPS) for provider-based
outpatient programs. However, HCFA intends to implement the provider-based
designation rules quickly, even though implementation of the outpatient
PPS will be delayed until after January 1, 2000.
HCFA maintains that hospitals, skilled nursing facilities and other
"main providers" are improperly designating their outpatient
programs as provider-based in order to take advantage of favorable
Medicare reimbursement rates. Outpatient provider-based programs
generally are reimbursed by Medicare on a reasonable cost basis,
while inpatient programs are reimbursed on a prospective payment
system. HCFA complains that hospitals can recover twice for the
same overhead costs by shifting overhead expenses to their outpatient
programs. HCFA also is critical of the use of management services
agreements by hospitals and other providers. HCFA alleges that providers
can be paid two, or even three, times for the same overhead cost
associated with an outpatient program subject to a management services
agreement.
Criteria for Provider-Based Status
In the past few years, HCFA has tried to address these perceived
abuses. HCFA has developed published guidelines for determining
whether a program is provider-based or freestanding. Under these
guidelines, an outpatient program must demonstrate integration and
common governance with the main provider in order to qualify as
provider-based. The current guidelines set forth a list of approximately
eight criteria by which to judge a program's integration, and the
guidelines require only that the program comply with those criteria
that are "applicable."
The proposed rules go even farther in addressing perceived abuses.
First, the proposed rules make it more difficult for a program to
be characterized as provider-based. The proposed rules continue
to use the criteria of integration and common governance set forth
in the current guidelines, but the proposed rules require compliance
with all of the criteria, not just those that are "appropriate."
Highlighted below are some of the proposed requirements for determining
whether a program is sufficiently integrated with a provider to
be considered "provider-based."
Licensure.
The outpatient program would have to be licensed as appropriate
under state law.
Ownership. The main provider would have to have 100% ownership
interest in a program seeking provider-based status. The proposed
rules explicitly prohibit joint ventures from qualifying for provider-based
status.
Control. The
main provider would have to have final responsibility for approval
of budgets, contracts, personnel actions, and medical staff appointments
at outpatient programs. The governing body of the main provider
would be required to have authority to make operating decisions
for the programs seeking provider-based status, and outpatient
programs must be operated under the same organizational documents
as main providers.
Supervision.
The proposed rules would require a main provider to closely supervise
outpatient programs.
Administration.
The main provider and its outpatient programs would have to coordinate
administrative functions including billing services, records,
human resources, payroll, employee benefits, salary structures,
and purchasing services.
Management
Contracts. If an outpatient program is subject to a management
services agreement, then the staff of the outpatient program could
not be employed by the management company; the management contract
would have to be held by the main provider rather than by a parent
organization; and the main provider would have to retain significant
day-to-day control over the operations of the outpatient program.
Clinical Integration.
A main provider would be required to be clinically integrated
with the outpatient program. This integration could be demonstrated
by reciprocal privileging of professional staff, maintenance of
a daily reporting relationship between medical directors at the
main provider and outpatient programs, and integration of medical
records.
Financial Integration.
The proposed rules would require a main provider and its outpatient
programs to share income and expenses.
Public Awareness.
Main providers would be required to hold out outpatient programs
as part of the main provider.
Location in
the Immediate Vicinity. Outpatient programs seeking provider-based
status would have to be located on a main provider's campus or
be in its immediate vicinity.
Duty to Obtain HCFA Determination of Provider-Based Status;
Retroactive Application
A significant aspect of the proposed rules is a new reporting requirement.
Any outpatient program that intends to claim provider-based status
would have to apply to HCFA before utilizing that status. The outpatient
program would not be able to submit claims as provider-based, and
the main provider would not be able to include the costs of the
program on its cost reports, until HCFA approved the provider-based
designation. Once an outpatient program obtained approval from HCFA
of its provider-based status, it would have to update HCFA on any
"material changes" in the ownership of the program. A
program also would have to contact HCFA if it entered into a new
or different management contract.
The proposed rules would authorize HCFA to recover overpayments
from outpatient programs that fail to contact HCFA about their provider-based
status. If HCFA were to discover that an outpatient program had
designated itself as a provider-based program without applying for
a determination of its status, then HCFA could stop all payments.
HCFA also could reconsider payments to the provider for all cost
reporting periods subject to reopening. If the program failed to
qualify as provider-based upon examination, HCFA could recover the
difference between the amount of the payments already paid, and
the amount the payments would have been had the program not claimed
provider-based status.
A disturbing aspect of the proposed rules is that they authorize
the recovery of overpayments for periods prior to the proposed rules'
effective date. This portion of the rules appears to apply only
to programs that fail to contact HCFA for a designation of provider-based
status. Fortunately, a good-faith exception to this retroactive
application also is proposed. HCFA would not apply the rules retroactively
to programs that in good faith have tried to operate as provider-based,
and have (1) complied with the rules' requirements regarding licensure;
(2) complied with the rules' requirements to represent the outpatient
programs as part of the main provider; (3) billed facility services
as if they had been furnished by a provider-based program; and (4)
billed the professional services of physicians and other practitioners
with the correct site-of-service indicators.
Conditions of Participation Applicable to Hospital Outpatient
Programs
The proposed rules also impose consequences on those programs that
qualify as hospital-based. The proposed rules would require that
all hospital-based outpatient programs comply with certain hospital
conditions of participation. In particular, provider-based outpatient
programs would have to comply with Medicare's patient anti-dumping
rules, ensure that physicians and staff comply with Medicare non-discrimination
provisions, and observe the three-day window rule.
Effective Date
The comment period for the proposed rules has been extended to
March 9, 1999. HCFA intends to make the proposed rules, as revised
based on public comment, effective on or after thirty days following
publication of the final rules.
Conclusion
If implemented, the proposed rules could have a widespread impact
on the outpatient programs run by hospitals, skilled nursing facilities
and other providers. Such programs no longer would be able to self-designate
their provider-based status, but instead would have to seek a prior
determination from HCFA. The proposed rules also could cause some
entities currently designated as provider-based to lose their provider-based
status. Finally, the proposed rules authorize the recovery of overpayments
for improper provider-based designation, and authorize a retroactive
application of the rules for programs that fail to contact HCFA
to obtain a determination of provider-based status. If you have
any questions about the application of these rules, or if you would
like to submit a comment on the rules to HCFA, call Cami Gearhart
(206) 628-7664 or your usual attorney at Davis Wright Tremaine.
return to Advisory Bulletins
main page
|
