By Kimberly A. H. Baker, JD, Director of Medicare and Compliance, H3.Group
Healthcare executives should challenge assumptions about how to operate current and new service lines by conducting detailed financial analysis.
When healthcare executives are planning new service lines, the default has been to provide them through a provider-based department.
Medicare reimbursement, which has typically been higher at provider-based facilities, was a driver.
Recently, Congress and CMS have made a two-prong assault on provider-based department reimbursement that should cause healthcare executives to carefully consider the financial ramifications and options before developing new provider-based departments.
Strategic analysis should result in reconsidering the structure of existing provider-based departments.
In the Bipartisan Budget Act of 2015, Congress required a change to payments for new off-campus provider-based departments developed after November 2, 2015.
CMS implemented this change with a payment rate that equals half of the applicable rate for the same service on campus, with a few exceptions for drugs, lab, and therapy.
Next year, CMS is proposing that the rate for these services will equal only one-fourth of the applicable on-campus rate.
This substantial reduction in payments was directed at off-campus locations, but all provider-based departments, including on-campus departments, have been experiencing a reduction in reimbursement related to increased packaging for at least three years.
Many common ancillary services such as minor procedures, labs, and x-rays are no longer paid separately to the facility.
The following table shows the reimbursement for an example provider-based clinic visit with ancillary services, across different years and under different organizational structures.
- The first two columns show a 41% decline in Medicare reimbursement for the same on-campus provider-based department services in just three years.
- The "Off-Campus New Department" column shows the reimbursement if the visit is provided in a clinic developed after November 2, 2015, even if the diagnostics are provided at an established department of the hospital.
- The "Freestanding Office Only" column shows the reimbursement if the visit is provided in a freestanding physician clinic owned by the hospital, but the diagnostics were provided by an established department of the hospital.
- The "Fully Freestanding" column shows the reimbursement if both the office visit and diagnostics are provided by a freestanding clinic owned by the hospital.
Operating clinics as hospital-owned, freestanding entities might allow them to operate at much lower costs, while maintaining levels of reimbursement.
Although certain departments such as wound care or infusion clinics, typically staffed by nurses when provider-based, would require a physician to be present if operated as freestanding.
In light of reimbursement changes, healthcare executives should challenge assumptions about how to operate current and new service lines.
Detailed financial analysis, including the changing reimbursement landscape and regulatory costs, will provide better information for decision-makers as departments are developed.