On April 7, 2000, the Health Care Financing Administration (HCFA) issued final regulations regarding the Prospective Payment System for Hospital Outpatient Services. The final rule becomes effective July 1, 2000, except in few instances including changes related to provider-based status which are effective 6 months after publication. Section413.65 of the new regulations contains requirements for a determination that a facility or an organization has provider-based status. As you are probably aware, being deemed a facility or organization with provider-based status can have certain cost reimbursement advantages. This memorandum provides a brief summary of the essential requirements for obtaining provider-based status.

"A main provider or a facility or organization must contact HCFA and the facility or organization must be determined by HCFA to be provider-based before the main provider bills for services of the facility or organization as if the facility or organization were provider-based, or before it includes costs of those services on its cost report." §413.65(b)(2) (emphasis added). A facility not located on a hospital campus and used as a site of physician services of the kind ordinarily furnished in physician offices will be presumed to be a free-standing facility, unless it is determined by HCFA to have provider-based status. See §413.65(b)(3).

An entity must meet all of the following requirements to be determined by HCFA to have provider-based status:

1. Licensure. The department of the provider, remote location of a hospital, or satellite facility and the main provider must be operated under the same license, except where the State requires a separate license.
2. Operation under the ownership and control of the main provider. The facility or organization seeking provider-based status must be operated under the ownership and control of the main provider, as evidenced by factors such as ownership, governance, operating documents, and final responsibility for various administrative decisions including final approval for medical staff appointments in the facility or organization.
3. Administration and supervision. The reporting relationship between the facility or organization seeking provider-based status and the main provider must have the same frequency, intensity, and level of accountability that exists in the relationship between the main provider and one of its departments. This is evidenced by the level of supervision by the main provider, the degree of supervision, monitoring and accountability by the main provider compared to its other departments, the reporting relationship between the entities, and the integration of the administrative functions of the facility or organization with those of the main provider.
4. Clinical services. The clinical services of the facility or organization seeking provider-based status and the main provider must be integrated as evidenced by medical staff overlap, monitoring and oversight functions, medical director appointments, medical staff committee responsibility, medical record integration, and inpatient and outpatient services of the facility or organization and the main provider being integrated, with patients having full access to all services of the main provider.
5. Financial integration. Financial operations of the facility or organization must be fully integrated within the financial system of the provider, as evidenced by shared income and expenses. Costs of the facility or organization are to be reported in a cost center of the provider, and the financial status of the facility or organization is to be incorporated and readily identified in the main provider's trial balance.
6. Public awareness. The facility or organization must be held out to the public and third party payers as part of the main provider. Patients entering the facility or organization must be aware they are entering the main provider, and shall be billed accordingly.
7. Location in immediate vicinity. The facility or organization and the main provider must be located on the same campus, unless the facility or organization demonstrates a high level of integration by compliance with all other criteria and serves the same patient population as the main provider (at least 75 percent of patients must reside in the same zip code areas or have received required care from the main provider if of the type furnished by the main provider). The facility or organization and the main provider must be located in the same State or adjacent States. Rural health clinics with fewer than 50 beds otherwise qualified as provider-based entities are not subject to this section.

In addition to the above criteria, facilities and organizations operated under management contracts must also comply with the following provisions: (1) the staff of the facility or organization must be employed by an entity which also employs the staff of the main provider, (2) the administrative functions of the facility or organization must be integrated with those of the main provider, (3) the main provider must have significant control over the operations of the facility or organization, and (4) the management contract must be held by the main provider itself.

If HCFA finds that a facility or organization is being treated as provider-based without having obtained a determination of provider-based status under section 413.65, HCFA will notify the provider, adjust future payments, review previous payments, determine whether the facility or organization qualifies for provider-based status, and continue payments where warranted. HCFA may recover the difference between actual payments made and the amount of payments HCFA estimates should have been made in the absence of a determination of provider-based status. However, there will be no recovery for periods prior to 6 months after publication of these final regulations if the provider made a good faith effort to operate the facility as a provider-based facility or organization. HCFA may review a past determination of provider-based status. Thus, an application to HCFA for a determination of provider-based status is recommended prior to treating any facility or organization as provider-based.

In addition, providers should be aware that hospital outpatient departments located either on or off the campus of the hospital which is the main provider must still comply with the anti-dumping rules.

As mentioned above, this memorandum provides only a short overview of the final regulations. The attorneys of Buchanan Ingersoll's Healthcare Group are ready to assist in dealing with these complex issues.

Mr. Ramsey co-chairs Buchanan Ingersoll's Healthcare Litigation Group, and Mr. Wenzel is an associate with the firm's Healthcare Group.