• CMS Proposal Would Relieve Hospitals of Many of the Requirements of the Provider-based Rules
  • September 19, 2004
  • Law Firm: Baker, Donelson, Bearman, Caldwell & Berkowitz, PC - Memphis Office
  • On May 9, 2002, the Centers for Medicare and Medicaid Services ("CMS") published a proposed rule setting forth its proposed changes to the hospital inpatient prospective payment systems and payment update for fiscal year 2003.1 In addition to setting forth proposed changes to the hospital payment rate for inpatient services and the capital standard federal payment rate, CMS proposes a number of significant changes to other federal regulations affecting hospitals, including the regulations interpreting the Emergency Medical Treatment and Active Labor Act ("EMTALA") and the recently implemented provider-based regulations. If implemented as proposed, these changes would generally become effective on October 1, 2002.


    Since the mid-1990s, CMS has developed a rather hard line position with respect to entities designated as provider-based. Most significantly, in April 2000, CMS published final regulations establishing a number of very specific requirements that entities had to satisfy before the entity could be reimbursed as a provider-based.2 In addition, the final regulations covered not only traditional provider-based entities but also "departments of hospitals" and "remote location hospitals." Finally, all such entities were required to obtain a provider-based determination from their Regional Office prior to the main provider either billing for the entity's services or including the entity's costs on its cost reports.

    In response to the public outcry with respect to these requirements, Congress provided some relief as part of the Medicare, Medicaid and SCHIP Benefits Improvement and Protection Act of 2000 ("BIPA"). Most significantly, BIPA included a two-year grandfathering provision applicable to facilities or organizations that were "treated as provider based" in relation to a hospital or critical access hospital as of October 1, 2000. For the two-year grandfathering period, such organizations are exempt from most of the provider-based regulations until October 1, 2002.3 In addition, BIPA significantly changed the geographic location criteria set forth by CMS in the final provider-based regulations. Finally, BIPA suspended the prior determination requirement for facilities or organizations that seek a determination between October 1, 2000 and before October 1, 2002.


    Provision Extended to First Cost Reporting Period On or After July 1, 2003

    The proposed changes to the provider-based regulations further BIPA's softening of CMS' hardline approach to entities seeking provider-based status. Most significantly, the proposed changes to the provider-based regulations would extend the grandfathering provision of BIPA until the start of the hospital's first cost reporting period beginning on or after July 1, 2003.

    No Prior Determination Required

    In a significant reversal of its prior position, CMS has proposed removing the requirement that a prior determination of provider-based status be obtained from the Regional Office before a facility can be treated as provider-based for billing or cost reporting purposes. Such determination can currently be obtained by completion of a provider-based application, which most Regional Offices have developed. However, CMS specifically requests comments on whether it should retain the application process.

    Instead of the application process, CMS attempts to create an incentive for providers to voluntarily obtain prior approval of their provider-based status. Specifically, prior approval, which can be received through an attestation process, would result in a delay in the effective date of any loss of provider-based status in the event that the facility is later found not to meet the provider-based criteria.4 For example, if a hospital received prior approval with respect to a provider-based entity and it was later determined that such entity no longer qualifies as a provider-based because of material changes that were reported to the Regional Office, the entity would not lose its provider-based status until the first cost reporting period following the date of notification that it no longer qualifies as provider-based and, in no event, would such period be less than six (6) months after the date of notification.5 However, if prior approval was not obtained or if the provider failed to notify the Regional Office of material changes, provider-based status would be immediately revoked and CMS would recoup any prior overpayments it made to the main provider.

    Loosening of On-Campus Requirements

    In the proposed regulations, CMS proposes removing many of the most difficult provider-based requirements with respect to facilities located on the hospital's main campus. For example, the proposed regulations would no longer require that entities located on the provider's main campus be wholly-owned and operated by the main provider. Further, the administration and direct supervision requirements, which, among other things, require the entity to be subject to the same reporting requirements and accountability as any other department of the hospital, would be removed for on-campus entities seeking provider-based status. Furthermore, the proposed changes would remove the restrictions with respect to operating on-campus entities under management agreements. All such requirements would be retained for off-campus entities seeking provider-based status.

    Removal of Prohibition on Separate Licensure

    In recognition that many states require separate licensure of health care facilities even though they may be wholly-owned and operated under a main provider, CMS proposes removing the requirement that "departments of a provider" and "remote locations of hospitals" be prohibited from obtaining a separate license to provide health care services in their own right. If enacted, this proposed change would significantly ease the ability of separate hospitals to merge provider agreements so that separately licensed hospitals can be operated under a single Medicare provider number.

    Joint Ventures and Management Contracts Allowed On Campus

    By proposing the removal of many of the existing requirements with respect to on-campus, provider-based entities, such entities would be allowed to be joint-ventured and/or operated pursuant to management contracts. The original prohibition on joint venturing would continue to apply to off-campus, provider-based entities. Likewise, the restrictions on management agreements would continue with respect to off-campus entities seeking provider-based status. Accordingly, if implemented as proposed, the regulations would allow an entity other than the main provider to employ the staff for an on-campus, provider-based entity but for off-campus, provider-based entities, the main provider would have to employ the staff.

    Limiting the Scope of the Provider-Based Regulations

    The proposed changes to the regulations would provide much needed guidance on what types of entities are exempt from the provider-based regulations. Specifically, the proposed changes would clarify that certain entities, such as departments that do not furnish health care services for which separate payment can be claimed (e.g., medical records departments, laundry, housekeeping, security, etc.), are not required to obtain provider-based status. Furthermore, entities whose Medicare payment is not affected by its provider-based status would be specifically exempted from the provider-based regulations, such as an IDTF, that only furnishes screening mammography services.


    Although the EMTALA changes proposed by CMS are the subject of a separate Health STAT, you should be aware that CMS proposes removing from the scope of EMTALA both on- and off-campus, provider-based entities except: (1) departments on the hospital's main campus, and (2) off-campus departments that are classified as "dedicated emergency departments." Accordingly, "EMTALA does not apply to provider-based entities, whether or not they are located on hospital campus."6 At first blush, this might appear confusing; however, it must be kept in mind that "department of a hospital" and "provider-based entity," both of which are subject to the provider-based rules, are separately defined under the provider-based regulations.

    1 67 Fed. Reg. 31404 (May 9, 2002).

    2 65 Fed. Reg. 18434 (Apr. 7, 2000).

    3 Specifically, such grandfathered organizations are exempt from the following provisions of the regulation: 42 C.F.R. §413.65(d), (e), (f) and (h).

    4 It should be noted that the attestation process will differ slightly for on-campus and off-campus provider-based entities in that off-campus entities seeking provider based status will be required to submit underlying documentation supporting its claim of provider-based status to CMS. On-campus provider-based entities, however, will only be required to maintain such documentation.

    5 The commentary to the provider-based rules clearly provides for such result. However, the proposed modifications to the regulations (42 C.F.R. §413.65(k)(2)) do not appear to fully incorporate these changes.

    6 67 Fed. Reg. at 31478.