April/May 2000

Trends & Issues

By Cherilyn G. Murer, JD, CRA

Complying with provider-based requirements.

Rehab providers have, historically, focused solely on improving the quality of health care. However, today’s health care climate demands that a significant amount of attention be paid to business development. In this regard, provider-based entities may be an effective way to both diversify venues of care and attract additional patients.

Provider-based entities provide health care services under the name, ownership, administrative control, and Medicare provider number of a main provider. They function as part of a main health care provider even if they are not on their main provider’s campus. In addition to increasing a provider’s presence in the community and attracting patients, provider-based entities also can offer other financial benefits concerning Medicare reimbursement. Because of these financial advantages, the Health Care Financing Administration (HCFA) has prescribed specific criteria that health care entities must meet to be considered provider-based for reimbursement purposes. Health care providers must ensure that their provider-based entities meet these criteria to fully realize their appropriate level of reimbursement and to avoid later being found to be freestanding, unaffiliated providers. Health care providers must also be aware of proposed provider-based regulations that have been issued by HCFA. If these regulations are ratified, provider-based entities will have to comply with different requirements.

Requirements for Provider-Based Entities

HCFA has defined criteria that health care entities must meet to be considered provider-based. The criteria prevent providers from claiming advantages of provider-based status when they are not functionally nor organizationally integrated with their entities. The criteria ensure that close integration between a main provider and its provider-based entity exists.

Whether a health care entity qualifies as provider-based depends in part on its proximity to its main provider and its state’s health care facility licensure laws. The entity must be geographically close enough to the provider that they both serve the same patient population. In addition, some states provide common licensure for entities and the providers at which they are based. In these states, provider-based entities must comply with both the HCFA requirements and state requirements for common licensure.

Similar to gaining state approval by common licensure, provider-based entities must meet the requirements of the national accrediting organizations that accredit the main provider. The provider-based entity must be included in the accreditation of the provider where it is based and be recognized as part of the provider. For example, if a Joint Commission on the Accreditation of Healthcare Organizations (JCAHO)-accredited hospital wishes to have a provider-based outpatient rehabilitation clinic, the clinic must be recognized by JCAHO as part of the hospital and must comply with the JCAHO’s accreditation requirements. JCAHO will issue a single accreditation award for the hospital and the hospital-based clinic. However, the hospital and clinic must be integrated operationally, organizationally, and for performance improvement purposes.

HCFA requires that provider-based entities be operated under the same common ownership and control as their main providers. To comply with this requirement, the entity must be subject to the same bylaws and organizational documents that govern the provider. In addition, the provider must have the final authority to approve or reject decisions impacting the entity. For example, a hospital would have the authority to determine which personnel and medical staff could work at it’s provider-based entity. The entity must function as a department of the main provider. As a department, the entity should commonly use the same equipment, service personnel, and, where possible, the buildings of the main provider on a daily basis.

A provider-based entity must not merely be under the control of the provider where it is based. The entity’s director, if it has one, and personnel must be under the direct day-to-day supervision of the provider where it is based. To evidence this day-to-day supervision, the entity director must be required to have a daily reporting relationship with the chief executive officer of the provider. Compliance with this requirement can be illustrated by using daily call logs and written reports of the entity’s activities, which are then forwarded to the chief executive officer. Other administrative functions of the entity such as laundry and housekeeping should be integrated with those of the main provider.

Provider-based entities must also be integrated with their main providers clinically. To become clinically integrated, it is necessary for the professional staff of the entity to have clinical privileges at the main provider. In addition, the entity’s medical director or clinical leadership should have a daily reporting relationship with the medical director of the provider.

Clinical integration of the entity and its main provider impacts patients as well as the professional staff. Medical records of patients who are treated at the entity must be integrated with those of the main provider. Patients of the entity are considered patients of the main provider and, as such, must have full access to the health care services offered by the main provider.

Another provider-based requirement concerning patients involves the way in which the entity is presented to the public. Provider-based entities must be held out to the public as part of the main provider so that patients know they are actually patients of the main provider and that they will be billed as patients of the main provider. Patients may be informed of this in a variety of ways. For instance, informed consent forms, patient rights forms, and advance directives could all include clauses that state they are actually patients of the main provider.

They must also exhibit financial integration as well. This means that a provider-based entity and its main provider have an agreement for sharing the income and expenses of their operations. When seeking Medicare reimbursement, the provider-based entity must also report its costs in the main provider’s cost report and use the same accounting system and cost reporting period as the main provider.

Health care entities must comply with a wide range of requirements to obtain provider-based designation. However, their compliance efforts must reach beyond the provider-based requirements. Provider-based entities must also contemplate the Emergency Medical Treatment and Labor Act’s requirements, their main providers’ applicable Medicare conditions of participation, and a host of other compliance concerns. A full consideration of these issues should be made only with regulatory and legal consultation.

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