Contributors: Lisa W. Clark, JD’89
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You drive by your local shopping mall and you spot an urgent care clinic with the name of your hospital, the fictitious GoodHealth Hospital, on its sign. Or, you get a letter from your physician stating that she is now affiliated with GoodHealth, on GoodHealth stationery. A hospital is no longer a single campus designed around the delivery of inpatient services. GoodHealth Hospital may have expanded beyond its original campus to include a second campus offering inpatient services, or an off-site outpatient clinic providing professional services.
The expansion of a hospital, whether through the purchase of an existing facility or a physician practice or the creation of a new site, generates new branding and revenue opportunities for a hospital like GoodHealth. Expansion projects raise unique legal issues as well, especially for those that are “provider-based.”
In building or purchasing another facility, a principal consideration is whether the hospital wants or can bill for the services at the site as a unit or a department of the hospital, known as provider-based billing. Most hospitals will choose the provider-based arrangement if it is feasible because reimbursement is higher. The thinking is that the hospital offers greater access to better clinical care and supervision of the care through its medical staff; better administrative services like integrated medical records; and safer facilities. The higher level of care rendered in the hospital justifies the higher costs. But the co-pays may be higher for the patient, and the higher quality of care is not always evident. The private physician’s office that shuts its doors on Friday and opens again on Monday as a hospital-based clinic does not necessarily offer better services. This is why provider-based facilities are under increased scrutiny.
Although the Medicare program established the provider-based model through regulations some time ago, the program no longer favors it. Medicare’s position is that most sites are simply add-ons to the hospital and not truly integrated with it. Every year, the Department of Health and Human Services, Office of the Inspector General publishes its Work Plan where it lists it priority enforcement areas for the coming fiscal year. The OIG’s FY 2015 Work Plan lists compliance with the provider-based rules as one of the priority areas. In the last year, two hospitals, W.A. Foote Memorial Hospital in Jackson, Michigan and Our Lady of Lourdes Hospital in Binghamton, New York, paid $2.6 million and $3.3 million, respectively, for violating the provider-based rules.
So given this changing landscape, how should a hospital evaluate a potential provider-based expansion project? Here are some questions to ask:
- Are increased fees available for the site under the Medicare provider-based rules? The rules don’t allow provider-based designation for certain kinds of facilities and sites, such as ambulatory surgical centers and PT clinics, where there is no difference in fees. The hospital could still own and operate the facility and bill Medicare for services rendered there, but it would not be a provider-based site.
- Can the hospital satisfy the multiple Medicare provider-based requirements in order to demonstrate the hospital and the site are integrated? The site must be included on the hospital’s license. Processing licensure issues can be expensive and time-consuming, sometimes even requiring building renovations to make sure the site meets hospital-level codes. Other requirements include that the site must be no more than 35 miles from the main hospital; the site must be a cost center for the hospital and included on the cost report; and the site must be administratively and clinically integrated with and supervised by the hospital. An off-campus site may not be a joint venture with another organization, and the non-professional staff must be employed by the hospital. And, patients must be able to clearly identify that the site is part of the hospital.
- If the hospital is co-located in a building with another healthcare entity, do the entities intend to share staff and services? For instance, a hospital may lease space in an unrelated hospital in order to provide specialized services, such as orthopaedic services. Can the provider-based site use the laboratory services of the co-located entity, as well as the non-clinical services such as laundry? The provider-based rules may prevent the sharing of certain clinical services.
- Will Medicaid and private payors permit the hospital to bill for services at the site as provider-based? State law usually governs whether Medicaid will pay for services at a provider-based site. With respect to private payors, the contract between the payor and the hospital governs provider-based reimbursement. It is increasingly common for private payors to prohibit or challenge the inclusion of a provider-based site under a contract unless the contractual language is clear. In one instance, a hospital and a national private payor are engaged in a $5 million dispute over whether the payor will reimburse the hospital including the technical component services provided at a provider-based site.
- Are there any healthcare fraud and abuse issues to consider? Under the Stark rules, a physician-owned hospital is prohibited from expanding the facility, including establishing a provider-based site, unless certain criteria apply.
- Are there antitrust issues? A merger between two hospitals in which one hospital emerges as the main provider and the other as a satellite could raise monopoly concerns.
- How will the addition of the site impact any accountable care organization (ACO) or value-based contracting projects? ACOs are integrated healthcare organizations (typically hospitals and physicians, and sometimes payors or third-party brokers) that manage upside and sometimes downside risk based on whether certain performance and cost-sharing criteria are satisfied. The addition of a provider-based site may help reinforce the integration of the hospital and the physicians around shared goals.
Adding a provider-based site to GoodHealth Hospital enhances the hospital’s reputation and presence in the community and provides it with additional revenue. But with provider-based entities in Medicare’s crosshairs, and patients complaining about higher co-pays, a hospital should carefully evaluate any provider-based project.
Contact Lisa at: [email protected]
Disclaimer: This article is prepared and published for informational purposes only and should not be construed as legal advice. The views expressed in this article are those of the author and do not necessarily reflect the views of the author’s law firm or its individual partners.