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Critical Access Hospital Overview and Update. David H. Snow Hall, Render, Killian, Heath & Lyman, PC Oregon HFMA February 17, 2011. Overview of Topics. Review Status of CAH Program U. S. Oregon COPs etc. Beds etc. (OIG Audit Story) PB'd Limitations Definition of Campus

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critical access hospital overview and update

Critical Access Hospital Overview and Update

David H. Snow

Hall, Render, Killian, Heath & Lyman, PC

Oregon HFMA

February 17, 2011

overview of topics
Overview of Topics
  • Review Status of CAH Program
    • U. S.
    • Oregon
  • COPs etc.
    • Beds etc. (OIG Audit Story)
    • PB'd Limitations
    • Definition of Campus
    • Direct services requirement?
    • Excluded Units
    • County goes urban?
    • PB'd requirements
    • Relocations
  • Payment Updates/issues
    • Method II Status
    • 340B
    • Physician Supervision
    • Cost reimbursement for lab
    • TRICARE Change
    • MLR – Tribes
    • HPSA/PFS Bonus/CRNA
  • Good ole' fashion cost issues
  • Physician Practice Arrangements
  • Review of Green Bay Packer's Season


status of cah program
Status of CAH Program
  • There are approximately 1,300 CAHs in the US, per CMS
  • >50% of US rural community hospital
  • About 22% of all US hospitals
  • Paid $1.3 billion > PPS - $1million/CAH
  • About 850 are Necessary Provider CAHs
    • 453 have “health clinics” (CMS’s term?)
    • 81 have psych units
    • 20 have rehab units


current status of cah eligibility requirements
Current Status of CAH Eligibility Requirements
  • CAHs must be >35 miles from a hospital unless:
    • Located in mountainous areas or have only secondary roads (15 miles) OR
    • Received state designation as a "necessary provider"
  • States CANNOT issue new NP designations after 12/31/2005
    • Had to have NP designation, AND
    • Be certified as a CAH by January 1, 2006
    • to be grandfathered from 35 mile rule
  • Proposals have circulated to reinstate NP authority!


current status of cah eligibility requirements7
Current Status of CAH Eligibility Requirements
  • Effective 1/1/2004 CAHs may operate up to 25 inpatient beds in any combination of acute care and swing beds
  • Effective for cost reporting periods beginning after 10/1/2004CAHs may also have distinct part units:
    • Psych unit of up to 10 beds
    • Rehab unit of up to 10 beds
  • Excluded units do NOT count toward
    • 25 bed limit
    • ALOS calculation


oig audit
OIG Audit
  • CAH selected for OIG Office of Audit Services Review – 10-1-07 for 2004-06 years
  • Initial Request
    • Ownership, org chart, job descriptions, list of all employees
    • Policies & procedures as related to CoPs, cost reports, accounting
    • Annual reports, audited F/Ss & surveys of CAH
    • Chart of accounts
    • Cost reports & workpapers
    • List and copies of agreements with related parties


oig audit9
OIG Audit
  • 3-4 OIG OAS personnel spent 4 months @ CAH
    • No CPAs or staff with prior cost report or COP background
    • Asked for depreciation and asset records, serial #s, for hospital beds
    • CAH set up point person for process and logged all info provided to OIG


oig audit10
OIG Audit
  • Preliminary Findings:
    • Failed CoPs due to >25 beds
    • Bed roster included:
      • 4 swap out beds stored in non-patient areas for replacement parts
      • 2 basinets for infants to swap for adult beds when needed
    • Claimed unallowable costs of:
      • 2005 - $61,912 penalties for late lease payments
      • 2006 - $1,033 lobbying costs


oig audit11
OIG Audit
  • CAH Response
    • Notified FI on costs
      • FI reopened 2005 to adjust
      • FI passed on 2006 – too small to bother
    • Fought tooth & nail on 25 beds
      • VP-Nursing had been at hospital association conference that discussed a CMS Open Door forum in which CMS speakers said swap out beds not counted
      • We had position that such beds stored in non-patient areas should not count
    • After much back & forth, OIG Final Report in 12/2009 agreed on bed count issue


cah provider based limit
CAH Provider Based Limit
  • Final 2008 HOPPS rule – 11/27/07:
    • Any off campus location opened or acquired after 1/1/08 that meets provider based requirements must be >35(15 in M/SR areas) mile drive from any other hospital or CAH
    • Applies to excluded psych and rehab units also
  • Essentially includes all PB’d sites in determining whether 35/15 mile/NP Location Rules Met
  • Failure to comply: CAH status subject to termination unless the CAH terminates the off campus arrangement
    • Converting to free-standing should be sufficient
    • Not closing site


cah provider based limit13
CAH Provider Based Limit
  • Sites operated and qualified as provider based before 1/1/08 are grandfathered
    • “created or acquired after 1/1/08”
    • Converting free standing pre 1/1/08 site to PB’d after 1/1/08 is not grandfathered
    • CMS approval/attestation not required
  • Relocation of pre-1/1/08 PB’d site loses grandfather status - it is site specific!!!
    • May be outside CAH's control - lease termination
  • Changes at grandfathered site:
    • Addition of footprint or services
    • Construction of new building to replace old
    • Should be able to keep status – but confirm with regional office


cah provider based limit14
CAH Provider Based Limit
  • After 12/31/2007 - CAH corporation is NOT prohibited from:
    • Operating free standing sites, just PB’d. So lose option to get:
      • Cost on hospital o/p facility services
      • 15% bonus for Method II professional billing
    • Opening Hospital Based - Rural Health Clinics
      • Exempt because not part of hospital provider
      • Have separate provider number
    • Sites under development before 1/1/08
      • Need CMS approval of prior plans/commitments
      • Were not required to file before 1/1/08
  • Law does NOT limit PPS hospitals from opening PB’d sites within 35 miles of a CAH!!!


cah provider based limit15
CAH Provider Based Limit
  • CMS Guidance 12/21/08 and 6/12/09
    • CAHs seeking a PB'd determination for newly created or acquired off campus sites MUST submit an attestation to Regional Office to determine location requirements
    • Regulation 413.65 says PB'd Attestations Optional
    • Follow Guidance
    • PB'd site may meet tests even though campus does not
    • And, remember 15 mile rule


off campus clinic location example
Off Campus Clinic Location Example







= Primary Roads

= Secondary Roads


definition of campus
Definition of Campus
  • So What is "On Campus" ????
    • "Campus means the physical area immediately adjacent to the provider's main buildings, other areas and structures that are not strictly contiguous to the main buildings but are located within 250 yards of the main buildings, and any other areas determined on an individual case basis, by the CMS regional office, to be part of the provider's campus"
    • Affects:
      • Ability to open new PB'd services given 12/31/07 restrictions
      • Relocation test
      • Provider based: on vs. off campus


definition of campus18
Definition of Campus
  • On Campus Case Study
    • CAH in midwest – Region 5 state
    • Key to lines
      • Blue = Owned land + 250 yards
      • Red = hospital building + 250 yards
      • Orange = hospital operated ambulance + 250 yards
      • Green = expansion parcel for new building to house PT/OT, various o/p ancillary & hospital admin/support, & physician offices
      • Portion of new building would be within Red & Orange 250 yard rules
    • Is the building on campus?
    • If yes, does it expand 250 yard footprint?


definition of campus20
Definition of Campus
  • Take aways
    • "Main buildings" not defined – CMS generally interprets as primarily I/P care.
    • Only main buildings enlarge footprint via 250 yard rule
    • Region 5 rarely has approved discretionary expansion
    • Maybe if nothing but open space between main buildings and new structure


direct service requirement
Direct Service Requirement?
  • 485.602 Definitions
    • Direct services mean services provided by employed staff of the CAH, not services provided through arrangements or agreements
  • 485.635 COP" Provision of Services
    • (b) Standard: Direct Services
      • Those diagnostic & therapeutic services and supplies commonly furnished in a physician's office, including: H&P, specimen collection, assessment & treatment
      • Basic lab: hemoglobin, blood glucose, stool, pregnancy, culturing
      • Radiology procedures
      • Emergency procedures


direct service requirement22
Direct Service Requirement?
  • 485.635(c) Services provided through agreements or arrangements:
    • Inpatient hospital care
    • Physicians
    • Additional specialized diagnostic & clinical lab not available at CAH
    • Dietary & nutritional
  • 485.635(d) Nursing services - doesn't say direct
  • 485.635(e) PT/OT/ST doesn't say direct


direct service requirement23
Direct Service Requirement?
  • So What to do about it?
    • CMS Region 5 has informally taken a strict interpretation of this – no agency nurses in ER for example
    • We have seen one survey deficiency citation
    • Would come up in survey as standard deficiency with a Plan of Correction requirement
    • State survey agency confirmed – no CMS directives to look for this or enforce
    • Talk to hospital association, office of rural health, national rural health orgs
    • Get it fixed……


excluded units
Excluded Units
  • CAHs can have up to 10 bed psych &/or rehab
  • Paid under psych or rehab PPS – NOT cost
  • Process for exclusion
    • Can only be excluded on 1st day of cost reporting period
    • Surveys cannot be retroactive to before date of survey
    • Catch 22 - cannot get survey until operational
    • Need to use some of 25 beds for "unit" pre-exclusion to trigger survey
    • Need lots of advance planning/notice to DHFS and CMS


cahs in counties changed to urban
CAHs in Counties Changed to Urban
  • Must be rural to be a CAH
  • Rural vs Urban defined by Census Bureau
  • 2008 – CB changed 3 counties to urban
    • None in Oregon (MO, IL, MN & KS)
    • Same thing happened in 2004
    • CAHs had to apply for redesignation to rural to keep CAH
  • CMS amended regs to allow redesignation again – but did not make permanent
  • Will happen again following 2010 census


cah provider based clarifications final rule
CAH Provider Based Clarifications – Final Rule
  • CMS amended regulation to expressly state that CAH labs must meet the PB'd requirements
    • Technical interpretation of prior regulation excluded labs from PB'd rule
  • Ambulance
    • CAH operated ambulance providers, when there is no other ambulance w/i 35 miles, are paid at cost
    • In May CMS requested commentary on whether such CAH ambulance services should be required to meet the PB'd rules like other CAH departments and provider based entities (like RHCs)
    • CMS Decided NOT to apply PB'd rules in this case


cah relocations
CAH: Relocations
  • At the new location a non-NP CAH must meet all of the CAH Conditions of Participation, including the location requirement
    • More than 35 miles from any hospital/CAH
    • Or, more than 15 miles of mountainous terrain or secondary roads between it & any other hospital or CAH
    • Primary roads = Federal highways & state highways with 2 or more lanes in each direction
  • Midwest states may not have originally used 15 mile rule. CMS has approved a NP switching to 15 mile status to allow a move


np cah relocation
NP CAH Relocation
  • CMS Position not CAH friendly
  • If relocating NP CAH does not satisfy original NP criteria AND 75% tests then - deemed a closed business
    • CAH provider agreement is terminated
    • Would need to recertify as a PPS hospital
  • CMS position that it can reassess NP and 75% up to 1 year AFTER move – Blind Leap Effect!


np cah relocations
NP CAH: Relocations
  • 42 CFR 485.610(d) (added 8/12/05) If a <1/1/06 NP CAH relocates >1/1/06 it can continue to meet location requirement based on NP ONLY IF:
    • Serve 75% of the same service area
    • Provide 75% of the same services
    • Staffed by 75% of the same staff
  • Despite CMS commentary in final rule:
    • “a NP CAH can relocate… provided it is essentially the same facility in its new location. To help ensure that the facility is the same we will require the relocated NP CAH to [meet the 75% tests]”
    • And other similar comments focusing on 75% tests
  • No other requirement in Regulation, BUT


np cah relocation30
NP CAH Relocation
  • CMS takes the position that IN ADDITION to 75% tests NP CAH must:
    • Satisfy the exact same N.P. criteria the CAH originally met
    • Not any of state’s NP criteria, but the same one(s) the CAH was originally approved under
    • Must be re-verified by state agency
  • CMS bases position on final rule commentary:
    • “The state agencies and Regional Offices will closely monitor each NP CAH that relocates to ensure that it will continue to provide services based on the criteria that qualified the CAH to be designated as a NP”
  • No legal challenges yet – unlikely due to amount at stake (new hospital construction)


so what is a relocation
So What is a Relocation?
  • Final Rule Commentary (8/12/05)
    • All new necessary provider CAH facilities that will be constructed after Jan. 1, 2006 will be considered relocated facilities
  • CMS issued interpretive guidance on the NP CAH relocation rule 11/14/05, 9/7/07, 1/18/08 and 6/12/09
    • All discuss CMS position that a CAH with a grandfathered NP status must also meet the same criteria it originally met for NP CAH designation
    • Renovations or expansion of a CAH’s existing building or addition of buildings on the existing main campus of the CAH is not considered a relocation
      • As long as some portion of current building is kept and used for hospital purposes (allowable space), patient care or admin/support CAH can add anything, including all new beds footprint, within 250 yards


np cah relocation32
NP CAH: Relocation
  • Relocating NP CAH must work with CMS RO and state rural health agency
    • Letter of assurance re NP criteria
      • Same 2 or 5 of 10 ????
      • Or maybe not?
    • Pre-relocation attestation letter and Post-relocation process
      • NP verification
      • Document the three 75% tests
      • Get full survey & approval of all CAH COPs
  • Can take up to 1 year after move to obtain final CAH continuation approval


landlocked np options
"Landlocked" NP Options
  • Relocate and go back to PPS Payment (NOT)
  • Work to meet NP criteria (difficult, at best)
  • Work w/ CMS to obtain approval for:
    • As much renovation & reconfiguration as possible
    • w/o crossing relocation line
    • CMS will review plans and provide informal guidance that plans are not a relocation
  • Stay “as is”
  • Change the law….


method ii election
Method II Election
  • “All Inclusive” Election
    • facility payment will be reasonable costs
    • plus 115% of the Medicare fee schedule for professional services
    • applies to all physician services to outpatients for entire year for which physician reassigns billing rights to CAH
    • Outpatient Services only not I/P
    • Must be in hospital (provider based) space
    • PC billed by CAH to FI on UB-04
    • Physicians do not need to be employees (but will need a written contract - Stark, etc.)


cms attempt to kill method ii
CMS Attempt to Kill Method II
  • 2010 Final Rule Stated that CAHs electing Method II would be paid 100% of costs instead of 101%
    • CMS believed this was correct statutory interpretation
    • Effective for cost reporting periods beg'g on or after 10/1/09
  • 1% on all O/P cost could be more than 15% extra on physician fee schedule
    • Some CAHs decided to not re-up Method II election……
    • But….


method ii rescue
Method II Rescue
  • PPACA – HC Reform & 2011 IPPS Final Rule
    • Changed statute to clarify CAHs paid 101% for both Method I and II
      • Effective retroactively
      • FIs should not apply 100% to Method II electing CAHs for cost reporting periods beg'g on or after 10/1/09
    • Was annual election by cost report year
      • Now a one-time election that carries over to subsequent years  Submit at least 30 days before start of cost reporting period
      • Unless revoked by CAH 30 days before start of next cost reporting period
      • Effective for cost reporting periods beginning after 10/1/10


340b program expansion
340B Program Expansion
  • 340B Program Benefits Access Expanded by PPACA to include CAHs
    • Effective 1/1/2010
    • Government or Non-Profit with a contract with state or local government to provide care to non-Medicare/caid patients
    • Estimated Savings: 25%-50% of a drug’s Average Wholesale Price (may be higher or lower)
    • Pharmaceutical manufacturers that sell O/P drugs to Covered Entities required to participate in 340B


340b program expansion38
340B Program Expansion
  • Program NOT limited to Medicare, Medicaid or low income patients.
  • Any patient of a Covered Entity may receive covered OUTPATIENT drugs purchased under the 340B Program.
  • Covered outpatient drugs can include
    • any drug used in an outpatient setting, except vaccines. Both prescription drugs and over-the-counter (OTC) drugs for which a there is a prescription can be covered by the 340B Program


340b program expansions
340B Program Expansions
  • Program discount extends to all main campus and provider-based location patients.
    • Definition of a Covered Entity refers to the provider-based rules
  • Apply to HRSA – Office of Pharmacy Affairs to obtain approval
    • If approved, applies at the start of the next Federal quarter


340b program expansion40
340B Program Expansion
  • Maintain control of the patient’s medical records
  • Maintain primary responsibility for patient’s care.
  • Methods used to ensure compliance with Program standards
      • Up to the Covered Entity
      • Program and non- Program drug stock need not be physically separated
      • Maintain auditable records that can be used to prove 340B drugs used only for covered outpatients.


physician supervision
Physician Supervision
  • The way we were – February 2010
    • Therapeutic Services
      • 2010 Final Rule had required direct supervision for all – doc on campus or w/i off campus PB'd site ("NFL Catch Rule")
      • CAH's in uproar:
        • Observation services, etc.
        • Apparent conflict with CAH COPs
    • Diagnostic Services
      • 2010 Rule applied same general – direct – personal rules for physician offices to hospital O/P
      • BUT – CMS had informally confirmed this was N/A to CAHs – only applied to APC paid hospitals
    • New PR/CR/ICR Coverage N/A in CAHs


physician supervision42
Physician Supervision
  • Developments during 2010
    • March 15 – CMS issues notice of non-enforcement of direct supervision policy for O/P therapeutic services in CAHs
    • July - Proposed CY 2011 HOPPS & PFS Regs released
      • Therapeutic – Staged direct to general
        • Include midlevels
      • Diagnostic
    • November – final CY 2011 HOPPS & PFS issued


physician supervision43
Physician Supervision
  • The way it is - January 2011 forward: Therapeutic
    • N/A to PT/OT/ST & ESRD
    • Direct supervision generally required, but
      • Extended duration non-surgical services convert to general after stabilization occurs
        • Observation, infusions, injections….
      • Physicians & "NPP" acting w/i scope of practice
      • NPPs = CP, PA, NP, CNS, CNMW, LCSW
    • Must be "immediately available" on or off campus
      • NFL Catch rule eliminated for off campus
    • BUT – continue non enforcement through 2011 for CAHs AND rural hospitals <100 beds (TOPS)


physician supervision44
Physician Supervision
  • The way it is – Janaury 2011 forward –
    • Diagnostic
      • General/direct/personal apply as per PFS
      • ONLY physicians – NOT NPPs
      • Same "immediately available" standard on or off campus
      • STILL N/A to CAHs – only APC paid O/P services
    • PR/CR/ICR
      • CMS commentary - obviously (you fools) hospital here includes CAHs so these services can be covered in covered in CAHs
      • ONLY physicians NOT NPPs
      • NON enforcement for CAHs & <100 beds applies here also for CY 2011


cost reimbursement for lab
Cost Reimbursement for Lab
  • Payment for clinical diagnostic laboratory tests:
    • Cost only for CAH patients
    • Beneficiaries not liable for any cost-sharing or co-payment
    • Non-patients (reference) paid on fee schedule
  • OLD rule
    • Patient must be physically present in the hospital when the draw is done
    • Draw by hospital personnel elsewhere – such as nursing home is not sufficient


cost reimbursement for lab46
Cost Reimbursement for Lab
  • MIPPA 2008 – effective 7/1/09
    • CAH lab services "shall be treated as being furnished as part of outpatient critical access services without regard to whether the individual with respect to whom such services are furnished is physically present in the CAH, or in a SNF or a clinic (including a RHC) that is operated by the a CAH, at the time the specimen is collected."
    • Could be read to mean all reference work paid at cost…….
  • But not by CMS !!!!


cost reimbursement for lab47
Cost Reimbursement for Lab
  • Effective 7/1/09: Cost payment if patient is physically present in the CAH (including PB'd dept's, but not entities) when the specimen is collected, OR at least 1 of following:
    • Individual receives o/p services in CAH on the same day the specimen is collected
    • Specimen is collected by CAH "employee"
  • Other bundling rules trump cost payment – SNF consolidated billing


cost reimbursement for lab48
Cost Reimbursement for Lab
  • Individual receives o/p services in the CAH on the same day the specimen is collected, but it is not collected in the CAH:
    • Doesn't matter where specimen is collected
      • Home, Dr's office, back at SNF…
    • Or, who collects it
      • Patient, SNF staff, Dr. office staff…


cost reimbursement for lab49
Cost Reimbursement for Lab
  • Collected by a CAH employee?
    • W-2 employee of CAH
      • Including employees of CAH PB'd dept's
      • But not employees of PB'd entity (RHC) (huh?)
    • Contracted lab staff ?
      • As long as not employed by an entity at site where specimen is collected (SNF employee contracted to CAH) can be considered employee for these purposes
      • No info on how this coordinates with CAH COP that lab services be provided directly


cost reimbursement for lab50
Cost Reimbursement for Lab
  • Specimen collected by employee
    • CAH employee (as defined) must physically perform the specimen collection
    • Not enough to pick up the specimen
  • Example: CAH employee goes to SNF to do blood draw on part B resident, also picks up urine sample from SNF staff
    • Blood draw – cost reimbursed (851 bill type)
    • Urine sample – fee schedule (141 bill type) (unless patient also received CAH o/p services that day!)
  • See the cost reimbursement opportunity?


cah tricare reimbursement final rule
CAH TRICARE Reimbursement – Final Rule
  • Currently CAHs paid same as any other hospital – I/P DRGs and O/P fee schedule
  • Effective December 1, 2009 CAHs exempted from the usual TRICARE hospital payment systems
    • Payments instead "based on 101% of reasonable costs"
    • But - no TRICARE cost reports
    • No interim payments & retroactive settlements
  • TRICARE will use I/P & O/P cost to charge ratios plus 1% from each CAHs recent (not defined) Medicare cost report
    • No lesser of cost or charges rule – BUT
    • CCRs will be capped at nationally set levels. Initially caps will be:
      • 2.12 for I/P
      • 1.23 for O/P
  • Review any TRICARE Provider Agreements


medicare like rates ihs
Medicare Like Rates - IHS
  • 42 CFR 136.30 requires all Medicare participating hospitals and CAHs to
    • Accept as payment in full
    • Medicare like rates
    • For Contract Health Service authorized services
  • MLR for CAHs = interim rates set by FI
  • CHS intended as payor of last resort
    • On reservation tribal members
    • Without other coverage
    • Hospitals prohibited from collecting deductible &/or copays


medicare like rates ihs53
Medicare Like Rates - IHS
  • Recently some Tribes have:
    • Bifurcated health plans
      • Tribal member employees with health insurance
      • Benefits capped @ MLR
      • Non-tribal employees receive usual coverage
    • Started paying hospital @ MLR for tribal member employees
      • Usually no CHS advance authorization
      • Often at wrong MLR
  • Recourse?
    • Demand advance CHS approval or deny care
    • Get correct MLR
    • Contact legislators


health professional shortage area
Health Professional Shortage Area
  • Why do I care?
    • National Health Service Corps LRP
      • Assigned professionals can only be sent to HPSAs
    • FQHCs – MUPs
    • RHCs
    • 10% PFS Bonus Payments
    • J-1 Waivers: Waiver of the "return home" requirement (2 year) in return for 3 year HPSA/MUA stay
    • CMS proposing to score ALL existing MUA/HPSA upon publication of the Final Rule
  • Consider "Governor's HPSA" – only RHC


hospital based rhc
Hospital Based RHC
  • Must be in a HPSA
  • Exempt from rate/visit because CAH's < 50 bed hospital
  • Cost reimbursement for:
    • Facility component AND
    • Professional component
  • Non-RHC services at site billed as hospital services
  • Provider based 35 mile rule N/A
  • Provider based public awareness rule N/A


primary care bonus pfs
Primary Care Bonus – PFS

Expanding access to primary care and

general surgery services

Primary Care

  • 10% Medicare primary care service payment bonus
    • Eligible providers = Physician (family, internal, geriatric, peds), PA, Clinical nurse specialist who
      • Provided at least 60% primary care services in preceding TBD period;
    • “Primary Care Services” - defined by CPT codes
    • In addition to 10% HPSA physician bonus payment
    • Services between January 1, 2011 and January 1, 2016


surgery service benefits pfs
Surgery Service Benefits - PFS

Expanding access to primary care and

general surgery services

General Surgery

  • 10% Medicare primary care service payment bonus
  • Eligible providers – Physician who
    • furnishes the payable service in a HPSA
    • Eligible procedures – procedures with 10 or 90 day global PFS payment period
  • In addition to 10% HPSA physician bonus payment
  • Services between January 1, 2011 and January 1, 2016


crna services in cahs
CRNA Services in CAHs
  • Pass-through payments (reasonable costs)
    • CAH located in a rural area
      • Previously - Reclassified hospitals will not suffice
      • Now – Urban hospitals reclassified to rural okay
      • Effective for cost reporting periods beginning 10/1/2010
    • Surgery requiring anesthesia = volume of 800 procedures or less
    • Annual application to FI


good old fashioned cost planning issues
Good Old Fashioned Cost Planning & Issues
  • ER Standby Costs
  • Depreciation
  • Defined Benefit Pension Expense
  • Related party rule
  • Liquidation requirements
  • Cost planning
  • Cost reporting changes
  • Cost dilution concerns
  • System CAHs


er standby costs
ER Standby Costs
  • ER Physician and, effective for services >1/1/2005 can include mid-level stand-by costs
    • Recognized as a reasonable cost, so long as they are not on-call for another facility at the same time they are on-call for the CAH
    • Must be written contracts
    • Pay attention to documentation and allocation methods
      • PRM Sections 2108 and 2182 generally, and
      • Section 2109 for ER Standby


administrative duties
Administrative Duties
  • If paying physician anyway (Part B Services)
  • Physician doing some administrative services
    • Medical director
    • Management
  • Carve out portion for Part A
    • It's an allowable cost
    • without limit – No RCE
  • Allocation Rules 415.60, PRM 2108 & 2182
    • All to Part A if certify and physician bills
    • Otherwise all to Part B, unless meet allocation rules
  • Slippery slope concerns
    • Everyone will want it
    • Added cost (if any) only partially paid by Medicare


  • Useful lives matter to a CAH!!!
  • Shorter lives recover cost quicker
  • Higher present value of Medicare cost reimbursement
  • Pay attention to useful lives selected
    • Consider capital asset study
  • Possible use of 150% declining balance
    • Depreciation on total assets in period is less than
    • Principal on total capital debts
    • 413.134(a)(3)(iii) – look @ with major projects


db pension expense
DB Pension Expense
  • PRM States cost limited to:
    • Normal Service Cost and
    • Accrued actuarial liability amortized over not less than 10 years
  • Even if funded amount is greater
  • FIs starting to apply after years of not using this for PPS wage index S-3 reporting
  • Pay attention to actuary report
    • FIs are
    • Lots of ways to determine NSC


related party rule
Related Party Rule
  • Reg. 413.17
  • Requires costs paid to related parties to be included in cost report at the cost to the related party
    • Effectively prohibits inter-company markup
    • "Look through" contract price to related party cost


related party rule65
Related Party Rule
  • Separate entity is related party if related by common ownership OR control
    • significant ownership or equity
    • control exists if there is power, directly or indirectly, to have significant influence over the actions of the other entity
  • Very broad definition
    • can apply with <50% ownership/membership, or
    • overlapping directorships


related party rule66
Related Party Rule
  • Related Party Exception if
    • Supplying organization is bona fide separate entity
    • Substantial part of business of type with provider is carried out with unrelated parties
    • Open, competitive market for the item/service
    • Commonly obtained externally
    • Not basic element of patient care
    • Charge to provider is in line with charge to unrelated parties.
    • FI approval


liquidation requirements
Liquidation Requirements
  • Reg. 413.100 – Accrued Expenses
    • Allowed in year accrued
    • if paid (liquidated) w/i time limits
    • Otherwise allowed in year paid
  • General rule – must be paid w/i 1 year of FYE in which accrued
  • FI can grant extension up to 2 more years for good cause


liquidation requirements68
Liquidation Requirements
  • Special Rules
  • Self insurance cost must be paid w/i 75 days of FYE
  • Vacation/PDO
    • If non-discriminatory policy then must be paid under terms of policy
    • If some employees treated differently then must be paid w/i 2 years of FYE
  • Unfunded deferred comp – allowed when paid to employee


changing methods
Changing Methods
  • General rule: Must apply to FI for approval of changes in methods (includes new cost center)
    • Request in writing
    • 90 days before the end of the cost reporting period of change.
    • FI has 60 days to decide or change is automatically accepted
  • PRRB has allowed new methods w/o FI approval in some cases


cost reimb planning
Cost Reimb. Planning

Low Medicare Utilization

High Medicare Utilization



High Cost



Low Cost

  • Traditional cost reimbursement planning


cost planning
Cost Planning
  • Divest operations that draw costs away from high utilization i/p?
    • Low Medicare utilization hospital departments
    • Non-hospital operations (SNF, HHA)
    • Provider based clinics
  • If divest to related party can still pull O/H
    • But may still get better cost assignment
    • Hospital/non-hospital based SNF/HHA determined by separate regs (not 413.65)


cost planning system of cahs non cahs
Cost Planning - System of CAHs & non-CAHs
  • Home office expenses to CAH trigger payment
  • Self insurance trusts for CAHs
  • Interest expense & investment income offset
    • Motherhouse exception for religious systems
  • Payment arbitrage
    • Provider based to CAH
    • Provider based to PPS
    • Fee schedule (physician or other)
    • CAH based rural health clinic


physician practice arrangements
Physician Practice Arrangements
  • Legal Issues
    • Correct and consistent billing
      • site of service/facility
      • avoid double dip problems
      • adequate supervision for incident to
    • Stark & anti-kickback - FMV and not based on volume or value of referrals
    • Tax status - employee vs. Ind Cont.
    • Tax exemption - FMV
    • Tax exempt bonds private use restrictions


physician practice arrangements74
Physician Practice Arrangements
  • Options - permutations
    • Lease
      • in clinic space (not otherwise PB)
      • in hospital space
    • “Coverage”
      • in clinic space (not otherwise PB)
      • in hospital space
      • PC billed by hospital or physician
      • Employee or independent contractor


physician practice arrangements75
Physician Practice Arrangements
  • Lease in Clinic Space
    • FMV for rent & services or supplies
    • Specialist bills PC & TC under PFS
      • so no reassignment issues
      • must have authority to supervise any Clinic employees used in leased space
      • double dip occurs if Clinic also bills
    • Lease = private use if building is bond financed


physician practice arrangements76
Physician Practice Arrangements
  • Lease in Hospital Space
    • FMV for rent & services or supplies
    • Precludes PB status for leased space
    • Specialist bills PC & TC under PFS
      • must have authority to supervise Hospital employees used in leased space
      • double dip occurs if Hospital bills for TC / claims as allowable on cost report
    • Lease = private use if bond financed


physician practice arrangements77
Physician Practice Arrangements
  • Coverage in Clinic Space
    • FMV for professional services
    • Clinic bills PC & TC under PFS
      • Specialist must have authority to supervise Clinic employees
      • double dip occurs if Specialist bills
    • Tax status correct - withholding or not?
    • No private use if employee or if contract meets term & compensation limits


physician practice arrangements78
Physician Practice Arrangements
  • Coverage in Hospital Space - Specialist bills PC
    • Hospital bills TC on UB-04 as PB, claims space & costs as allowable
    • Specialist bills PC on 1500
      • Double dip if specialist does not use site of service/facility RVUs (Place of Service code 22 – hospital O/P)
      • No incident to billing, so no supervision issues
      • no reassignment
      • Precludes 115% option for CAH
    • No compensation so no tax status or FMV issues
    • Coverage contract must meet term limits of bond restrictions


physician practice arrangements79
Physician Practice Arrangements
  • Coverage in Hospital Space - Hospital bills PC
    • Hospital bills TC on UB-04 as PB, claims space & costs as allowable
    • Hospital bills PC on 1500 (UB if all-inclusive) under reassignment
      • Double dip if Hospital does not use site of service/facility RVUs (Place of Service code 22 – hospital O/P)
      • No incident to billing, so no supervision issues
    • FMV compensation to Specialist
      • tax status - withholding
    • No private use if employee or if contract meets term & compensation limits


critical access hospital overview and update thank you

Critical Access Hospital Overview and UpdateThank you!

By: David H. Snow

Hall, Render, Killian, Heath & Lyman, PC

February 17, 2011