OIG attacks provider-based practice status
OIG attacks provider-based practice status
Experts say OIG’s recommendations overstep the agency’s authority
The Health and Human Services' Office of Inspector General (OIG) has exceeded its own authority in its recent report harshly criticizing hospital ownership of physician practices, according to several health care attorneys that specialize in that area.
Kevin Outterson, a partner with Baker Donelson in Nashville, TN, says the OIG is not only trying to limit the ability of hospitals to designate physician practices as "provider-based" entities, but to forbid them entirely. Efforts to reign in the provider-based status date back to 1998, he says, but now the OIG is attempting to take that battle a step further.
However, Outterson maintains that such a prohibition would require at least a change in Medicare's conditions of participation, and very possibly a change in the statute, as well.
Dennis Barry, a partner with Vinson & Elkins in Washington, DC, takes a similar view. He says the OIG's position that provider-based status requires prior approval is not supported by any regulatory or manual requirement. "In my view, it is unsupportable," he states.
In its report, Hospital Ownership of Physician Practices, the OIG estimates that 62% of hospitals own a physician practice, but adds that half the time fiscal intermediaries are unaware of this ownership — creating a fiscal vulnerability to Medicare. If hospitals opt to treat a practice as provider-based, Medicare requires the hospital to report the costs and charges of the practice as reimbursable services in the cost report. However, if a hospital fails to seek that provider-based status but claims the costs for the practice in its cost report, Medicare could be paying excessive amounts, says the OIG.
"The net result is that potentially, overhead and operating costs for these purchased practices are paid twice or hospitals are receiving reimbursement for practices that do not meet the provider-based criteria," the OIG concludes.
However, Barry suggests that the majority of the hospital-owned practices may actually be affiliates. "That is significant," he explains, "because the OIG expresses concern that hospitals have overhead costs that they are not allocating to the nonallowable physician offices."
In fact, those costs are not incurred at the hospital level, he says. "As long as those costs are not incurred at the hospital level there is no reason why there ought to be a nonallowable cost center."
The OIG's report is setting off other alarm bells, as well. For example, Outterson points out that for the first time, the OIG is putting the spotlight on potential abuse of nonprovider based entities.
He says the OIG highlights the potential for abuse if a hospital has not properly allocated a portion of its administrative and billing department and medical records department costs as a nonreimbursable cost, even if the hospital has correctly labeled its satellite physician operation or nearby physician operation as freestanding.
Outterson says the OIG's focus on copayments made by beneficiaries also concerns him. "It is not just a question that Medicare was overbilled; there is a potential from a class action type attack from Medicaid and Medicare beneficiaries," he explains. "That is a very troubling possibility."
In her Sept. 13 letter to Healthcare Financing Administration (HCFA) Administrator Nancy Ann DeParle, HHS Inspector General June Gibbs Brown wrote HCFA's current efforts to address the vulnerabilities outlined in the OIG's report "may not go far enough."
But while the agency agrees with the OIG that tougher reporting requirements are in order, HCFA Deputy Administrator Mike Hash responded to Brown that eliminating the provider-based designation would be a mistake. Integration of delivery systems is "desirable," he argues. Moreover, he says that it would be difficult to construct rules that differentiate physician practices from outpatient clinics in order to include one and exclude the other.
Both Outterson and Barry fault Medicare generally for maintaining such a wide disparity in reimbursement based on practice setting.
"Whether a physician service is performed in a freestanding licensed setting or a provider-based setting it is the identical service," Outterson argues. "How can you blame hospitals for trying to get the better reimbursement?"
HCFA shares that view. The most effective remedy to the problem outlined by the OIG, Hash wrote Brown, would be to eliminate differences in payments across sites that made the provider-based designation advantageous in the first place.
Notably, the OIG gave HCFA 60 days to submit its plan to implement the recommendations or explain why it is not possible to do so.
"That is absolutely outrageous," Barry asserts. "The IG is independent and by statute cannot have any role in policy. It can make recommendations, but Nancy Ann DeParle is not answerable to June Gibbs Brown."
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