• Illinois Rule Restricting Medicaid Reimbursement for Hospital Outpatient Services Preempted by Federal Law
  • July 1, 2009 | Author: Kurt L. Hudson
  • Law Firm: Hinshaw & Culbertson LLP - Chicago Office
  • In Illinois, a hospital outpatient department or clinic must be located adjacent to or on the premises of the hospital. This rule is often cited as the reason for denying Medicaid claims for hospital outpatient services provided at an off campus hospital-based facility. Recent federal legislative activity has caused this issue to resurface and may have significant reimbursement implications for Illinois health care providers.

    On November 7, 2008, the Centers for Medicare and Medicaid Services (CMS) published a final rule (Final Rule) that closely aligned the Medicare and Medicaid definitions of outpatient hospital services. The Final Rule clarified that Medicare outpatient departments also qualify as Medicaid outpatient departments that may render Medicaid hospital outpatient services. (See Hinshaw Health Law Alert dated December 5, 2008).

    Subsequently, the American Recovery and Reinvestment Act, enacted on February 17, 2009, placed a moratorium on the implementation of the Final Rule by the Secretary of Health and Human Services. The Congressional moratorium did not, however, impact the Medicare and Medicaid definitions of hospital outpatient services.

    Inpatient and outpatient hospital services are defined for Medicaid purposes, as services furnished in or by an institution that meets the Medicare conditions of participation as a hospital. (See 42 C.F.R. §440.10 and §440.20)  For services provided at an off campus location, the provider may also be required to meet the requirements listed in the provider-based regulations (See 42 C.F.R. §413.65).

    In promulgating the provider-based regulations in 2000, CMS stated that because hospitals are required to meet the same standards for Medicare and Medicaid, the provider-based regulations would apply to all Medicare and Medicaid hospital outpatient services.

    On May 6, 2009, CMS published a proposed rule to rescind the November 7, 2008, Final Rule clarifying the Medicaid definition of hospital outpatient services. CMS stated that the proposed rescission is due to the adverse impact the Final Rule may have on covered services available to beneficiaries. CMS proposes to reinstate the definition of outpatient hospital services that existed prior to the Final Rule.

    As discussed in the December 5, 2008, Hinshaw Health Law Alert, the previous regulation at 42 C.F.R. §440.20, defines Medicaid hospital outpatient services as dependent on the Medicare definition of hospital outpatient services. Consequently, an off campus hospital outpatient department must meet the requirements of the provider-based regulation for Medicare and Medicaid.

    Notwithstanding the outcome of the proposed recision of the Final Rule, the Illinois rule requiring a hospital outpatient department or clinic to be located adjacent to or on the premises of the hospital is preempted. An off campus hospital outpatient department must be reimbursed by both the Medicare and Medicaid programs for services provided at that off campus location.