Episode 5 - Provider-Based Requirements and Strategies

Please see below for a full transcript of this episode:

Health systems are consolidating and expanding their footprint at record speed. This two-part series first examines the provider-based status requirements and related hot topics, and the second episode in the series examines strategies for maximizing reimbursement efficiencies for provider-based health systems.

Welcome to Redefining Health Law, brought to you by the law firm of Parker Hudson, Rainer Dobbs, LLP. A boutique law firm with offices in Atlanta, Chicago, and Tallahassee. Your host for this podcast is Tara Ravi, a healthcare partner with prior work experience in both clinical research and patient care delivery.

She is an adjunct professor at the Emory School of Law, where she teaches corporate health law. Tara leverages her past work experience in the healthcare industry to advise healthcare organizations facing growth related challenges. Although Tara is a partner in the law firm of Parker Hudson, the views expressed in this podcast are Tara's personal views and not the views of the firm or any of the firm's clients, and are not intended to be legal advice.

We hope you enjoy this podcast.

Hi there, and welcome back to Redefining Health Law. Today we focus on the ever evolving and to some extent diminishing issue of hospital provider-based status. In an effort to keep these podcast episodes short and to the point, today's discussion addresses provider based hot topics at a very high level.

Always feel free to reach out to me directly at redefininghealthlaw@phrd.com if you have any specific questions you'd like to address. Okay, so let's get started. What is provider-based status? So, provider-based status generally refers to the relationship between a main provider and a sub provider. The sub provider can either be hospital outpatient departments, provider-based satellite facilities such as rural health clinics, skilled nursing facilities, and home health agencies, or a remote location of a hospital that furnishes inpatient services.

That's the technical definition, and today we're predominantly looking at outpatient locations. Why? Because that's what's expanding ever so quickly when we see hospital consolidations and expansion. We will briefly discuss remote locations as well, as that's a tool to be able to expand more outpatient locations.

So, why is provider-based status important? The short answer is reimbursement. Medicare generally pays a higher rate for services provided in a hospital outpatient department versus a freestanding setting. The idea is that a hospital outpatient department incurs significant overhead to run that area, that space, versus a freestanding center, regardless of whether that freestanding center is owned by a hospital or a private party.

Many third-party contracts will also provide a higher reimbursement rate for provider-based departments as well. And this means that following the Medicare requirements will generate higher fees across payers, Medicare, Medicaid, and private payers, so there's significant incentive to obtain provider-based status.

Finally, and this is a big one, hospitals may access discounted drug pricing through the 340B program. This here is a big incentive to enroll outpatient locations that provide very expensive drugs, for example, cancer outpatient locations. Okay, so what are the provider-based requirements? Provider-based status requirements are codified at 42 CFR section 413.65. Fortunately for you, I won't be reading all of those requirements. These requirements are further explained in the Program Memorandum, Transmittal A-03-030. This was issued April 18, 2003. For the most part, these requirements have stayed the same for over a decade. However, in light of rapid hospital consolidation and expansion, pockets of the regulation that remained muddy and were not heavily relied on are now critical to provider-based expansion and reimbursement for health systems that have consolidated.

The gist of the regulation is that the provider-based location should be fully integrated with the main hospital. This includes clinical services, financial integration, public awareness, supervision requirements, and location. In short, the hospital must be owning, controlling, directing, and all of these outpatient departments, no matter how far they are from the hospital, to acquire provider-based status, must look like they're part of the hospital and they're being operated by the hospital.

Let's talk about location. With regard to this regulation, there are three main locations that we're looking at. The first is the main hospital. The second is what's considered on campus, which is 250 yards from the main hospital. Now, of course, you want to get as many of those 250 yards as you can, so that can be measured from any exterior point of the hospital, it doesn't have to be measured from the heart of the hospital.

And finally, is the concept of off campus, and that's where we're seeing a lot of activity. Off campus is considered 35 miles away from the main hospital. Now I did mention remote locations. With a remote location, you can have on campus sites to that remote location, and then you can have additional off campus sites to that location.

So let me just give you a real-life example, because this makes this concept a little bit easier. Let's say I'm a hospital. I've now acquired a hospital in a different county. That hospital, the reason we acquired it is it wasn't doing so well. Maybe it was an empty hospital building, but I can acquire that empty hospital building and call it a remote location of my main hospital, even though we're not necessarily seeing a bunch of patients over there, as long as we're providing inpatient services. And I'll get to that definition. Then that hospital, which may be a hundred, 200 miles away can be my remote location, and I can get outpatient off campus sites to that remote location. And that is the benefit of having a remote location. I'm taking you down a little bit down of a rabbit hole over here, but remote locations still remain a little bit of not a mystery, but this concept of what is an inpatient services provided at a remote location.

Because in this example I just gave you, you can sometimes see buying an empty hospital building or a hospital building that just wasn't seeing that many patients because it couldn't afford to. And now I'm trying to capture the remote location status of that hospital. What is the definition of providing inpatient services there?

There's a phone call that happened. In 2017 between the Medicare Education Learning Center and the public and in that phone call, a provider asked that very same question. What does it mean to be providing inpatient services? Do we need to physically be seeing two patients in that hospital and also in our main hospital?

And the quick answer that was given was we just expect to see more than two beds. And so if you have it in the main provider, then it seems like you're okay for survey from the remote location. And that's about all the insight we have into what is providing inpatient services as a remote location.

And that was in 2017. But that wasn't really common, this example that I gave you back then. Now it's much more common because, like I said, we have hospital consolidation. So, you're picking up main hospital buildings one by one in maybe rural or non-suburban areas, and you are in a suburban area or urban hospital.

That same question has come up in the state multiple times, there are state laws that are just as murky and we have a CON set of laws that are just as murky as to what does it mean to provide inpatient services, when really you have an empty hospital building and you're just not sure what to do with it or you're trying to ramp up services but at any given time you've got outpatient centers located near that remote location that you want to be able to get the reimbursement incentive for.

Okay, backtrack down that rabbit hole. So, one of the main areas in the provider-based regulations that comes right at the end is this concept of management agreements under arrangements and joint ventures. And I did just fly right across public awareness, which I'll also get back to, but let's focus now on management arrangements under arrangement and joint ventures.

And this is the concept of a hospital is working with another provider unrelated to the hospital to get out a particular service or to offer a particular service, because like I said, it's all about healthcare systems ability to expand and maybe they want to expand into an area that they're not fully aware of, like we discussed in the first episode, post-acute care, maybe they want to expand into the area post-acute care, but they don't know how to provide home health services or they don't really know how to provide therapy services.

So, they want to work with a company that has dedicated expertise in providing said service and in doing so you need to enter into kind of a joint arrangement and that might be a management arrangement it might be what we call under arrangements, it might be a joint venture and their provider-based rules that address what those arrangements can look like, where those particular arrangements can occur, and what providers can provide, meaning what people, specifically professionals, doctors, CRNAs, professional staff, can provide those services under arrangements in order for the health system overall to maintain its reimbursement incentives it gets, both under the provider based rules, and like I said, that flows into the 340B reimbursement incentives.

This podcast episode was mostly focusing on the idea that in order to effectuate what we discussed in those first three episodes, getting chronic care management out, hospital overcrowding, be able to address healthcare issues out where people are, retail healthcare, the health system can't do it all by themselves, they want to be able to do it with a provider that knows how to do those specialized services, but at the same time, they want to be able to capture these provider based incentives, so it all just ties in.

Okay, let's get back to public awareness. Public awareness is like marketing and advertising, right? Public awareness is this concept that if you're going to provide a hospital service, it needs to look like it's being provided by the hospital. And it's very basic requirements, or you would think, what does the signage look like? What does the website look like? Does it say Dr. Joe's office, but really this is a service of a hospital. The concept is you should know you're walking into a hospital space and that you will be getting a hospital bill when you go receive this outpatient service, which might be located under my remote hospital example, like 200 miles away from the main hospital that you think is in Atlanta, but really, you're out like up in the mountains.

The concept of public awareness has been flushed out a fair amount because we did have so many arrangements with physician groups and other types of providers, but I think it's happening a little bit more as we expand into these nontraditional areas that hospitals typically did not expand into. There was one notice, and I'm just doing a quick summary, but we've had a recent notice over this concept of co-location or physician groups sharing space with hospitals and what that must look like, and it was pretty specific in that, let's say you've got one building and you've got a physician space next door and a hospital space next door and you have two separate doors and I need to have like really beautiful hospital signage on one side and then the physician signage of the other.

And I don't think those requirements were too confusing although the way it was pushed out and explained to providers was a little confusing, but I think we're more back into a space where you've got health systems that have spent a lot of money on their branding and their logos, and they want to be able to expand across a region and it might be expanding across the nation itself. So, then you've got that marketing team that that's what they're focused on. Then you also have the compliance team that wants to maintain compliance with these provider-based requirements, especially the public awareness requirement. Buried in a manual provision from many, many years ago from CMS is this concept that you can't just use the health system's name. You have to use the specific hospital. So, if I'm health system, like my name is Great Health System and I've got Hospital A, Hospital B and Hospital C, I can't just market every single outpatient location site as Great Health System. It has to be Great Health System, Hospital A outpatient site. Now, if I tell that to my marketing team, they're going to roll their eyes because I can't market every website and door signage and little flyer saying all of that.

So, I think as we expand across the country, regions, there needs to be some kind of alignment there. The good thing is CMS doesn't seem to have been, while that was out in writing many years ago, they don't seem to be enforcing specifically that concept of a policy. There is now this concept of, well, you can put at least some place, whether it's the bill or the door, say a service of this specific hospital, but overall you can be branding the system itself.

So, I think those are little nits that we're hitting with this provider base at the end of the day, let's get real, CMS wants to get rid of provider base because they don't want to have the reimbursement incentives. It's getting very expensive and the consolidation doesn't make it any better. So, that brings me to the final topic of today's episode, which is actions taken by CMS to curb reimbursement incentives of provider base status.

So, the big one, the biggie, biggie, was on November 2nd, 2015, the Bipartisan Budget Act of 2015 was passed, under which off campus hospital clinic locations would no longer receive a reimbursement incentive. Now what we call this date, November 2nd, 2015, any time before that we called grandfathered, and any time after that we call not grandfathered.

So, if you had an outpatient location that was in existence and providing services before November 2nd, 2015, you get grandfathered status, which is that reimbursement incentive. And if you opened a location after that, it no longer got that added benefit. There was a fair amount of litigation back and forth over outpatient locations that were mid build that were getting ready to open. But, all of those carve outs are kind of moot at this point, since it's been almost a decade. Overall, providers are seeing increased regulatory scrutiny, interest, and potential compliance concerns arising from certain failures to achieve or maintain provider-based compliance, which was difficult in and of itself, but now it's exceedingly more difficult as hospitals continue to expand, continue to race to get certain geographies, and consolidate.

Our next episode addresses Medicare enrollment challenges for provider-based sites and strategies for managing compliance and creating reimbursement efficiencies. We hope to see you next time, and thanks again for listening to Redefining Health Law. If you haven't already, I invite you to subscribe on your favorite podcast player, so you won't miss an episode. And of course, if you have any topics you'd like to hear discussed, please don't hesitate to email us at redefininghealthlaw@phrd.com.

P like Parker, H like Hudson, R like Ravi, and D like doctor. Again, that's redefininghealthlaw@phrd.com. We'd love to hear from you, seriously guys, I'd love to see some emails in that email box. Thanks for listening, until next time, I'm Tara Ravi.