Corporate Compliance

Reimbursement for Facility and Professional Services in a Provider-Based Department by Gina M. Reese, Esq., RN

Medicare Insider, September 8, 2015

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Services furnished in a provider-based department are generally billed in two or more claims—so-called split billing. A portion of the payment is made for the claim submitted by the hospital for its facility services, and the remainder is made for the claim for professional services provided by the physician or NPP. Of course, as noted above, there are certain services for which there is no professional component. In those cases, the hospital receives all of the reimbursement for these facility services.

There has historically been a fundamental difference between the amount of reimbursement paid by Medicare for services furnished in a freestanding physician office and the same services furnished in a provider-based department. CMS explained this in the recent regulation requiring the use of the new -PO modifier and POS codes:

“When a Medicare beneficiary receives outpatient services in a hospital, the total payment amount for outpatient services made by Medicare is generally higher than the total payment amount made by Medicare when a physician furnishes those same services in a freestanding clinic or in a physician office.”
—79 Fed. Reg. 66770, 66910, 2014.

This increased reimbursement is due to the increased facility component paid to the hospital.

Professional component
The professional components of services furnished in the provider-based departments and billed on the CMS 1500 form are generally submitted by and paid separately to the physician or medical group based on the MPFS. This payment is based on the MPFS, just like the payment made for services in a freestanding physician office. However, the physicians who provide these services are supposed to be paid using the “facility practice expense” revenue value unit (RVU) methodology in the MPFS.

“The facility PE [practice expense] RVUs apply to services ‘furnished to patients in the hospital, skilled nursing facility, community mental health center, or in an ambulatory surgical center.’ (42 CFR §414.22[b][5][i][A]).”
—Incorrect Place-of-Service Claims, 2015.

If paid correctly using this methodology, the physician receives a reduced portion of the MPFS amount to account for the fact that the services were furnished in the hospital outpatient depart-ment, rather than in the physician’s office setting. The payment is reduced because the physician is not incurring the facility costs to furnish the service (Medicare Claims Processing Manual, Chapter 12, §20.4.2, 2014). Instead, these costs are being absorbed by the hospital, and the physi¬cian is only being reimbursed for the costs of his own professional services.

“For 2010 through 2012, nearly all physician services with payments that varied depending on place of service resulted in a higher payment when they were billed with a nonfacility place-of-service code.”
—Incorrect Place-of-Service Claims, 2015.

Facility component
The services furnished by hospitals in provider-based departments are reimbursed under the Medicare payment scheme applicable to the main provider. For example, services furnished in a hospital outpatient department are paid under the hospital OPPS (42 CFR 419.1 et seq., 2015). In contrast, services provided to Medicare beneficiaries in CAHs are reimbursed at 101% of their reasonable costs (Medicare Claims Processing Manual, Chapter 3, §30.1.1, 2014).

When billing for services furnished in a provider-based department, the hospital is generally paid only for the facility or technical component of the services, which is billed to the MAC on the UB-04 claim form. The facility component is intended to reimburse the hospital for the services of the hospital staff as well as the supplies and overhead necessary to operate the clinic and furnish the services. The overhead costs for services furnished in provider-based departments are higher than similar services furnished in freestanding physician offices and other facilities. Therefore, the reimbursement for the facility component of these services is higher than if the services were furnished in a freestanding physician office.

Total reimbursement impact
The combined professional and facility payment for the services furnished in a provider-based department are generally more than the amount for the same services provided in a freestanding physician office. Even though the cost of the professional component is always lower in a provider-based entity, the hospital usually receives a larger facility payment under the OPPS that more than makes up for the decrease in the professional payment. In other words, as explained by CMS, this increased overall payment is attributable to an increased payment to the hospital and is designed to compensate the hospital for the higher overhead costs required to operate the provider-based clinic, which is more highly regulated than the freestanding physi¬cian clinic locations:

“The total payment (including both Medicare program payment and beneficiary cost-sharing) generally is higher when outpatient services are furnished in the hospital outpatient setting rather than a freestanding clinic or a physician office. Both the OPPS and the MPFS establish payment based on the relative resources involved in furnishing a service. In general, we expect hospitals to have overall higher resource requirements than physician offices because hospitals are required to meet the con¬ditions of participation, to maintain standby capacity for emergency situations, and to be available to address a wide variety of complex medical needs in a community. When services are furnished in the hospital setting such as in off-campus provider-based departments, Medicare pays the physician a lower facility payment under the MPFS, but then also pays the hospital under the OPPS. The beneficiary pays coinsurance for both the physician payment and the hospital outpatient payment. The term ‘facility fee’ refers to this additional hospital outpatient payment.”
—78 Fed. Reg. 43534, 43627, 2013.

Gina M. Reese, Esq., RN, is an expert in Medicare rules and regulations and is an adjunct instructor for HCPro’s Medicare Boot Camp—Hospital Version. She spent a number of years in private law practice representing hospitals and other healthcare clients, in addition to serving as in-house legal counsel, prior to beginning her current legal/consulting practice.

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