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CMS Is Taking Steps To Improve Oversight of Provider-Based Facilities, But Vulnerabilities Remain


We reviewed CMS's oversight of provider-based billing to ensure that only facilities that met provider-based requirements were receiving higher payments allowed by the provider-based designation. Under Medicare, payments for services performed in provider-based facilities are often more than 50 percent higher than payments for the same services performed in a freestanding facility. This increased cost is borne by both Medicare and its beneficiaries. "Provider based" is a Medicare payment designation established by the Social Security Act that allows facilities owned by and integrated with a hospital to bill Medicare as a hospital outpatient department, resulting in these facilities generally receiving higher payments than freestanding facilities. Provider-based facilities, which may be on or off the main hospital campus, must meet certain requirements (e.g., the facility generally must operate under the same license as the hospital). In addition, under current policy, hospitals may, but are not required to, attest to CMS that their provider-based facilities meet requirements to bill as a hospital outpatient department.

Dating to 1999, OIG has identified vulnerabilities associated with the provider-based status designation. These include oversight challenges and increased costs to Medicare and its beneficiaries, with no documented benefits. On the basis of these findings, OIG has recommended eliminating the provider-based designation. Further, the Medicare Payment Advisory Commission (MedPAC) has recommended equalizing payment for selected services provided in hospital outpatient departments and physician offices. The Bipartisan Budget Act of 2015 partially accomplished this by eliminating higher payment for new off-campus provider-based facilities. However, it permits existing off-campus, as well as existing and new on-campus, facilities to continue to receive higher payment.


We surveyed a projectable random sample of 333 hospitals to determine the number of provider-based facilities they owned. Next, we collected and analyzed supporting documentation from a purposive sample of 50 hospitals that reported owning off-campus provider-based facilities but had not voluntarily attested that the facilities met requirements. We limited our review to off-campus facilities because CMS requires that owning hospitals submit supporting documentation when attesting that off-campus - but not on-campus - provider-based facilities meet requirements. Further, off-campus facilities may have more difficulty meeting integration requirements because of their distance from the main hospital. We determined the extent to which these 50 hospitals and their off-campus facilities met provider-based requirements. We also collected information from CMS to determine the extent to which CMS has systems and procedures to oversee provider-based billing and had conducted analysis to determine the benefits of the provider-based designation. Finally, we collected information from CMS about its attestation reviews and challenges associated with its review process.


Half of hospitals owned at least one provider-based facility. However, CMS does not determine whether all provider-based facilities meet requirements for receiving higher provider-based payment. Moreover, because the attestation process is voluntary, not all hospitals attest for all of their facilities. CMS is taking steps to improve its monitoring of provider-based billing; however, vulnerabilities associated with provider-based billing remain. For example, CMS cannot identify all on- and off-campus provider-based billing in its aggregate claims data, a capability that is critical to ensuring appropriate payments. Further, CMS may have difficulty implementing recent legislative changes because of its inability to segregate all provider-based billing from other claims data.

Whether or not hospitals voluntarily attest, provider-based facilities must meet specific requirements to receive higher provider-based payment. However, more than three-quarters of the 50 hospitals we reviewed that had not voluntarily attested for all of their off-campus provider-based facilities owned off-campus facilities that did not meet at least one requirement. Examples of requirements not met include demonstrating that an off-campus facility was operating under the control of the main provider and that beneficiaries were notified of potential cost increases for services at the provider-based facility. These facilities may be billing Medicare improperly and may be receiving overpayments. Further, beneficiaries may be overpaying for services in these facilities. CMS's efforts to gather information on the volume of the services provided by off-campus provider-based facilities are positive steps to improve oversight. However, CMS has no independent way to determine the amount of overpayments for on-campus provider-based facilities or multiple off-campus facilities owned by the same hospital in one building or campus when the physician claim does not specify the exact location of the service. Further, CMS reported that it often has difficulty obtaining the hospital documentation needed to support its attestation reviews.


CMS is taking steps to improve its oversight of provider-based facilities; however, vulnerabilities identified in this review continue to limit its ability to ensure that all provider-based facilities bill appropriately. CMS also has not provided OIG with evidence that services in provider-based facilities deliver benefits that justify the additional costs to Medicare and its beneficiaries. Therefore, we continue to support previous OIG and MedPAC recommendations to either eliminate the provider-based designation or equalize payment for the same physician services provided in different settings - actions that go beyond those required by the Bipartisan Budget Act of 2015. If CMS elects not to seek authority to implement these measures, we recommend that it (1) implement systems and methods to monitor billing by all provider-based facilities, (2) require hospitals to submit attestations for all of their provider-based facilities, (3) ensure that regional offices and Medicare Administrative Contractors apply provider-based requirements appropriately when conducting attestation reviews, and (4) take appropriate action against hospitals and their off-campus provider-based facilities that we identified as not meeting requirements. CMS partially concurred with our first new recommendation, did not concur with the second, and concurred with the third and fourth.