Corporate Compliance

Note from the Instructor: Provider-Based vs. Freestanding Locations: Financials Flip-flop with New Packaging

Medicare Insider, May 12, 2015

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This week’s note from the instructor is written by Kimberly Anderwood Hoy Baker, JD, regulatory specialist for HCPro.  
 
Last week, the OIG released the results of an audit of place-of-service (POS) coding on physician professional claims between January 2010 and September 2012. The audit found $33.4 million in overpayments as a result of non-facility POS codes when services were actually rendered at ASCs or hospital outpatient (provider-based) locations. This highlights the continuing pressure the OIG has placed on hospital provider-based locations. But with recent changes in payments under the OPPS, the OIG may not need to worry about provider-based departments much longer.
 
The audit looked at non-facility POS codes used in billing for physician professional services. The non-facility POS codes cause payment at a higher “office” rate that includes an overhead amount. This overhead amount is not included when the same services are billed with facility POS codes, such as those for ASCs and hospital outpatient departments. This audit is directed at those settings. The audit sample was determined by comparing physician professional claims to claims for similar types of services at ASC and hospital outpatient (provider-based) departments for the same beneficiary on the same date of service. The report also specifically defines the term physician to include hospitals and other facilities that receive payment on behalf of physicians for their professional services, which commonly occurs in provider-based departments. 
 
The OIG has been expressing discontent with provider-based departments and the difference in payment between provider-based locations and freestanding locations since at least the beginning of the OPPS. At that time, due to the publishing of national rates, it became easier to see the differential in payment. The following simple example shows the difference in payment for the same visit service billed as either freestanding or provider based[1].
 
Example: A patient saw a physician who provided evaluation and management services in a clinic owned by a hospital that meets provider-based department requirements. The physician correctly coded their service as a 99214 and the facility services qualified to be billed as a hospital outpatient clinic visit (G0463). Assume all conditions of coverage are met, the hospital has a wage index of 1, and is using the national payment amount for physician service.
                        Service
Freestanding
(POS 11)
 
 
Provider-Based
(POS 22)
Difference
Allowable for Professional Services (99214)
$108.34
$79.02[2]
-$29.32
Allowable for Facility Services (G0463)
None
$96.252
$96.25
Total Allowable
$108.34
$175.27
$66.93
 
In this example, the hospital collects about $67 in additional reimbursement for the visit when the location is treated as provider-based rather than freestanding. This seems like a good deal for the hospital, but this simple example doesn’t tell the whole story. There are two things not reflected in these numbers. 
 
First, there are substantial additional costs of operating a location as provider-based, from the lower productivity of physicians to the higher costs of labor at hospital salary rates, regulatory compliance with hospital Conditions of Participation (CoPs), and even physical structure requirements to come in line with state licensure requirements for hospital departments. The additional $67 is not realized as profit, but rather redirected into these other costs and often these departments operate at a loss.
 
The second thing missing from the simple example are the ancillary services often ordered by the physician during these visits, especially for Medicare patients who tend to require more complex care. This year, many of these ancillary services became packaged under the OPPS and this changed the dynamic of provider-based payment substantially. Let’s expand our example.
 
Expanded example: During the visit, the physician orders a chest x-ray (71010), CBC (85025), and spirometry (94010) for suspected pneumonia. That afternoon, the patient goes to the hospital radiology department for the chest x-ray, the laboratory for the CBC, and the pulmonology department for the spirometry.
 
                        Service
Freestanding
(POS 11)
 
 
Provider-Based
(POS 22)
Difference as PBD
Allowable for professional services (99214)
$108.34
$79.02
-$29.32
Allowable for facility services (G0463)
None
$96.25
$96.25
Allowable for the spirometry
$161.22
$0
-$161.22
Allowable for the chest x-ray
$0
$0
$0
Allowable for CBC
$0
$0
$0
Total Allowable
$269.56
$175.27
-$94.29
Note: The chest x-ray and CBC do not change the payment in the example, but are added to highlight the additional costs that may need to be borne by the hospital as additional testing is ordered.
The expanded example now shows a loss of $94 for the provider-based location, assuming the same services are provided in the same way and the only difference is the manner in which the clinic location is treated for billing purposes: provider-based or freestanding. The reason for this difference is the increased packaging of ancillary services implemented in the OPPS for CY 2015. With these new rules, the finances of provider-based locations flip-flopped from an apparent profit to a loss, not even including the increased costs of operating as provider-based, discussed above.
 
For reference, the table below shows the trend from 2013–2015: 2013 when neither laboratory nor ancillary services were packaged, 2014 when laboratory services were packaged but ancillary services were paid separately, and 2015 when both laboratory and ancillary services were packaged. Prior to this year, when a clinic department was treated as provider based, reimbursement was higher than for the same services if the department was treated as freestanding. Again, the increased packaging of ancillary services under OPPS flip-flopped that dynamic in 2015.
 
Service
Freestanding
2013
PBD 2013
Freestanding
2014
PBD 2014
Freestanding 2015
PBD 2015
Clinic: Prof
$106.83
$76.55
$107.83
$79.17
$108.34
$79.02
Clinic: Fac
None
$73.68
none
$92.53
none
$96.25
Spirometry
$62.87
$62.87
$88.74
$88.74
$161.22
$0
Chest X-ray
$45.95
$45.95
$57.35
$57.35
$0
$0
CBC
$10.69
$10.69
$0
$0
$0
$0
Total
$226.34
$269.74
$253.92
$317.79
$269.56
$175.27
 
This expanded example assumes the ordering of ancillary services provided on the same day as the clinic visit and not all visits will fit this model. This example tends to more closely match the trend for specialty clinics, where there may be more testing ordered. The example represents a single visit. The types of clinics, practice patterns of physicians at the clinics, and the services offered by the hospital will all affect how this example extrapolates across a population of clinic visits. Nevertheless, it should give hospitals pause to think and reassess their decision to treat locations as either provider-based or freestanding.
 
These examples bring to mind a saying:  there is more than one way to skin a cat. The OIG has never liked provider-based billing and has wanted the payment differential between provider-based departments and freestanding entities to be equalized. The new packaging implemented by CMS in 2015 not only equalizes it, but now tips it in the direction of freestanding. Provider-based locations have long been a source of dissatisfaction for patients because of higher co-insurance obligations, and for physicians, who grouse at the additional regulatory burdens of the hospital CoPs. Now with no financial incentive to maintain the locations as provider-based, we may see hospitals moving to treat more of their physician clinics as freestanding. These new payment provisions may have gotten the OIG just what it wanted, the elimination of provider-based departments, without a single change to the provider-based rules or regulations.


[1] Hospitals can treat departments meeting the provider-based regulations located at 42 CFR 413.65 as either a hospital provider-based department or as a freestanding entity, assuming the services are eligible to be provided by a freestanding entity (e.g., physician professional services, diagnostic testing, ASC procedures).
[2] The patient pays a co-insurance of approximately 20% on both the payments for the physician and facility services, resulting in a higher total co-insurance for provider-based departments

 



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