Here's the predicament: Your hospital operates a diagnostic service center in a medical office building down the street. You've been running those expenses through your annual cost report to Medicare. But you never obtained a formal opinion from HCFA designating the site as "provider-based"-in other words, part of your core operation.
In HCFA's view, you might be out of compliance and headed for an audit. The agency is cracking down on hospitals and health systems that try to pass such costs along to Medicare without first meeting specific criteria.
Provider-based status allows hospitals to be reimbursed on a cost basis for services provided outside hospital walls. It also enables a hospital to pump up Medicare revenues by offloading some overhead to those cost-reimbursed sites.
New rules for securing provider-based status are spelled out in a little-noted section of HCFA's Sept. 8 proposal creating a prospective payment system for hospital outpatient services. Outpatient PPS doesn't take effect until 2000, but the section on provider-based designations becomes effective 30 days after a final notice is published.
The comment period was set to close Nov. 9. But last week a HCFA spokesman said it would be extended. Providers will have an additional 60 days.
What HCFA has done is "really tighten up on its provider-based requirements," says Rick Gundling, technical director with the Healthcare Financial Management Association in Washington.
Any facility or agency that is off-campus-whether it provides diagnostic services, skilled nursing or home health-will be presumed to be freestanding, not part of hospital operations, he notes. If a facility is off-site or if outpatient expenses raise a provider's total costs on its Medicare cost report by 5% or more, the hospital will need to get HCFA's determination of provider-based status for reimbursement. "It's pretty significant," Gundling observes.
Industry advisers aren't taking the issue lightly. "Integrated delivery systems that treated their ancillary facilities as provider-based in the past need to look at this issue very closely," advises Stephen Bernstein, a partner in the Boston office of McDermott, Will & Emery.
"It's going to cause some people to rethink whether they still qualify," observes John Bigalke, national partner in charge of assurance and advisory services for healthcare at Deloitte & Touche in Orlando, Fla.
Some hospital representatives are still trying to make heads or tails of the rules.
"I think it's too soon to tell how significant this is going to be," says Charles Cataline, director of health policy at the Ohio Hospital Association. "It's probably going to be as much a problem for us as for anybody."
Nevertheless, it's clear the provider-based issue could become another focal point for the federal government's assault on provider cost reports.
"I have no doubt there's going to be somebody (at the fiscal intermediary level) poring over the Medicare cost reports with a fine-toothed comb," Cataline says.
The widespread effect of the proposed rules is just beginning to dawn on providers, says James Gaynor Jr., a partner in McDermott, Will & Emery's Chicago office. The law firm is assessing concerned clients' interest in forming a coalition to prepare comments and jointly lobby HCFA.
"Because so many hospitals just never bothered to get formal determinations of hospital-based status, I don't think there's any reliable inventory of the number of these (outpatient) facilities (being treated as provider-based)," Gaynor says. Nationally, millions of dollars could be at stake, he says.
Under the proposal, any hospital that has been treating a facility or department as provider-based but failed to obtain HCFA's determination may be reaudited. "If we find it was not provider-based, we will recover all payments in excess of those payments that should have been made . . . ," according to the proposed rule.
Generally, HCFA may reopen and reaudit cost reports closed in the past three years. "The fact that an intermediary settled the cost reports . . . wouldn't preclude HCFA from saying to the intermediary, `That was a mistake. You shouldn't have done that,' " Gaynor says.
HCFA defines provider-based facilities in an August 1996 program memorandum (See box), but the latest pronouncement is far more detailed.
More-restrictive treatments of provider-based designations appear to be HCFA's antidote to the explosive growth of outpatient sites. In the 13 years since Medicare implemented an inpatient PPS, for example, the number of provider-based home health agencies has increased 436%, the agency says.
"My sense is that HCFA felt that providers have perhaps been pushing the limit on provider-based status," says Carel Hedlund, a partner with Ober, Kaler, Grimes & Shriver in Baltimore.
In part, HCFA is attempting to prevent physicians' private offices from being passed off as part of a hospital's outpatient department. The agency does that by establishing nine "obligations" of outpatient departments, such as complying with anti-dumping rules and billing patients as hospital outpatients.
To qualify as provider-based, an outpatient facility must be controlled by the main provider. The proposed rules clarify that the facility must be 100% owned by the hospital, have the same governing body and operate under the same bylaws and operating decisions.
The proposed rule explicitly prohibits provider-based status for a facility that is owned in a joint venture with another provider.
It is unclear exactly what evidence HCFA might demand to satisfy the criteria for provider-based status. For example, the rules require outpatient facilities to be operated under the same license as the main provider is, unless the facilities are licensed separately. States like Illinois, which doesn't license satellite facilities, could be vulnerable, Gaynor says. The presence or absence of a license, he adds, doesn't say anything about a hospital's compliance with Medicare regulations.
Furthermore, the proposal fails to mention accreditation by the Joint Commission on Accreditation of Healthcare Organizations. JCAHO status "is one indicia of hospital-based status" under HCFA's 1996 program memorandum, Gaynor says.
Such matters may be cleared up in the final rule. Until then, though, providers are advised to review existing outpatient sites for compliance with proposed requirements.