Provider-based clinic classification: Impact on the bottom line

Consolidation among healthcare providers has increased over the past few years, in part because physician practices experience lower reimbursement rates from Medicare and Medicaid, and they lack the bargaining power to drive up reimbursement rates from their commercial payers. When a hospital purchases a physician practice, the hospital gains additional outpatient revenue streams, and the physician practice is relieved of the lower reimbursement rates — yielding a win for both parties.

After a physician practice is purchased by a hospital, it can either be classified as a freestanding clinic or a provider-based clinic. This status, which essentially describes the billing practice of the clinic, impacts the bottom line because a provider-based status usually yields a higher Medicare reimbursement rate than a freestanding status.

In a nut shell, here is how it works…

If the physician practice is kept as freestanding, it will continue to bill Medicare the “professional fee,” as it did previously, on a CMS 1500 claim form for the cost of care provided to a patient. The professional fee is comprised of two different parts — a technical fee (for the doctor’s time) and a facility fee (for the doctor’s office costs — equipment, administrative duties, etc.). So, the professional fee that is billed to Medicare encompasses all costs for care at that clinic.

If the physician practice meets the CMS qualifications as a provider-based clinic, the practice will essentially be treated as an outpatient department of the hospital. Generally speaking, Medicare reimbursement is greater through an outpatient department rather than the same service provided in a freestanding clinic. Therefore, the charges submitted to Medicare will be split rather than all submitted on the CMS 1500 claim form as described above.

Under provider-based status, the facility fee will be billed on a Universal Billing (UB) claim form, and the technical portion of the professional fee will continue to be billed on the CMS 1500 claim form. The hospital is now responsible for the overhead costs associated with the clinic, and accordingly, it will receive the technical part of the Medicare reimbursement via the hospital outpatient Ambulatory Procedure Code (APC).

In order for a physician clinic to be certified as a provider-based clinic, it must meet Medicare’s specific qualifications. These requirements differ slightly depending on the clinic’s location — whether on campus or off-campus of the main provider. Campus is generally defined as the physical area immediately adjacent to, or 250 yards from, the provider’s main building.

Requirements applicable to all provider-based clinics (on and off campus):

  • The clinic must:
    • operate under the same license as the main provider
    • integrate its clinical services with the main provider
    • integrate its financial operations within the financial system of the main provider
    • publicly declare itself as a part of the main provider

Additional requirements applicable to off-campus clinics:

  • The clinic must:
    • operate under the ownership and control of the main provider
    • adhere to same administration and supervision as an existing department of the main provider
    • location of facility must pass one of the following three tests:
    • be within a 35-mile radius of the campus
    • be owned/operated by a hospital that has a DSH adjustment greater than 11.75 percent
    • demonstrate that it serves the same population as the main provider
    • demonstrate that 75 percent of patients served by the facility reside in the same zip codes as 75 percent of the patients served by the main provider OR
    • demonstrate that 75 percent of patients served by the facility require the same type of care the main provider offers AND received that type of care from that main provider

It is important for hospitals to periodically evaluate their clinics to determine if provider-based status is the best reimbursement opportunity for them. Generally speaking, the combined provider-based clinic reimbursement from Medicare is greater than the reimbursement of a freestanding clinic.

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