HCFA issues guidance and answers questions related to the provider-based status of facilities

Over the last few years, the Health Care Financing Administration ("HCFA") has become increasingly concerned with hospital systems billing for services provided at related and affiliated sites as "provider-based" rather than independent facilities. By billing as provider-based, a hospital is entitled to charge HCFA in a slightly different manner that typically leads to higher reimbursement. In Program Memorandum to Intermediaries A-99-24, issued in May 1999, HCFA stated that, with the growth of integrated delivery systems, it has received numerous requests from entities requesting provider-based status. These requests, if approved, increase the portion of the facility's general and administrative costs supported by the Medicare program with no commensurate benefit to Medicare and its beneficiaries. Therefore, it is critical that HCFA designate as provider-based only those entities that are unquestionably qualified. On September 20, 2000, HCFA's administrator released a letter summarizing this concern over provider-based entities. The letter stated that the Department of Health and Human Services Office of Inspector General ("IG") has concluded that many hospital purchases of physician practices appear to have been designed not to ensure services are provided to participants in the most appropriate setting but, rather, simply to obtain higher Medicare payments. The IG strongly recommended that, if such arrangements continue, HCFA take steps to curtail them. The outcome of this recommendation is the proposed provider-based regulations ("Proposed Regulations") issued by HCFA on April 7, 2000.