Department of Health and Human Services 
OFFICE OF 
INSPECTOR GENERAL 
HCFA Management of Provider-Based 
Reimbursement to Hospitals 
JUNE GIBBS BROWN 
Inspector General 
AUGUST 2000 
OEI-04-97-00090  OFFICE OF INSPECTOR GENERAL 
The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, and 
amended by Public Law 100-504, is to protect the integrity of the Department of Health and 
Human Services programs as well as the health and welfare of beneficiaries served by them.  This 
statutory mission is carried out through a nationwide program of audits, investigations, 
inspections, sanctions, and fraud alerts.  The Inspector General informs the Secretary of program 
and management problems and recommends legislative, regulatory, and operational approaches to 
correct them. 
Office of Evaluation and Inspections 
The Office of Evaluation and Inspections (OEI) is one of several components of the Office of 
Inspector General.  It conducts short-term management and program evaluations (called 
inspections) that focus on issues of concern to the Department, the Congress, and the public.  The 
inspection reports provide findings and recommendations on the efficiency, vulnerability, and 
effectiveness of departmental programs. 
OEI's Atlanta office  prepared this report under the direction of Jesse J. Flowers, Regional 
Inspector General and Christopher Koehler, Deputy Regional Inspector General.  Principal OEI 
staff included: 
Joe Townsel, Project Leader 
Jennifer Antico, Program Specialist 
Dwayne Grant, Program Analyst 
Janet Miller, Program Analyst 
To obtain copies of this report, please call the Atlanta Regional Office at 404-562-7723.  Reports 
are also available on the World Wide Web at our home page address: 
http://www.dhhs.gov/oig/oei  TABLE  OF  CONTENTS 
EXECUTIVE SUMMARY  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  1

INTRODUCTION  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  4

FINDINGS

Process inconsistently applied . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  8

Data systems inadequate  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  11

Improper Medicare payments  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  13

CONCLUSION AND RECOMMENDATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  17

APPENDIX A  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  20

APPENDIX B  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  24

APPENDIX C  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  25

Provider-Based Reimbursement to Hospitals  OEI-04-97-00090  EXECUTIVE  SUMMARY 
PURPOSE 
To describe Health Care Financing Administration management of provider-based status 
for hospital owned entities. 
BACKGROUND 
Hospitals often purchase entities such as physician practices and nursing facilities.  Under 
Medicare, such hospitals can account for their entities as free-standing or as part of the 
hospital.  The latter arrangement is called provider-based status.  In its program 
guidance, HCFA stated that provider-based status for hospital owned entities would 
increase costs for Medicare and its beneficiaries with no commensurate benefits. 
Therefore, the guidance stated that it is critical to designate only unquestionably qualified 
entities for provider-based status. 
FINDINGS 
Regional offices do not consistently follow HCFA processes for review and approval 
of provider-based status 
The HCFA regions use different processes and standards, and require varying levels of 
documentation for approving provider-based status for hospital owned entities.  For 
example, some regions accept hospital self-attestation that their entities meet HCFA 
criteria for provider-based status.  Others, however, do a detailed review to ascertain 
qualifications for the status.  Some regions obtain assistance from HCFA intermediaries 
and State licensure agencies, as required, and others do not.  The inconsistencies occur 
both within and among regional offices. 
HCFA data systems are inadequate for managing hospital use of provider-based 
status 
Neither HCFA headquarters nor regional offices could furnish reliable data showing 
hospital requests or approvals for provider-based status.  More importantly, HCFA could 
not determine, from existing data systems, which hospitals were improperly claiming the 
status and billing Medicare under the higher cost provider-based rules.  Such basic data is 
essential for assuring that only qualified hospital owned entities are approved, and for 
identifying unqualified hospitals that bill Medicare under the provider-based rules. 
1 
Provider-Based Reimbursement to Hospitals  OEI-04-97-00090  Hospitals often bill for reimbursement under the provider-based rules without 
HCFA approval 
Hospitals often simply assume provider-based status for their off-site entities and bill 
Medicare without getting HCFA approval.  Such practices are improper, but they often go 
undetected for several years.  Further, when detected, HCFA policy guidance is widely 
interpreted as allowing only prospective payment corrections.  Finally, no penalties are 
levied on hospitals who engage in the improper practice. 
CONCLUSION AND RECOMMENDATIONS 
HCFA management of its provider-based determination process provides little or no 
assurance that only qualified hospital owned entities are approved.  Qualified 
hospitals benefit from provider-based designations for their off-site entities because they 
can shift overhead costs to them and receive higher Medicare reimbursement.  HCFA 
recognized that provider-based designations for qualified hospital owned entities would 
increase costs for Medicare and its beneficiaries, with no commensurate benefits -- as 
compared to free-standing arrangements.  However, the costs are unnecessarily further 
increased when unqualified hospital owned entities bill Medicare under the financially 
advantageous provider-based rules. 
However, to assure that only qualified hospital entities receive provider-based status 
would likely require considerable resources by HCFA, its intermediaries, and State 
licensure agencies.  This possibility, combined with the increased cost of qualified and 
unqualified hospitals, and no commensurate benefits for Medicare and its beneficiaries, 
raises serious questions about the merits of continuing the provider-based option for 
hospital owned entities. 
Therefore, as recommended in our prior OIG report on physician practices, we 
recommend that HCFA eliminate provider-based status as an accounting option for 
all types of hospital owned entities. 
If HCFA chooses to continue the use of provider-based status, it should 
<	 Impose severe and substantial penalties, as recommended in our prior report, 
when hospitals bill Medicare for unqualified medical entities they own. 
<  Revise and clarify its program policy and procedures. 
<  Develop reliable data systems for program management. 
<<	 Require that all hospitals claiming provider-based status reapply for that 
status. 
2 
Provider-Based Reimbursement to Hospitals  OEI-04-97-00090  AGENCY COMMENTS 
The Health Care Financing Administration commented on our draft report.  The full text of those 
comments are shown in appendix C. 
In brief, HCFA did not agree with the recommendation to eliminate the provider-based program. 
Instead, HCFA supported our alternative recommendation to establish reliable systems to improve 
its management of the provider-based program. To that end, HCFA has initiated various actions, 
including revising regulations and procedures, implementing management data and control 
systems, and providing training for staff responsible for program administration and control. 
The HCFA expressed concern about the administrative burden of full implementation of our 
recommendation to require all hospitals claiming provider-based status to reapply so that HCFA 
could assure they qualified for the benefit.  Instead, HCFA plans a less burdensome, alternative 
approach to resolving that problem.  Specifically, HCFA plans to assure that all new applicants 
qualify for the benefit.  Further, when a complaint or other evidence indicates that an existing 
provider-based arrangement does not meet requirements, HCFA plans to reassess the hospitals 
qualifications for the benefit at that time. 
While we believe that HCFAs planned corrective action will significantly strengthen their future 
management of the Medicare provider-based reimbursement provision, we are concerned that 
some problems described in our report will continue.  Specifically, existing non-qualified hospitals 
will continue to bill Medicare under the cost advantageous provider-based rules until they are 
caught. 
Therefore, we continue to believe that it is appropriate to require all hospitals to reapply.  We 
recognized that there would be administrative costs associated with this requirement.  However, 
we believe that such costs would be more than off-set by savings accruing from termination of 
inappropriate billings to the program. 
3 
Provider-Based Reimbursement to Hospitals  OEI-04-97-00090  INTRODUCTION 
PURPOSE 
To describe Health Care Financing Administration management of provider-based status 
for hospital owned entities. 
BACKGROUND 
Provider-based status for hospital reimbursement 
Hospitals often purchase a variety of other medical entities such as physician practices, 
nursing facilities and home health agencies.  Under Medicare, hospitals can account for 
medical entities they own as either free-standing or as part of the hospital.  If a hospital 
accounts for an entity as part of the hospital, it is referred to as a provider-based 
arrangement.  This is a cost accounting and allocation mechanism which requires Health 
Care Financing Administration (HCFA) approval. 
Benefits of provider-based status for the Medicare program and its beneficiaries 
Prior to 2000, HCFA has recognized that provider-based status for hospitals has no 
benefit for Medicare or its beneficiaries.  According to HCFA program guidance1, 
provider-based status actually increases the portion of a hospitals general and 
administrative costs that are supported by Medicare, with no commensurate benefit to 
Medicare or its beneficiaries.  The guidance further showed that Medicare payments for 
services in provider-based entities exceed what Medicare would have paid under free-
standing status. 
Medicare payments are higher largely because of the increased general and administrative 
costs supported by Medicare under provider-based rules.  Hospitals can include such costs 
as reimbursable in their Medicare cost reports.  Medicare reimburses such hospitals on an 
interim basis and reconciles the cost reports at the end of the reporting period.  That 
reimbursement is under Part A of the program.  Hospitals may also receive other 
reimbursement under Part B, such as clinical laboratory services. 
Hospitals must exclude from their Medicare cost reports any overhead and administrative 
costs associated with services at their free-standing entities.  Such costs associated with its 
free-standing entities must be shown as non-reimbursable on hospital cost reports to 
Medicare. 
1
Program Memoranda A-96-7 dated August 1, 1996; A-98-15 dated May 1, 1998; and A-99-24 dated May 1, 1999 
(see Appendix A) 
4 
Provider-Based Reimbursement to Hospitals  OEI-04-97-00090  Likewise, as documented in our September 1999 OIG report2,  provider-based status often 
increases coinsurance costs for Medicare beneficiaries. 
Prevalence of provider-based status 
Our September 1999 OIG report showed that HCFA and its Medicare contractors have 
little specific knowledge on the extent that provider-based designations have been 
requested and approved.  The report showed, however, that hospitals are acquiring 
physician practices in significant numbers.  While HCFA program guidance issued in 1996, 
1998, and 1999 did not specify the prevalence, it showed that HCFA receives numerous 
requests from hospitals for provider-based status for their off-site entities. 
Approval of provider-based status 
Considering the increased costs and absence of any recognized benefit to Medicare and its 
beneficiaries, HCFA declared in its program guidance that it is critical to designate only 
entities that are unquestionably qualified for provider-based status. 
To this end, hospitals must request provider-based status from HCFA for entities they 
own.  Only after receiving HCFA approval may a hospital legitimately claim provider-
based status and bill Medicare for services provided in their off-site entities.  The review 
and determination process calls for a written request, which specifies that an entity meets 
eight criteria published by HCFA in program policy guidance (see Appendix A). 
HCFAs program guidance does not provide specific and detailed instructions or formats 
for requesting, approving, and disapproving provider-based status.  It requires regional 
offices to make provider-based determinations with assistance from intermediaries and 
State licensure agencies.  Typically, hospitals should submit requests to their intermediary, 
which remands the requests to HCFA for a determination.  The program guidance does 
not specify the level of information needed from hospitals, types of assistance needed from 
intermediaries, or the depth of analysis. 
On April 7, 2000, HCFA issued final regulations3 which could affect the process for 
granting provider-based status for hospital owned entities.  The regulations, prompted by 
an upcoming prospective payment system for hospital outpatient services, emphasize the 
fiscal impact of provider-based status on Medicare.  They also present regulatory 
definitions for provider-based status, provider-based entities, and other terms.  Further, 
the new regulations require a hospital to report its acquisitions to HCFA if the hospital 
wishes to obtain provider-based status for them.  Finally, the April regulations revise the 
wording on whether or not Medicare and its beneficiaries benefit from provider-based 
designations.  However, our review of the revised wording showed it makes no 
substantive changes that indicate an intended benefit to Medicare and its beneficiaries. 
The regulations appear, however, to enhance HCFAs control over which hospital owned 
entities receive approval to bill Medicare under the provider-based cost rules. 
2
Hospital Ownership of Physician Practices (OEI-05-98-00110) 
3
The regulations were published with a 60-day comment period. They are to be effective July 1, 2000. However, the 
specific provisions on provider-based status are not effective until October 10, 2000. 
5 
Provider-Based Reimbursement to Hospitals  OEI-04-97-00090  METHODOLOGY 
This report describes HCFAs management and oversight process4 for assuring that only 
qualified hospital owned entities are approved for provider-based status as intended. 
Our scope included HCFA headquarters, all HCFA regional offices, all fiscal 
intermediaries, and all State licensure agencies.  We collected and analyzed data from 
February 1998 through January 1999.  Where needed, we verified data through September 
1999.  At each location we reviewed policies, procedures, and practices for provider-
based determinations, including HCFAs eight criteria.  (See Appendix A.) 
Our data collection methods included a combination of written surveys, personal 
interviews, and document searches.  We used standardized survey questionnaires for 
collecting information on policies, procedures, and practices.  We provided our 
questionnaires to HCFA regional offices and intermediaries by electronic mail, and to the 
State agencies by traditional mail.  Table 1 shows the response rates to our questionnaire. 
Table 1

Agency Response

Agency Type  Responses  Percent of Universe 
HCFA regional offices  10 of 10  (100%) 
State licensure survey agencies  44 of 52  (85%) 
(50 States, District of Columbia, and Puerto Rico) 
Medicare fiscal intermediaries  39 of 39  (100%) 
In addition to the mail questionnaire, we made on-site inspections at three selected 
regional offices, three State agencies, and five intermediaries.  Using our standardized 
questionnaire, we interviewed staff and officials at each site to determine what policies, 
procedures, guidance, and practices were actually followed in approving and disapproving 
provider-based status.  At each location, we also reviewed and analyzed documentation on 
criteria, guidance, procedures, and practices for approving provider-based entities. 
Appendix B shows the specific locations of our on-site inspections. 
Further, we analyzed 85 sample case files showing HCFA decisions on provider-based 
status for hospital owned entities.  We obtained 70 files from intermediaries and 15 from 
HCFA regional offices.  We reviewed the case files to identify what procedures were 
actually used and what resulted from reviewing, approving, and disapproving requests. 
Our selection of the 85 case files was based almost entirely on availability of records.  To 
illustrate, we requested 5 sample case files from each of the 39 Medicare intermediaries. 
4
This report frequently refers to HCFAs provider-based process. That term encompasses HCFAs policy, 
instructions, protocol, practices, and procedures for reviewing, approving, disapproving, and tracking provider-based status for 
hospital owned entities. 
6 
Provider-Based Reimbursement to Hospitals  OEI-04-97-00090  To avoid anomalies, we requested files that documented typical determinations of 
provider-based or free-standing status.  If each intermediary had provided our requested 
five cases, we would have reviewed a total of 195 cases.  However, only 15 intermediaries 
could provide cases for our review.  They provided a total of 70 cases. Twelve of those 
intermediaries provided at least the 5 case files we requested. 
We also requested one case file from each HCFA regional office.  In response, we 
received 15 cases -- 1 case each from 6 regions, 2 cases from 1 region, 3 cases from 1 
region, and 4 cases from 1 region.  One region provided no case files. 
We integrated and compared information and data from HCFA, its intermediaries, States, 
and our case file review.  The information and data, however, was scarce, incomplete, and 
often inconsistent.  Accordingly, because of our concerns about data reliability we did not 
project the results of our survey and case file analysis.  We used dBASE, excel, and 
manual worksheets as tools to help aggregate and analyze the data obtained. 
- - - - - - - - - - - - -
We conducted this inspection in accordance with the Quality Standards for Inspections 
issued by the Presidents Council on Integrity and Efficiency. 
7 
Provider-Based Reimbursement to Hospitals  OEI-04-97-00090  FINDINGS 
Regional offices do not consistently follow HCFA processes 
for approving provider-based status 
According to HCFA program guidance, its regional offices have responsibility for 
determining whether or not hospital owned entities qualify for provider-based status.  In 
approving entities for provider-based status, HCFA regional offices are required to obtain 
assistance from Medicare intermediaries and State licensure agencies. 
In practice, however, HCFA regions do not consistently carry out their responsibilities for 
approving provider-based status for hospital owned medical entities.  The regions were 
inconsistent in applying criteria for provider-based status, using fiscal intermediary and 
State assistance, and documenting decisions.  The inconsistencies occurred not only 
among regions, but within the same region. 
The most common reason HCFA regional, intermediary, and State staffs gave for 
inconsistent application of the review process was that it is not clear.  They said their 
respective roles and HCFAs eight criteria are not clear. 
The level and extent of review varies considerably within and among HCFA 
regions 
Overall, our survey responses, interviews, documents searches, and case analysis showed 
that some HCFA regions perform a detailed, documented analysis in approving provider-
based status for hospital owned entities.  Others perform only a minimal review and do not 
document the basis for their decision. 
Variation within the same region:  In 1997, one HCFA region approved a hospital 
request for provider-based status for one of its entities.  The approval was given only after 
a thorough review of the request and supporting documentation from the hospital.  HCFA 
regional staff reviewed both the operations of the hospital and its entity.  The regional 
office required the hospital to submit a detailed request along with supporting 
documentation addressing each of the eight HCFA criteria.  For each of the eight criteria, 
the intermediary indicated compliance or noncompliance for provider-based status. 
Further, the hospitals request for provider-based status was signed by its Certified Public 
Accountant. 
In 1998, this same region approved another hospital request for provider-based status for 
one of its entities.  However, in this instance the approval was given after only minimal 
review.  The hospitals request consisted of a simple one and one-third page, unsigned 
memorandum.  Generally, the support was an assertion by the hospital that its entity met 
HCFA criteria.  For four of the eight criteria, the hospitals assertion consisted of a single 
sentence statement.  No additional support was furnished by the hospital, or requested by 
HCFA regional office staff. 
8 
Provider-Based Reimbursement to Hospitals  OEI-04-97-00090  Variation among regions:  In 1998, another HCFA region approved a hospital request 
for provider-based status for seven off-site entities.  In this example, the HCFA region 
gave approval after an extensive review of supporting documentation.  The hospital 
submitted over 1,000 pages of supporting documentation before obtaining approval. 
Further, the case files show that HCFA and intermediary staff made considerable inquiries 
into the qualifications of the seven entities.  To illustrate, the distance of each entity from 
the acquiring hospital was checked thoroughly and plotted on a map to assure compliance 
with HCFA criteria on proximity.  Further, HCFA regional staff even required 
documentary evidence that each of the entities was accredited as claimed by the hospital. 
Conversely, another region advised us that there is no requirement for establishing specific 
provider adherence to the provider-based approval process.  This region relies mainly on 
self-attestation statements from hospitals as evidence that their entities qualify for 
provider-based status. 
Similarly, an intermediary in another region described the process as primarily the 
hospitals self-attestation that their entities qualify for the status. 
HCFA regions do not always use fiscal intermediaries and State licensure 
agencies in approving provider-based status 
The extent to which HCFA regional offices use assistance from Medicare intermediaries 
and State licensure agencies varied.  Use of those important sources by HCFA in 
approving or disapproving provider-based status ranges from consistent involvement to 
total exclusion. 
HCFA fiscal intermediaries:  As HCFA contractors for Medicare reimbursement, the 
intermediaries are well positioned to contribute important information to HCFA regional 
offices for determining whether hospital owned entities are unquestionably qualified for 
provider-based status.  They have routine interaction with hospitals on a wide range of 
Medicare issues that provide a sound understanding of hospital operations, including those 
of off-site entities.  This knowledge is frequently reinforced and enhanced as a result of 
reviewing hospital cost reports and conducting routine audits. 
At the time of our inspection, HCFA used 39 fiscal intermediaries to pay Medicare claims 
for Part A medical services.  Despite HCFA program memoranda requiring their 
assistance in approving provider-based status for hospital owned entities, 16 
intermediaries reported not being involved in the approval process. 
Additionally, 13 of the remaining 23 intermediaries that did have a role in the approval 
process said that their role was not clear and inconsistently carried out. 
Staff at one intermediary specifically described three different practices by three HCFA 
regions for using the intermediaries to help determine if hospital owned entities qualified 
for provider-based status.  The intermediary serves medical providers in each of the three 
different HCFA regions. 
9 
Provider-Based Reimbursement to Hospitals  OEI-04-97-00090  -- The first HCFA regional office typically approved newly licensed entities as free-
standing, and instructed the owning hospital to request provider-based status from 
the intermediary. 
-- The second regional office approved hospital owned entities for provider-based 
status contingent on the intermediary review and finding. 
-- The third regional office approved hospital owned entities for provider-based 
status without any consideration of the intermediary. 
State licensure agencies: State licensure agencies routinely review hospitals and various 
other types of medical facilities for licensing and Medicare certification purposes.  These 
functions frequently involve on-site inspections of hospitals and entities they own. 
Therefore, State agencies are well positioned to assist HCFA in making provider-based 
determinations. 
However, HCFA regional offices frequently do not use the assistance of States.  For 
example, only 20 of the 44 State agencies that responded to our questions said they make 
on-site reviews of hospital owned entities in support of HCFA determinations.  Of those 
agencies, 16 said they made recommendations to HCFA or its intermediaries for approval 
or disapproval for provider-based status.  Staff in 3 State agencies that do not make site 
visits also said they make a recommendation, but it is based on their general knowledge of 
the hospitals.  One of the 19 States that make recommendations told us they recently 
discontinued their involvement in the approval process because HCFA told them to do so. 
Of the 44 State agencies, 15 said their responsibilities in the approval process is unclear. 
Many of the remaining 29 States did not provide clear information on their role. 
Provider-based decisions are not always documented 
The HCFA regions and intermediaries often do not document their decisions for or against

provider-based status, and the basis for those decisions.  At least one region had issued

guidance to intermediaries requiring them to document provider-based decisions.  That

region required intermediaries to document, at a minimum, that they had applied each of

HCFAs eight criteria in determining provider-based status for hospital owned entities. 

The region allowed flexibility to do so in a checklist, summary, or other method. 

However, many of the files we reviewed contained no such documentation.

To illustrate, our analysis showed that of the 85 case files we reviewed, HCFA regions

determined that 55 entities (65 percent) were qualified for provider-based status, and 20

(23 percent) were free-standing.  Files for five cases contained inadequate documentation

to determine if HCFA had approved or disapproved the application.  The remaining five

cases were incorrectly provided to us.  They were for provider enrollment and change of

ownership rather than determinations of provider-based status, as we had requested.

Of the 75 case files that showed the approval or disapproval decision, 26 contained clear

documentation for the basis of the decisions.  About half of the 26 decisions were for

provider-based status and half were for free-standing status.  The files for 15 of the 75

10 
Provider-Based Reimbursement to Hospitals  OEI-04-97-00090  determinations contained only minimal documentation, but we could ascertain that a 
decision had been made.  On the other hand, the files for the remaining 34 determinations 
did not contain supporting documentation for the decision.  Documentation was either 
missing altogether from the case files, or insufficient to determine how the decisions were 
reached.  HCFA regional offices, however, had approved a clear majority (28) of those 34 
cases for provider-based status. 
HCFA data systems are inadequate for managing the 
provider-based review process 
Neither HCFA headquarters nor regional offices could furnish reliable data on provider-
based determinations.  For example, from the data HCFA provided, we could not 
ascertain the number of 
-- hospitals requesting provider-based status, 
-- hospitals that had been approved for provider-based status, 
-- hospitals that had been rejected or disapproved for provider-based status, 
and 
-- hospitals that simply billed Medicare under the provider-based rules 
without notifying HCFA. 
Timely availability of such basic data is essential for sound program management. 
Without it, HCFA is unable to provide needed program oversight to assure appropriate 
costs and impacts for the Medicare Trust Funds and beneficiaries.  Further, without basic 
data showing approvals of hospitals for provider-based status, HCFAs fiscal 
intermediaries can not assure that off-site entities are properly accounted for in hospital 
cost reports.  Finally, without such basic management data, HCFA is highly vulnerable to 
improper Medicare Trust Fund reimbursements. 
HCFA can not identify hospitals that have requested and been approved for 
provider-based status 
HCFA program guidance does not fix responsibility on which organization (HCFA central

office, its regions, its fiscal intermediaries, or State licensure agencies) should maintain

records on provider-based determinations.  Our inspection showed that none of the

organizations maintained complete and accurate records.  Therefore, HCFA does not have

such basic data as which hospitals have requested and been approved for provider-based

status. 

First, HCFA headquarters does not maintain a data base or other record-keeping system

showing which hospitals have properly applied for and received approval for provider-

based status for entities they own. 

Second, data bases at HCFA regional offices either do not exist, or they are clearly

incomplete.  For example, of the 10 HCFA regional offices, only 2 had data bases that

11 
Provider-Based Reimbursement to Hospitals  OEI-04-97-00090  listed hospitals which had requested provider-based status for off-site entities.  Another 
regional office could only manually retrieve copies of some of their provider-based 
determination notices.  The staff in this region told us they were unable to identify all 
provider-based determinations. 
Third, such data is not consistently maintained by HCFA fiscal intermediaries.  Only 11 of 
the 39 intermediaries told us that they have a data base or other record-keeping system 
from which provider-based entities can be identified.  Typically, the other intermediaries 
relied on manual searches of their files, or less reliable methods such as the knowledge or 
recollections of various staff persons.  For example, we requested 5 case files for CY 1997 
from each of the 39 intermediaries.  Out of a possible 195 files, we received 70 from 15 
intermediaries.  Generally, the missing cases were not maintained or were not accounted 
for by intermediaries.  For example, eight intermediaries could furnish no case files, 
although they told us that they had assisted HCFA with 16 determinations.  Another 5 
intermediaries furnished 11 files, but said they actually assisted HCFA in 13 decisions. 
Finally, State licensure agencies do not maintain data on hospitals that have requested or 
obtained provider-based status for their off-site entities.  Of the 44 State agencies that 
responded to our survey, only 4 told us they have a data base from which they can retrieve 
information on provider-based status.  Of those four agencies, none could provide us with 
case-specific data.  For example, we could not always determine, from the State provided 
data, if hospital owned entities had been approved for provider-based status.  In instances 
where approval was clear, we could not ascertain when it occurred. 
HCFA efforts to identify hospitals that bill for provider-based reimbursement for 
off-site entities have generally been unsuccessful 
Staff in 7 of the 10 HCFA regional offices said they had tried several ways to identify 
hospitals that bill for provider-based entities.  Four of the seven had specifically directed 
intermediaries to identify hospitals that are billing for provider-based reimbursements for 
off-site entities.  They said that they had been generally unsuccessful. 
Staff in 3 of the 10 regions gave various reasons for not attempting to identify hospitals 
that were billing for provider-based reimbursement for their entities.  For example, two 
regions said HCFA had not mandated or funded initiatives for this purpose and another 
said they had no consistent way of collecting such information. 
Likewise, HCFA intermediaries have been generally unsuccessful in identifying hospitals 
that are claiming provider-based status for their entities.  Of the 39 intermediaries, only 18 
said they had taken specific action to determine which hospitals are claiming provider-
based status for their off-site entities rather than free-standing status.  However, they 
reported generally unsuccessful results.  For example, some of the intermediaries had 
surveyed hospitals in their jurisdiction, but only a few responded.  Of those that 
responded, their responses were often nonspecific.  Some intermediaries sent inspection 
teams to the hospitals.  However, even these intermediaries could not provide a complete 
listing of hospitals in their jurisdictions that were claiming provider-based reimbursement 
for their off-site entities. 
12 
Provider-Based Reimbursement to Hospitals  OEI-04-97-00090  Hospitals often bill for provider-based Medicare 
reimbursement without approval 
Overall, the system for approving provider-based arrangements for hospital owned entities 
does not work very well.  As a result, Medicare incurs excessive costs.  Because data 
systems were incomplete or nonexistent, we were unable to quantify the excessive costs. 
However, data from certain regions and intermediaries suggest that those costs could be 
substantial. 
Hospitals are required to obtain HCFA approval before billing for Medicare 
reimbursement under the provider-based accounting rules.  However, in practice, many 
HCFA and intermediary staff stated that hospitals do not obtain approval from HCFA. 
They said hospitals simply assume provider-based status for their entities and bill Medicare 
accordingly.  Such billing is inappropriate.  In some instances, HCFA intermediaries do 
not detect that the hospitals are billing Medicare under the higher cost provider-based 
rules until after several years have elapsed.  Further, when improper payments are made 
under the provider-based rules, intermediaries reported to us that they typically make only 
prospective corrections. 
The number of improperly designated medical entities is unknown, but may be 
substantial 
Numerous intermediary staff told us that hospitals frequently bill Medicare under the 
provider-based rules without HCFA approval.  Intermediary staff also said that, in many 
such instances, the hospital owned entities do not meet HCFA criteria.  Neither HCFA nor 
its intermediaries had data or information showing the extent of this practice nationally. 
However, the examples below indicate that the practice may be extensive. 
Data at one intermediary showed that 213 hospital owned entities claimed provider-based 
status during 1997 and early 1998.  The hospitals had properly requested provider-based 
status for only 5 of those.  The hospitals had, without HCFA approval, assumed provider-
based status for the remaining 208 entities and billed Medicare under the provider-based 
rules. 
After learning about the 208 designations through its hospital audits, the intermediary and 
HCFA staff reviewed and approved 185 of them for provider-based status.  The HCFA 
regional office disapproved the remaining 28.  Therefore, 14 percent of the entities for 
which hospitals had improperly assumed provider-based status were unqualified for 
Medicare reimbursement under the provider-based rules. 
Likewise, data provided by another intermediary showed that 58 entities claimed provider-
based status during 1997 and early 1998.  Only 2 of the 58 had been properly requested in 
advance.  The remaining 56 were assumed by hospitals without approval.  Subsequently, 
HCFA disapproved 45 of the 56 entities for which hospitals had improperly assumed 
provider-based status.  Therefore, 80 percent of the entities for which hospitals merely 
assumed provider-based status in this State were unqualified for reimbursement under the 
provider-based rules. 
13 
Provider-Based Reimbursement to Hospitals  OEI-04-97-00090  Additionally, after learning of these improperly assumed designations, the intermediary 
referred 6 of the 56 entities for Medicare program integrity investigations.  The referrals 
were based on failure to meet an essential Medicare program requirement for off-site 
entities.  As of September 1999, the intermediary was in the process of determining 
overpayments made in connection with those cases. 
In another HCFA region, a fiscal intermediary initiated a comprehensive effort to identify 
hospital owned entities that billed Medicare under the provider-based rules.  According to 
intermediary staff, this review disclosed numerous hospitals that were reimbursed under 
the provider-based rules, but should have been reimbursed under the less costly free-
standing rules.  The intermediary could not furnish specific numbers. 
A fiscal intermediary in another region conducted a similar review of provider-based 
entities owned by 23 hospitals in one State.  That intermediary found one entity that was 
receiving Medicare reimbursement under the provider-based rules, but should have been 
receiving it under the free-standing rules. 
Improperly designated medical entities and the resulting incorrect Medicare 
payments may go undetected for years 
When a hospital improperly assumes provider-based status for an unqualified entity, it may 
collect improper Medicare payments until the intermediary learns of, and corrects the 
improper designation.  The intermediary typically learns of such improperly designated 
entities after the fact through its audit process. 
In some instances, the audit process may not disclose improperly designated provider-
based status and improper billings for hospital owned entities for years.  For example, our 
review of case files for 50 hospital owned entities from one intermediary showed that at 
least 4 had been improperly billing Medicare under the financially advantageous provider-
based rules for between 4 and 6 years. 
The cost of improperly designated provider-based entities is unknown, but could 
be substantial 
Because of the absence of complete, reliable records, we did not determine the extent of 
improper payments for unqualified entities.  HCFA, its intermediaries, and States had no 
reliable data for comparing the costs of operating hospital owned entities under provider-
based rules versus operating them under the rules for free-standing entities. 
However, one HCFA region provided an estimate by one hospital that gives an indication 
of the financially advantageous reimbursement under the provider-based rules as compared 
to free-standing rules. 
In this example, HCFA determined that a hospital owned medical entity was actually a 
free-standing entity rather than a provider-based entity.  Therefore, the hospital was not 
allowed to claim Medicare reimbursement under the provider-based rules.  Instead, it had 
to claim reimbursement under the free-standing rules.  The hospital appealed HCFAs 
decision.  In its appeal, the hospital estimated that HCFAs denial had cost it $440,000 
over an 8-month period.  That estimate was the difference between Medicare Part B 
14 
Provider-Based Reimbursement to Hospitals  OEI-04-97-00090  reimbursement to the entity as a free-standing entity and what Medicare would have 
reimbursed had the entity been classified under the provider-based accounting rules. 
To the extent that the estimate by that hospital is reliable, the excessive cost for numerous 
unqualified hospital owned entities billing under the provider-based rules would be 
considerable.  As shown above, hospitals often improperly bill Medicare for provider-
based status, and incorrect payments may be undetected for years. 
Retroactive adjustments of improper payments for provider-based status are 
typically not made 
Staff at all HCFA regional offices, most intermediaries, and most State licensure agencies 
told us that controls are needed to prevent hospitals from improperly billing Medicare for 
entities that do not qualify for provider-based status.  As shown earlier, hospitals often 
improperly assume provider-based status for their entities and bill Medicare under the 
more costly provider-based rules.  HCFA does not have authority to impose penalties on 
such hospitals.  Further, when HCFA learns of such improper payments, it typically does 
not retroactively adjust Medicare reimbursements.  As a result, hospitals have little or no 
incentive to assure that their entities are unquestionably qualified for the financially 
advantageous reimbursements under provider-based status. 
The majority of Medicare intermediaries typically do not make retroactive adjustments of 
Medicare payments when they find that a hospital has been improperly reimbursed under 
the provider-based rules.  Those improper payments occur because the hospital should 
have been reimbursed under the less costly free-standing rules.  We asked the 39 
intermediaries if they make retroactive adjustments when they discover through audits or 
other means that a hospital had been improperly reimbursed.  Of the 39 intermediaries, 30 
answered our question.  Of those 30 intermediaries, 21 said they do not make retroactive 
adjustments, and only 9 said they make such adjustments. 
Data on provider-based status was incomplete and our attempts to ascertain the impact of 
not retroactively adjusting for improper Medicare payments was unsuccessful.  However, 
the impact could be significant based on anecdotal examples provided by a few of the 21 
intermediaries that clearly stated they do not retroactively adjustment payments.  To 
illustrate, 3 of the 21 intermediaries told us they did not retroactively adjust Medicare 
payments to numerous hospitals for 68 hospital owned entities.  Through the audit 
process, the intermediaries learned that the hospitals had billed under the provider-based 
rules for the 68 entities, but should have billed under the free-standing rules. 
Partly, this problem stems from a lack of consistent understanding among HCFA regions 
and intermediaries on what HCFA program guidance is relative to retroactive adjustments. 
The following examples illustrate the widely divergent views on HCFA program guidance 
relative to retroactive adjustments of payments for hospital owned entities.  Three 
intermediaries interpreted HCFA guidance to mean no adjustment even though the 
hospitals had billed Medicare under the provider-based rules without HCFA approval. 
Similarly, one HCFA regional office staff said they were not familiar with authority to 
make a retroactive adjustment. 
15 
Provider-Based Reimbursement to Hospitals  OEI-04-97-00090  Conversely, another HCFA regional office interpreted the guidance to allow a retroactive 
adjustment unless HCFA had previously made an incorrect determination of provider-
based status.  If HCFA had made the improper determination, the region felt it could not 
make a retroactive adjustment.  This interpretation precludes retroactive adjusted 
payments when a hospital improperly assumes provider-based status.  As shown earlier in 
this report, hospitals often do not ask HCFA for a determination.  They simply assume 
provider-based status and bill Medicare accordingly. 
In its new regulations which could revise the provider-based rules, HCFA has included 
language on retroactive adjustments or recovery of overpayments.  However, staff at 
several intermediaries said that reclassifying costs and correcting cost reports, as a means 
of adjusting for improper payments, was an over-simplification of the problem.  Those 
intermediaries and many others stated that the more significant problems are inadequate 
controls for assuring consistent, accurate determinations of provider-based status, and 
inadequate safeguards to prevent hospitals from improperly billing Medicare for 
unqualified off-site entities. 
16 
Provider-Based Reimbursement to Hospitals  OEI-04-97-00090  CONCLUSION  AND  RECOMMENDATIONS 
HCFA management of the process for granting provider-based status gives little or 
no assurance that only qualified hospital owned entities are approved.  The process 
often results in hospitals improperly billing Medicare for off-site entities that are not 
qualified for reimbursement under the higher cost provider-based rules.  Further, when 
HCFA identifies improper Medicare reimbursements for unqualified hospital owned 
entities, it typically does not make retroactive adjustments.  The extent of improperly 
designated provider-based entities and the resulting improper Medicare reimbursements is 
not readily determinable because of inadequate data systems.  However, opinions from 
HCFA, fiscal intermediary, and State staffs, plus the limited data they could provide 
suggested that improper Medicare reimbursements are substantial. 
In establishing procedures for granting provider-based status, HCFA recognized that the 
costs to both Medicare and its beneficiaries would be greater, with no commensurate 
benefits.  However, hospitals benefit from the provider-based arrangement because they 
are allowed to shift overhead costs to their provider-based entities and receive higher 
Medicare reimbursement.  For these reasons, in establishing procedures for granting 
provider-based status, HCFA stressed the importance of assuring that only unquestionably 
qualified hospital entities are approved. 
Implementing needed systems for properly managing the provider-based provision would 
likely require considerable resource investments by HCFA, its fiscal intermediaries, and 
States.  Considering this possibility, the recognized increased costs of the provider-based 
status for qualified and unqualified hospitals, and the absence of any commensurate benefit 
for Medicare and its beneficiaries, we question the merits of any additional expenditures 
on provider-based status for hospital owned entities. 
Because of such concerns, we recommended in our September 1999 OIG report5 that 
HCFA eliminate provider-based status as an option for physician practices.  Our current 
inspection showed that the same concerns are applicable for all types of hospital owned 
entities, including physician practices, home health agencies, nursing homes, and others. 
Therefore, expanding on our prior recommendation, 
we recommend that HCFA eliminate provider-based status as an accounting 
option for all types of hospital owned entities. 
If HCFA chooses to continue use of the provider-based option for hospital owned entities, 
it should 
<  Impose severe and substantial penalties, as recommended in our prior report, 
when hospitals bill Medicare for unqualified medical entities they own. 
Penalties should provide an incentive for hospitals to request HCFA approval, as 
5
Hospital Ownership of Physician Practices (OEI-05-98-00110) 
17 
Provider-Based Reimbursement to Hospitals  OEI-04-97-00090  required, before billing Medicare under provider-based rules.  Penalties would 
reduce the incentive for hospitals to bill Medicare for unqualified entities. 
<	 Revise and clarify its program policy and procedures.  HCFA guidance should 
better define processes for requesting, approving, tracking, and evaluating 
provider-based status.  Procedural guidance is needed to assure that HCFA 
regions, fiscal intermediaries, States, and hospitals understand eligibility criteria for 
provider-based status, and their respective roles in the approval process.  Further, 
such clarification is needed to assure consistent application of eligibility criteria by 
HCFA regions, fiscal intermediaries, and States.  The need for a consistent process 
related to recovery or non-recovery of reimbursement improperly claimed by 
hospitals is yet another reason clarification of policy and procedures would be 
beneficial. 
<	 Develop reliable data systems for program management.  At a minimum, data 
systems should identify hospitals that request provider-based status, hospitals that 
are approved, and those that simply assume the status without approval and bill 
Medicare inappropriately.  Further, HCFA needs such basic data to evaluate the 
cost of provider-based arrangements versus the cost for free-standing medical 
entities. 
<	 Require that all hospitals claiming provider-based status reapply for that 
status.  Reapplication could be done on a one-time or periodic basis.  It would 
give HCFA valuable information on which hospitals are being reimbursed under 
the financially advantageous provider-based rules.  It would also allow HCFA an 
opportunity to assure that only unquestionably qualified hospitals are approved. 
Further, if HCFA establishes serious intent to control approval based on its eight 
criteria, some unqualified hospitals might not reapply.  Finally, this option would 
give HCFA an opportunity to establish reliable baseline data for program 
management. 
AGENCY COMMENTS 
The Health Care Financing Administration commented on our draft report.  The full text of those 
comments are shown in appendix C. 
In brief, HCFA did not agree with the recommendation to eliminate the provider-based program. 
Instead, HCFA supported our alternative recommendation to establish reliable systems to improve 
its management of the provider-based program. To that end, HCFA has initiated various actions, 
including revising regulations and procedures, implementing management data and control 
systems, and providing training for staff responsible for program administration and control. 
The HCFA expressed concern about the administrative burden of full implementation of our 
recommendation to require all hospitals claiming provider-based status to reapply so that HCFA 
could assure they qualified for the benefit.  Instead, HCFA plans a less burdensome, alternative 
approach to resolving that problem.  Specifically, HCFA plans to assure that all new applicants 
qualify for the benefit.  Further, when a complaint or other evidence indicates that an existing 
18 
Provider-Based Reimbursement to Hospitals  OEI-04-97-00090  provider-based arrangement does not meet requirements, HCFA plans to reassess the hospitals 
qualifications for the benefit at that time. 
While we believe that HCFAs planned corrective action will significantly strengthen their future 
management of the Medicare provider-based reimbursement provision, we are concerned that 
some problems described in our report will continue.  Specifically, existing non-qualified hospitals 
will continue to bill Medicare under the cost advantageous provider-based rules until they are 
caught. 
Therefore, we continue to believe that it is appropriate to require all hospitals to reapply.  We 
recognized that there would be administrative costs associated with this requirement.  However, 
we believe that such costs would be more than off-set by savings accruing from termination of 
inappropriate billings to the program. 
19 
Provider-Based Reimbursement to Hospitals  OEI-04-97-00090  APPENDIX A 
Provider-Based Criteria

Program Memorandum (Intermediaries), HCFA Pub. 60A, Transmittal No. A-99-24 
May 1999 
This Program Memorandum re-issues Program Memorandum A-98-15, dated May 1998. 
The only change is the discard date and contact person; all other material remains the 
same. 
This Program Memorandum re-issues Program Memorandum A-96-7. 
SUBJECT: Policy Clarification: Provider-Based Designation 
PURPOSE: 
The purpose of this program memorandum (PM) is to consolidate and clarify the Health Care 
Financing Administrations (HCFAs) policy regarding provider-based and free-standing 
designation decisions. The various elements of this policy have been issued previously in 
regulations, program manuals, and letters to HCFA regional offices (ROs) or providers. This 
policy applies to all such designation decisions regarding any provider of services under Medicare, 
including physicians practices or clinics that state they are part of a provider. 
BACKGROUND: 
The term or designation provider-based is an outgrowth of the Medicare cost reimbursement 
system. The main purpose of the provider or facility-based designation is to accommodate the 
appropriate accounting and allocation of costs where there is more than one type of provider 
activity taking place within the same facility/organization, e.g., a hospital-based skilled nursing 
facility. This cost allocation and cost reimbursement more often than not results in Medicare 
program payments that exceed what would have been paid for if the same services were rendered 
by a free-standing entity. 
With the growth of integrated delivery systems, HCFA has received numerous requests from 
entities requesting provider-based status. These requests, if approved, increase the portion of the 
facilitys general and administrative costs that are supported by the Medicare program with no 
commensurate benefit to Medicare and its beneficiaries. Therefore, it is critical that HCFA 
designate only those entities that are unquestionably qualified as provider-based. 
For example, some hospitals are purchasing physicians clinics and multiple clinics in areas far 
from the licensed hospital and designating the clinics as outpatient departments of the hospital. 
If Medicare were to approve such designation as an outpatient department the hospital would 
then be allowed to increase Medicare payments by shifting overhead costs to the outpatient 
department and by increasing payments for indirect medical education. In addition to the 
20 
Provider-Based Reimbursement to Hospitals  OEI-04-97-00090  APPENDIX A 
Provider-Based Criteria

payment impact, the Medicare coverage of incident-to services would also be affected if a 
physicians office is redesignated as a hospital outpatient department. 
Medicare beneficiaries are also subject to an increased financial liability. In the example above of a 
hospital acquired physician practice, the beneficiary pays the usual deductible and co-insurance for 
physician services which are capped by the physician fee schedule. He is also responsible for a 
second deductible and co-insurance for a clinic visit or facility fee to the hospital. 
These charges are not subject to the Medicare allowable charge or limiting charge restrictions of a 
physicians office. 
Moreover, it should be noted that it is the intent of existing statutory and regulatory criteria for 
Medicare to operate as a prudent purchaser of services that enhance the care of beneficiaries. 
Medicare must comply with Congressional intent as reflected in 1861(v)(1)(A) of the Social 
Security Act to pay only for those costs that are necessary for the efficient delivery of needed 
health services. The statute at 1861(v)(1)(A) also provides general and specific criteria for 
developing payment rules to carry out the basic intent of the law as well as provisions when 
aggregate reimbursement produced by existing methodologies proves to be inadequate or 
excessive. 
POLICY STATEMENT: 
It is HCFAs policy that the following applicable requirements must be met before an entity can be 
designated as part of a provider for payment purposes: 
1. The entity is physically located in close proximity of the provider where it is based, and both 
facilities serve the same patient population (e.g. from the same service, or catchment, area); 
2. The entity is an integral and subordinate part of the provider where it is based, and as such, is 
operated with other departments of that provider under common licensure (except in situations 
where the State separately licenses the provider-based entity); 
3. The entity is included under the accreditation of the provider where it is based (if the provider 
is accredited by a national accrediting body), and the accrediting body recognizes the entity as 
part of the provider; 
4. The entity is operated under common ownership and control (i.e., common governance) by the 
provider where it is based, as evidenced by the following: 
!	 The entity is subject to common bylaws and operating decisions of the governing body of 
the provider where it is based; 
21 
Provider-Based Reimbursement to Hospitals  OEI-04-97-00090  APPENDIX A 
Provider-Based Criteria

!	 The provider has final responsibility for administrative decisions, final approval for 
personnel actions, and final approval for medical staff appointments in the provider-based 
entity; and 
!	 The entity functions as a department of the provider where it is based with significant 
common resource usage of buildings, equipment and service personnel on a daily basis. 
5. The entity director is under the direct day-to-day supervision of the provider where it is 
located, as evidenced by the following: 
!	 The entity director or individual responsible for day-to-day operations at the entity 
maintains a daily reporting relationship and is accountable to the Chief Executive Officer 
of the provider and reports through that individual to the governing body of the provider 
where the entity is based; and 
!	 Administrative functions of the entity, e.g., records, billing, laundry, housekeeping and 
purchasing, are integrated with those of the provider where the entity is based. 
6. Clinical services of the entity and the provider where it is located are integrated as evidenced by 
the following: 
!	 Professional staff of the provider-based entity have clinical privileges in the provider where 
it is based; 
!	 The medical director of the entity (if the entity has a medical director) maintains a 
day-to-day reporting relationship to the Chief Medical Officer or other similar official of 
the provider where it is based; 
!	 All medical staff committees or other professional committees at the provider where the 
entity is based are responsible for all medical activities in the provider-based entity; 
!	 Medical records for patients treated in the provider-based entity are integrated into the 
unified records system of the provider where the entity is based; 
!	 Patients treated at the provider-based entity are considered patients of the provider and 
have full access to all provider services; and 
!	 Patient services provided in the entity are integrated into corresponding inpatient and/or 
outpatient services, as appropriate, by the provider where it is based. 
22 
Provider-Based Reimbursement to Hospitals  OEI-04-97-00090  APPENDIX A 
Provider-Based Criteria

7. The entity is held out to the public as part of the provider where it is based (e.g., patients know 
they are entering the provider and will be billed accordingly); 
8. The entity and the provider where it is based are financially integrated as evidenced by the 
following: 
!	 The entity and the provider where it is based have an agreement for the sharing of income 
and expenses; and 
!	 The entity reports its cost in the cost report of the provider where it is based using the 
same accounting system for the same cost reporting period as the provider where it is 
based. 
DETERMINATIONS: 
Determinations concerning whether an entity is provider-based (e.g., common licensure, 
governance, professional supervision criteria, reimbursement and accounting information) will be 
made by the appropriate HCFA RO components, i.e., the RO Division of Health Standards and 
Quality and the RO Division of Medicare with the assistance of the State survey agencies 
and the fiscal intermediary. 
Please note that the issuance of this clarifying instruction may result in identification of previous 
provider-based decisions that would not be in accordance with the criteria described in this PM. 
In those instances, the ROs are not precluded from taking a corrective action on such erroneous 
designation/determinations. However, any corrective action is to be applied prospectively. 
This Program Memorandum may be discarded May 31, 2000. 
For further information, please contact George Morey at (410) 786-4653. 
23 
Provider-Based Reimbursement to Hospitals  OEI-04-97-00090  APPENDIX B 
Locations of On-Site Inspections

We surveyed all HCFA regional offices, State agencies, and intermediaries.  We also 
selected a limited sample for on-site inspections.  We selected sites on the basis of 
accessibility.  The table below identifies those selected. 
On-Site Inspections 
Site  HCFA Region  Location 
HCFA Regional Office  IV  Atlanta, Georgia 
HCFA Regional Office  VII  Kansas City, Missouri 
HCFA Regional Office  X  Seattle, Washington 
Medicare Intermediary  III  Baltimore, Maryland 
Medicare Intermediary  III  Richmond, Virginia 
Medicare Intermediary  IV  Birmingham, Alabama 
Medicare Intermediary  IV  Columbus, Georgia 
Medicare Intermediary  IV  Durham, North Carolina 
State Licensure Agency  III  Baltimore, Maryland 
State Licensure Agency  III  Richmond, Virginia 
State Licensure Agency  IV  Raleigh, North Carolina 
24 
Provider-Based Reimbursement to Hospitals  OEI-04-97-00090  APPENDIX C 
Agency Comments

25 
Provider-Based Reimbursement to Hospitals  OEI-04-97-00090  26 
Provider-Based Reimbursement to Hospitals  OEI-04-97-00090  27 
Provider-Based Reimbursement to Hospitals  OEI-04-97-00090  28 
Provider-Based Reimbursement to Hospitals  OEI-04-97-00090  29 
Provider-Based Reimbursement to Hospitals  OEI-04-97-00090  30 
Provider-Based Reimbursement to Hospitals  OEI-04-97-00090