On June 16, 2016, the Office of Inspector General (OIG), Department of Health and Human Services, issued a report on the Centers for Medicare & Medicaid Services’ (CMS) oversight of provider-based facilities.  In the report, the OIG concluded that although CMS is taking steps to improve its oversight, vulnerabilities nevertheless remain.

As part of its Bipartisan Budget Act of 2015, Congress had eliminated provider-based status for new off-campus outpatient departments of a provider. The Centers for Medicare & Medicaid Services’ (CMS) provider-based rules currently allow a hospital or health system to treat certain off-campus facilities as part of the hospital or health system for purposes of reimbursement. In general, CMS reimburses provider-based facilities at a higher rate than freestanding facilities. Under the Bipartisan Budget Act of 2015, provider-based status will no longer be available for items and services provided in an off-campus outpatient department of a hospital on or after January 1, 2017; with one important caveat — off-campus outpatient departments that were billing as provider based prior to November 2, 2015, as well as services provided in a dedicated emergency department, are excluded from this new limitation.

The OIG Report noted that CMS will be able to more easily track the frequency, type, and cost of provider-based services using the new place-of-service code (code 19) in physician billing and a two-digit modifier in hospital billing to signify off-campus provider based facilities. However, the OIG identified vulnerabilities, including:

  • CMS will not be able to use the place-of-service codes and modifiers to distinguish on-campus provider-based facilities from outpatient hospital departments;
  • Medicare has a voluntary process for hospitals to attest to whether they meet provider-based status, but nearly three quarters of all hospitals reviewed had not voluntarily attested for all of their provider-based off-campus facilities that did not meet at least one requirement;
  • CMS reported challenges in obtaining documentation from hospitals and CMS regional offices and MACs reported unclear guidance from CMS regarding the necessary documentation.
  • CMS did not provide OIG with evidence to support the contention that provider-based billing delivers benefits that justify the additional costs.

The OIG concluded that it would continue to recommend (as it has since 1999) that CMS either eliminate the provider-based designation or equalize payments for physician services provided in different setting.  Short of that, the OIG recommended that CMS:

  • Implement systems and methods to monitor billing by all provider-based facilities;
  • Require hospitals to submit attestations for all their provider-based facilities;
  • Ensure that regional offices and MACs apply provider-based requirements appropriately when conducting attestation reviews; and
  • Take appropriate action against hospitals and their off-campus provider-based facilities, including the recovery of overpayments and ensuring that they do not receive higher payment until non-compliance is corrected.