Department of Health and Human Services 
OFFICE OF 
 
INSPECTOR GENERAL 
 
 
 
 
 
 
 
 
CMS I T S
  S  AKING  TEPS TO 
 
I  O  
MPROVE  VERSIGHT OF
 
P -B F ,
  ROVIDER ASED  ACILITIES  
B V R  
UT  ULNERABILITIES  EMAIN
 
 
 
 
 
 
 
 
 
 
Daniel R. Levinson 
Inspector General 
 
June 2016 
OEI-04-12-00380   
   
EXECUTIVE SUMMARY 
 
WHY WE DID THIS STUDY  
We reviewed the Centers for Medicare & Medicaid Services (CMS) 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 back to 1999, the Office of Inspector General (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 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.    
HOW WE DID THIS STUDY 
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.   
 
 
   
   
WHAT WE FOUND 
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.  
CMSs 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.  
WHAT WE RECOMMEND  
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 their provider-based facilities, (3) ensure 
that regional offices and MACs 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. 
   
   
TABLE OF CONTENTS 
Objectives ....................................................................................................1 
Background ..................................................................................................1 
Methodology ................................................................................................8 
Findings......................................................................................................10 
Half of hospitals owned at least one provider-based facility, but 
CMS does not determine whether all meet provider-based billing 
requirements ...................................................................................10 
CMS is taking steps to improve its oversight of provider-based 
billing; however, vulnerabilities remain ........................................ 11 
More than three-quarters of the 50 hospitals we reviewed that had 
not voluntarily attested for all of their provider-based facilities 
owned off-campus facilities that did not meet at least one 
requirement ....................................................................................13 
CMS reported challenges with the provider-based review process 
primarily because of difficulties obtaining documentation............14 
Conclusion and Recommendations ............................................................16 
Agency Comments and Office of Inspector General Response .....19 
Appendixes ................................................................................................20 
A:  Provider-Based Requirements..................................................20 
B:  Detailed Methodology ..............................................................23 
C:  Sample Sizes, Point Estimates, and 95-Percent Confidence 
Intervals..........................................................................................28 
D:  Description and Number of Hospitals That Owned Facilities 
That Did Not Meet Provider-Based Requirements ........................29 
E:  Number and Percentage of Attestations that CMS Regional 
Offices Approved for Provider-Based Status, 2012 .......................32 
F:  Agency Comments ....................................................................33 
Acknowledgments......................................................................................36 
   
   
   
OBJECTIVES 
To determine the extent to which: 
1.  hospitals owned provider-based facilities, 
2.  Centers for Medicare & Medicaid Services (CMS) has procedures to 
oversee provider-based billing,  
3.  hospitals and their off-campus provider-based facilities met provider-
based requirements, and 
4.  CMS and its contractors identified challenges associated with the 
attestation review process. 
BACKGROUND  
Medicare Part B pays for medically necessary physician services, such as 
office visits and surgical procedures.  Medicare payments for physician 
services vary depending on whether they were rendered at a freestanding 
facility1 or provider-based facility.2  According to MedPAC, from 2012 to 
2013, the use of Medicare services provided in a hospital outpatient 
setting, which includes provider-based facilities, increased by nearly 4 
percent, and over the past seven years, the cumulative increase was 33 
percent.3  This increase was due, in part, to hospitals purchasing 
freestanding facilities and converting them to provider-based facilities.4  
The increase in volume of Medicare services provided in a hospital 
outpatient setting has been accompanied by a shift in Medicare billing to 
____________________________________________________________ 
1 A freestanding facility is an entity that furnishes health care services that is not 
integrated with or part of a hospital.  Freestanding facilities include independent 
physician practices.  42 CFR  413.65(a) (2). 
2 In this report, the term, provider-based facility, refers to an on-or off-campus outpatient 
facility that (1) operates under the same name, ownership, and financial and 
administrative control of a main provider; and (2) furnishes the same types of services as 
the main provider.  These are outpatient departments with provider-based status.  42 CFR 
 413.65(a)(2).  In contrast, provider-based entities are providers with provider-based 
status that (1) are under the ownership and administrative and financial control of the 
main provider; and (2) furnish services of a different type than those of the main 
provider.  42 CFR  413.65(a)(2).  Certain regulatory requirements set forth in 42 CFR  
413.65(g) are applicable only to provider-based facilities (i.e., hospital outpatient 
departments), and others are applicable to both provider-based facilities and provider-
based entities.  Provider-based entities are outside the scope of this report; consequently, 
this report addresses only those statutory and regulatory requirements applicable to 
provider-based facilities. 
3 Medicare Payment Advisory Commission (MedPAC), Report to the Congress:  
Medicare Payment Policy, March 2015.   
4 Ibid.  A freestanding facility may be owned by a hospital without being integrated with 
it (i.e., the facility does not operate under the hospitals administrative and financial 
control).   
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provider-based facilities for services that previously were performed in 
either a freestanding facility or an inpatient hospital setting.5   
Medicare Provider-Based Status 
Provider-based status is a Medicare payment designation established by 
the Social Security Act.  It allows health care facilities with this 
designation to bill Medicare as a hospital outpatient department and 
thereby receive higher payments.  CMS has asserted that provider-based 
facilities offer important potential benefits, such as increased beneficiary 
access and integration of care, which may improve quality of care.  
However, CMS has not provided the Office of Inspector General (OIG) 
with any documentary support for this assertion. 
Medicare often pays over 50 percent more for services performed in 
provider-based facilities than for the same services performed in a non-
hospital based facility (i.e., a freestanding facility).6  Further, Medicare 
beneficiaries are responsible for copayments of 20 percent of the 
Medicare-approved amount for Part B services in both freestanding and 
provider-based facilities.  Therefore, beneficiaries generally are 
responsible for higher copayments for most services in provider-based 
facilities than in freestanding facilities.   
The example below illustrates the differences in Medicare and beneficiary 
costs for the same service in provider-based and freestanding facilities.  
Comparison of Medicare and Beneficiary Costs for the Same Service at a 
Provider-Based and Freestanding Facility                   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                          
 
                                         Source: OIG analysis of average 2014 Medicare Physician Fee Schedule and Outpatient Prospective Payment System payments 
                                         for Healthcare Common Procedure Coding System code 99202 for an office or other outpatient visit for the evaluation and 
                                         management of a new Medicare patient.  
____________________________________________________________ 
5 Ibid.   
6 MedPAC, Report to the Congress:  Medicare Payment Policy, March 2011, p.44.   
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A freestanding facility, such as a physicians office, furnishes services to 
Medicare beneficiaries but is not integrated with a hospital.7  Physicians 
who provide services in freestanding facilities are required to bill 
Medicare using a place-of-service code on the Medicare claim, indicating 
where the services were furnished.8   
Medicare pays for physician services provided in freestanding facilities 
using the Medicare Physician Fee Schedule (MPFS).  Under MPFS, CMS 
sets payment rates for individual services.9  The MPFS payment 
reimburses the provider for the cost of the physician service (i.e., the 
professional component) and the operational expense for the facility, such 
as the cost of equipment and overhead (i.e., the facility component).10   
In contrast, a provider-based facility, which operates under the ownership, 
administrative, and financial control of a hospital, bills as an outpatient 
department of the hospital.11  Provider-based facilities may be on campus 
(within 250 yards of the main buildings of the main provider) or off 
campus (more than 250 yards but less than or equal to 35 miles from the 
main buildings of the main provider).   
Because provider-based facilities bill as outpatient departments of the 
hospital, two claims are submitted for services rendered in these facilities.  
The hospital submits one claim for the component of the service related to 
the facilitys operating costs.  Medicare pays this claim through the 
Outpatient Prospective Payment System (OPPS).12  This payment covers 
the operational expenses of the owning hospital.  However, OPPS does not 
____________________________________________________________ 
7 42 CFR  413.65(a)(2).   
8 CMS defines office as a location other than a hospital, skilled nursing facility, 
military treatment facility, community health center, State or public local health clinic, or 
intermediate care facility, where the physician routinely provides health examinations, 
diagnoses, and treatment of illnesses or injuries on an ambulatory basis.  CMS, Medicare 
Claims Processing Manual, ch. 26,  10.5.   
9 These services are identified by Current Procedural Terminology (CPT) codes included 
in the Healthcare Common Procedure Coding System (HCPCS).  The five character 
codes and descriptions included in this report are obtained from Current 
Procedural Terminology (CPT), copyright 2011 by the American Medical 
Association (AMA).  CPT is developed by the AMA as a listing of descriptive terms 
and five character identifying codes and modifiers for reporting medical services 
and procedures. Any use of CPT outside of this report should refer to the most 
current version of the Current Procedural Terminology available from AMA.  
Applicable FARS/DFARS apply.     
10 77 Fed. Reg. 68891, 68897 (Nov. 16, 2012).  See also, CMS, Payment System Fact 
Sheet Series:  Medicare Physician Fee Schedule, December 2011.  Accessed at 
http://www.cms.gov/Outreach-and-Education/Medicare-Learning-Network-
MLN/MLNProducts/downloads//MedcrephysFeeSchedfctsht.pdf on May 9, 2014. 
11 42 CFR  413.65(a)(2).  The hospital that owns and controls the provider-based facility 
is known as the main provider in this relationship.    
12 Under OPPS, each code is grouped into an ambulatory payment classification, which 
CMS translates into a dollar amount.   
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cover the costs of the professional component of the patients medical 
care.13 
The physician submits a separate claim for the professional component of 
the same service.  The claim contains a place-of-service code to indicate 
the setting in which the service was performed (e.g., off-campus or on-
campus provider-based facility).14  For services in provider-based 
facilities, the physician typically uses place-of-service code 22 on the 
claim and includes the address of the facility where the physician provided 
the service.   
Since January 1, 2016, CMS has required physicians to use different 
place-of-service codes on claims to distinguish between services 
performed in on- or off-campus provider-based facilities.  Physicians use 
place-of-service code 22 for services in on-campus provider-based 
facilities and place-of-service code 19 for services in off-campus provider-
based facilities.15   
Physician claims for the professional component of the services are billed 
under the attending physicians national provider identifier number.   
Medicare pays the claim using a reduced MPFS (i.e., non-facility) rate 
because it does not include the facility component cost.16  For services in 
provider-based facilities, the combination of OPPS and MPFS payments 
generally results in higher payments than if the services were provided in a 
freestanding facility.17  
On November 2, 2015, the President signed into law the Bipartisan Budget 
Act of 2015.18  This law mandates that, effective January 1, 2017, only off-
campus outpatient departments billing the OPPS for services before 
November 2, 2015, (grandfathered provider-based facilities) may continue 
to receive payment from the OPPS.  This will allow the grandfathered 
facilities to continue to generally receive higher payments (i.e., payments 
from both the OPPS and MPFS) for services than if the same services 
were provided in a freestanding facility (i.e., receiving payment only from 
____________________________________________________________ 
13 CMS, Medicare Claims Processing Manual, ch. 6,  20.1.1.2; CMS, Medicare Benefit 
Policy Manual, Ch. 15,  30.1. 
14 CMS, Medicare Claims Processing Manual, ch. 26,  10.5.   
15 CMS, New and Revised Place of Service Codes (POS) for Outpatient Hospital, 
Transmittal 3315 (Change Request 9231; August 6, 2015). 
16 CMS, Medicare Claims Processing Manual, ch. 12,  20.4.2.  All Medicare providers 
are assigned a unique 6-digit identification number.  All claims from Medicare providers 
must contain this number.   
17 According to CMS, for a small number of services, the payment is less when the 
service is furnished in an outpatient department or provider-based facility of the hospital 
than in a freestanding facility. 
18 Bipartisan Budget Act of 2015, P.L. 114-74, Title VI,  603. 
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the MPFS).  Off-campus provider-based facilities that are not 
grandfathered would be paid under another applicable payment system, 
beginning January 1, 2017, resulting in lower overall payment.  Table 1 
provides the effective dates and descriptions of important changes to 
provider-based billing.  
Table 1:  Dates and Descriptions of Important Changes to Provider-Based 
Billing 
Date  Description 
Off-campus provider-based facilities that began billing for 
November 1, 2015  provider-based services after this date may continue to receive 
higher provider-based payment only until December 31, 2016. 
Date after which physicians must use place-of-service code 19 
on professional claims for services in off-campus provider-
January 1, 2016  based facilities and code 22 for services in on-campus 
provider-based facilities.  Hospital claims must contain a 
modifier for services in an off-campus outpatient facility.* 
Only those off-campus provider-based facilities that billed for 
provider-based services before November 2, 2015, may 
January 1, 2017 
continue to receive the higher provider-based payment after 
this date.**  
                                        *CMS, April 2015 Update of the Hospital Outpatient Prospective Payment System (OPPS), Transmittal 3238         
                                        (Change Request 9097; April 22, 2015); CMS, New and Revised Place of Service Codes (POS) for Outpatient 
                                        Hospital, Transmittal 3315 (Change Request 9231; August 6, 2015). 
                                        **All off-campus provider-based facilities that are dedicated emergency departments defined by regulations  
                                        will continue to receive the higher provider-based payment after December 31, 2016.  On-campus provider- 
                                        based facilities, as well as on- and off-campus provider-based entities, may continue to receive higher                    
                                        payments regardless of when they began billing for provider-based services. 
                                             Source: OIG analysis of Federal regulations and Bipartisan Budget Act of 2015, 2015.   
 
Provider-Based Requirements and Attestations 
Hospitals and their provider-based facilities have to meet specific 
requirements described in 42 CFR  413.65 and CMS Transmittal A-03-
030 to appropriately bill Medicare as a provider-based facility.19  Provider-
based requirements apply to hospitals and their provider-based facilities, 
and additional requirements apply to off-campus facilities.  These include 
practice licensure, integration of clinical services and financial operations, 
and compliance with nondiscrimination and health and safety rules.  
Additional requirements, such as administration and supervision and 
location, apply to off-campus provider-based facilities.  See Appendix A 
for a detailed list of provider-based requirements. 
Although not required, hospitals may submit an attestation to CMS that a 
facility meets provider-based requirements.  If a hospital chooses to 
submit an attestation, it is required to maintain supporting documentation 
indicating that its on- and off-campus provider-based facilities for which it 
____________________________________________________________ 
19 CMS Transmittal A-03-030 does not contain requirements other than those listed in 42 
CFR  413.65; however, it notifies providers of actions they must take to implement the 
regulations. 
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is attesting comply with all provider-based requirements.20  Hospitals that 
attest for on-campus facilities do not have to submit documentation with 
the attestation.  In contrast, hospitals that attest for off-campus facilities 
must submit documentation demonstrating that the requirements are being 
met.   
A hospital that voluntarily attests must first submit the attestation form 
and, if applicable, supporting documentation, to Medicare Administrative 
Contractors (MACs).21  MACs review these documents to determine 
whether they comply with all provider-based requirements and 
recommend approval or denial of provider-based status to the appropriate 
CMS regional office. 
Next, CMS regional offices conduct reviews and make decisions regarding 
the approval or denial of provider-based status on the basis of the 
attestations and MAC reviews.  These reviews and decisions are tracked in 
CMSs Management Information System database.  Regional offices and 
MACs also may return an attestation to a hospital if the attestation is 
incomplete or does not include sufficient documentation, giving the 
hospital additional time to gather and submit necessary documentation. 
If a regional office denies an attestation, CMS may recoup the 
overpayments to the facility related to its provider-based billing.  The 
overpayment amount is the difference between the OPPS and MPFS 
(provider-based) and the MPFS (freestanding) payments.22  However, to 
calculate these overpayments, CMS must rely on hospitals to self-report 
the claims billed for services in the provider-based facility.   
CMS provides incentives for hospitals to voluntarily submit provider-
based attestations by reducing the amount of overpayments it seeks if the 
hospital and facility do not meet provider-based requirements.23  
Specifically, if a hospital submits an attestation that is denied, CMS will 
seek to recover overpayments made only after the date the attestation was 
submitted, rather than seeking to recover all overpayments made since the 
____________________________________________________________ 
20 The attestation must also include general information such as the identity of the 
hospital and the facility(ies) seeking provider-based status, an enumeration of each 
facility and a statement of its exact location (i.e., street address and whether it is on- or 
off-campus), the date on which the facility became provider-based to the main provider, 
and contact information should the regional office have further questions. 
21 CMS contracts with MACs primarily to process medical claims for Medicare 
beneficiaries and to serve as the primary operational contact between the Medicare Fee-
For-Service program and enrolled health care providers. 
22 This applies to all cost reporting periods subject to reopening.   
42 CFR  413.65(j) (1) (ii).   
23 CMS may use several methods to find that a hospital and facility do not meet provider-
based requirements.  These include attestation reviews, provider self-disclosure, or audits. 
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hospital and facility began billing as provider-based.  For example, if a 
hospital and facility began billing as provider-based on January 1, 2014, 
and submitted an attestation on June 1, 2015, that CMS denied, CMS 
would seek to recover overpayments made only after June 1, 2015.  
However, had the hospital not submitted an attestation and CMS 
determined the hospital and facility did not meet provider-based 
requirements, it would seek to recover overpayments going back an 
additional year and a half, to January 1, 2014. 
Related Work 
In 1999, OIG reported that hospitals were purchasing physician practices 
(i.e., freestanding facilities) in significant numbers.24  OIG also found that 
CMS was unaware both of the extent of hospital ownership of these 
facilities and that provider-based status increased costs to Medicare and its 
beneficiaries, with no apparent benefit.  OIG recommended that CMS 
eliminate the use of the provider-based status designation and require 
hospitals to report purchases of freestanding facilities.  CMS did not 
concur with the recommendation to eliminate provider-based status and 
stated that provider-based billing encouraged integrated health care 
delivery systems.  Instead, CMS produced a set of standards (i.e., 42 CFR 
 413.65) for provider-based facilities and entities designed to guard 
against abuse of the payment system.25  To date, CMS has not provided 
OIG with any evidence that provider-based facilities produce specific 
benefits, such as integrated or improved quality of care, that justify the 
higher costs compared to freestanding facilities.   
In 2000, OIG found that CMS regional offices do not follow consistent 
processes for the review and approval of voluntary provider-based 
attestations and that CMSs data systems were inadequate for managing 
provider-based status.26  Specifically, CMS could not identify (1) the 
number of hospitals denied provider-based status or (2) hospitals billing as 
provider-based.  OIG again recommended that CMS discontinue its use of 
the provider-based status designation, and, if CMS did not do so, that it 
develop reliable data systems for program management.  Again, CMS did 
not concur with OIGs recommendation.  CMS maintained that increased 
payments were appropriate to accommodate higher costs resulting from 
____________________________________________________________ 
24 OIG, Hospital Ownership of Physician Practices (OEI-05-98-00110), September 1999, 
pp. 5-6.  Recommendations were made to the Health Care Financing Administration, 
which is now CMS.    
25 Ibid., pp. 23-24.   
26 OIG, Health Care Financing Administration Management of Provider-Based 
Reimbursement to Hospitals (OEI-04-97-00090), August 2000, pp. 1-2. 
Recommendations were made to the Health Care Financing Administration, which is now 
CMS.    
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financial and clinical integration.  However, CMS concurred with the 
recommendation to develop reliable data systems for program 
management.27  Since then, CMS has developed a management 
information system that contains the results of provider-based reviews and 
enables CMS to monitor review status. 
In 2011, OIG found that physicians in provider-based facilities (i.e., 
hospital outpatient departments) did not always use correct place-of-
service codes.  For example, they used code 11 for a freestanding 
physicians office instead of code 22 for a hospital outpatient department 
on Part B claims submitted to and paid by Medicare contractors.28  OIG 
estimated that as a result of these errors, Medicare contractors overpaid 
physicians $9.5 million during 2009.  OIG recommended that CMS 
recover overpayments for the sampled physician services, educate 
physicians about the importance of correctly reporting the place of service, 
and encourage physicians to implement internal control systems to prevent 
such incorrect billings.  CMS concurred with these recommendations and 
stated that it was developing detailed guidance on the proper use of place- 
of-service codes. 
Finally, in a 2012 report, the Medicare Payment Advisory Commission 
(MedPAC) recommended to Congress that it equalize payment for 
evaluation and management office visits, one type of physician service 
provided in hospital outpatient departments, provider-based facilities, and 
physician offices.  MedPAC stated that this change could decrease 
Medicare spending by more than $10 billion in over 5 years. 
METHODOLOGY  
To determine the number of facilities that were billing as provider-based, 
we selected a random stratified statistical sample of 333 hospitals.29  Of 
these, 272 responded to our request, a weighted response rate of 84 
percent.  Next, we collected information from CMS regional offices and 
MACs regarding the extent to which CMS had procedures to oversee 
provider-based billing.  We asked CMS whether it has conducted analyses 
to determine the benefits of the provider-based designation.  We collected 
and analyzed supporting documentation from a purposive sample of 50 of 
the 272 hospitals that reported owning off-campus provider-based 
____________________________________________________________ 
27 Ibid, p. 18. 
28 OIG, Review of Place-of-Service Coding for Physician Services Processed by 
Medicare Part B Contractors During Calendar Year 2009 (A-01-10-00516), September 
2011, pg. 4.   
29 Hereafter, unless otherwise noted we refer to facilities billing as provider based as 
provider-based facilities, regardless of whether CMS approved an attestation for the 
facility.   
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facilities but had not voluntarily attested that all of their facilities met 
requirements.  We determined the extent to which these hospitals and one 
of their selected off-campus facilities met provider-based requirements.  
Finally, we collected information from CMS and MACs about attestation 
reviews in 2012 as this was the most current and complete data available 
at the time of our review.  We also asked CMS whether there were any 
challenges associated with the review process.   
See Appendix B for a more detailed description of our methodology.  See 
Appendix C for the sample size, point estimates, and 95-percent 
confidence intervals for statistics in our report for hospitals that reported 
owning provider-based facilities.  Additionally, all references to hospitals 
and their off-campus provider-based facilities for which they had not 
voluntarily attested apply only to our sample of 50 and are not projected to 
the population. 
Standards 
This study was conducted in accordance with the Quality Standards for 
Inspection and Evaluation issued by the Council of the Inspectors General 
on Integrity and Efficiency.  
 
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FINDINGS 
CMS is taking steps to improve its monitoring of provider-based billing; 
however, vulnerabilities remain.  For example, CMS does not determine 
whether all provider-based facilities meet requirements to bill at the higher 
provider-based rate.  This is, in part, because the attestation process is 
voluntary and not all hospitals attest for all facilities.  Further, CMS 
cannot segregate billing by provider-based facilities, which is critical to 
ensuring appropriate payments and implementation of the Bipartisan 
Budget Act of 2015.  In addition, some facilities may be improperly billing 
at the higher provider-based rate, as we identified hospitals with a 
provider-based facility that did not meet at least one requirement.  Finally, 
CMS reported challenges with the provider-based attestation review 
process because of difficulties obtaining supporting documentation.   
Half of hospitals owned at least one provider-based 
facility, but CMS does not determine whether all meet 
provider-based billing requirements 
As of May 2013, half of hospitals owned at least one on- or off-campus 
provider-based facility.30  The average number of provider-based facilities 
that each hospital owned was 6, and the number of provider-based 
facilities owned by hospitals in our review ranged from 1 to 84.   
CMS does not determine whether all facilities meet the requirements for 
receiving the higher provider-based rate because the attestation process is 
voluntary and not all hospitals attest for all of their facilities.  Nearly two-
thirds (61 percent) of hospitals that owned provider-based facilities had 
not attested for at least one of those facilities.31  The remaining hospitals 
(39 percent) that owned provider-based facilities had attested for all of 
them.  Table 2 shows the percentage of hospitals that attested for none, 
some, or all of their provider-based facilities that hospitals owned. 
 
 
 
 
 
 
 
 
____________________________________________________________ 
30 See Appendix C for the sample size, point estimates, and 95-percent confidence 
intervals for statistics in this report.  For purposes of this report, we define provider-based 
facilities as those that are owned by and integrated with a hospital to bill Medicare as a 
hospital outpatient department.   
31 Ibid. 
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Table 2:  Percentage of Hospitals That Attested for None, Some, or All of 
Their Provider-Based Facilities, 2013 
Portion of Hospitals Provider-Based 
Percentage of Hospitals With 
Facilities for Which They Voluntarily 
Provider-Based Facilities 
Attested 
No Facilities  43% 
Some Facilities  18% 
All Facilities  39% 
     Total  100% 
         Source: OIG analysis of 2013 hospital respondent data, 2015. 
CMS is taking steps to improve its oversight of 
provider-based billing; however, vulnerabilities remain  
CMS initiatives in early 2016 to improve its oversight of provider-based 
facilities include implementing new place-of-service codes and modifiers 
on claims.  However, CMS may not be able to identify all provider-based 
billing and potential overpayments based on claims data, even with the 
new place-of-service codes.  Moreover, the vulnerabilities in CMSs 
oversight make it difficult to implement the Bipartisan Budget Act of 
2015.   
New and revised claim processing procedures will allow CMS to 
identify off-campus provider-based facility billing 
As of January 2016, CMS has made two changes that will help it identify 
off-campus provider-based-facility billing.  First, CMS requires physicians 
to use a new place-of-service code (code 19) to distinguish between 
services provided in an off-campus outpatient hospital setting and those 
provided in an on-campus hospital outpatient setting.32  The latter will 
continue to use code 22, whether the service is provided in a hospital 
outpatient department or on-campus provider-based facility.  Second, 
CMS requires that all facility (i.e., hospital) claims contain a specific two-
digit modifier for services in an off-campus provider-based facility.33   
These are positive steps designed to support CMSs efforts to determine 
the frequency, type, and cost of services furnished in off-campus provider-
based facilities.  Further, these changes will support CMSs ability to 
____________________________________________________________ 
32 CMS, New and Revised Place of Service Codes (POS) for Outpatient Hospital, 
Transmittal 3315 (Change Request 9231; August 6, 2015).   
33 Medicare and Medicaid Programs: Hospital Outpatient Prospective Payment and 
Ambulatory Surgical Center Payment Systems and Quality Report Programs; Physician-
Owned Hospitals; Data sources for Expansion Exception; Physician Certification of 
Inpatient Hospital Services; Medicare Advantage Organizations and Part D Sponsors: 
CMS-identified Overpayments Associated with Submitted Payment Data (79 Fed. Reg. 
66769, 66910-66914 (Nov. 10, 2014)).  This modifier must contain the label PO.  
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match the facility and professional components of a claim from claims 
data.   
CMS cannot identify billing for all provider-based services from 
claims data 
CMSs implementation of new place-of-service codes to distinguish 
between claims for services in off-campus and on-campus provider-based 
facilities should significantly enhance the agencys ability to segregate 
provider-based services within claims data.  However, despite the 
implementation of new codes, vulnerabilities remain.  For example, 
although payment amounts are identical for the same service, CMS may 
not be able to distinguish between billing for services in on-campus 
provider-based facilities and outpatient hospital departments because 
professional claims for services in both types of locations will continue to 
use the same place-of-service code (22).  Further, MAC staff in one region 
stated that they use beneficiary numbers and dates of service on claims to 
match facility and professional claims, which can lead to false positives 
(i.e., matching claims that appear to be for the same service, but are not) 
when the patient receives multiple services performed on the same day.    
The inability to identify all facilities billing as provider-based limits CMS 
in calculating and recouping potential overpayments to facilities that do 
not meet provider-based requirements.  For instance, an on-campus 
provider-based facility is subject to provider-based requirements that do 
not apply to a hospital outpatient department.  If CMS determines that an 
on-campus provider-based facility does not meet requirements, but the 
professional claims for services in this facility do not specify the facilitys 
address (e.g., suite or building number) from the hospitals address, CMS 
would not be able to determine the payment amounts for claims billed for 
provider-based services in this facility.  This vulnerability also applies to 
off-campus provider-based facilities if a hospital owns multiple off-
campus facilities in one building or campus, and the physician claim does 
not specify the exact location of the service.   
Further, CMSs inability to identify all facilities billing as provider-based  
limits its full enforcement of the Bipartisan Budget Act of 2015, which 
mandates that, effective January 1, 2017, off-campus outpatient facilities 
cannot be paid the higher payment rate under the OPPS unless they had 
been billing for services under that system as of November 1, 2015.  
Before January 2016, CMS could not distinguish billing from on- and off-
campus provider-based facilities owned by the same hospital, or among 
multiple off-campus provider-based facilities.  Therefore, CMS cannot 
create a population of off-campus provider-based facilities that should be 
grandfathered (i.e., exempt) from new legislation.   
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CMS also does not match the facility component of a claim to the 
associated professional component of a claim.  Therefore, CMS still has 
no means of ensuring that claims for the professional component of 
provider-based services use the correct place-of-service code, resulting in 
the appropriate lower payment for this component of the claim.  For 
example, a hospital might bill Medicare for the facility component of a 
provider-based service, and the physician might use place of service code 
11 instead of 19 or 22 on the claim, which would result in additional 
payment for the operational expense for the facility.34  This would result in 
an overpayment that CMS could not identify from the claims data.   
More than three-quarters of the 50 hospitals we 
reviewed that had not voluntarily attested for all of 
their provider-based facilities owned off-campus 
facilities that did not meet at least one requirement  
We found that 39 of the 50 hospitals in our purposive sample that had not 
voluntarily attested for all of their provider-based facilities owned off-
campus facilities that did not meet at least one provider-based requirement 
(see Table 3).  However, the remaining 11 of 50 hospitals and the facilities 
they owned met all requirements.   
Because the Medicare attestation process for provider-based status is 
voluntary, facilities may bill Medicare at the higher provider-based rate 
without demonstrating to CMS that they meet provider-based 
requirements.  Thus, these hospital facilities may be improperly billing 
Medicare at the higher provider-based facility amount and may be 
receiving overpayments.   
The 39 hospitals owned off-campus facilities that did not meet at least one 
provider-based requirement because the hospital (1) provided information 
(e.g., documentation or responses) that did not support compliance with 
provider-based requirements, or (2) stated that they did not have the 
required documentation to support compliance.  See Table 3 for the 
number of hospitals that owned provider-based facilities that did not meet 
each provider-based requirement.  See Appendix D for a description and 
number of the hospitals that owned off-campus provider-based facilities 
that did not meet at least one provider-based requirement.  See Appendix A 
for a description of the provider-based requirements and examples of 
documents hospitals could have submitted to demonstrate compliance with 
these requirements. 
 
 
____________________________________________________________ 
34 Code 11 is for freestanding physician offices and codes 19 and 22 are for hospital off- 
and on-campus provider-based facilities, respectively. 
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Table 3:  Number of Hospitals That Owned Off-Campus Provider-Based Facilities That Did 
Not Meet At Least One Provider-Based Requirement 
Number of Hospitals That Owned Provider-Based Facilities That Did Not Meet 
Requirements 
Category of  Stated That They Did Not 
Provided Information That Did 
Requirements  Have Required  Total Number of 
Not Support Meeting 
Documentation to Support  Hospitals 
Requirements 
Meeting Requirements 
Administration and 
21  4  25 
Supervision 
Operation Under the 
24  3  24 
Control of the Hospital 
Clinical Services 
18  9  23 
Integration 
Beneficiary Awareness  10  0  10 
Compliance With 
2  0  2 
Hospital Rules 
Licensure  0  5  5 
Financial Integration  0  1  1 
Public Awareness  0  1  1 
Location  0  1  1 
     Total  37  19  39* 
*The sum of certain columns exceeds their total because some hospitals owned facilities that did not meet more than one requirement.  
The sum of certain rows also exceeds their total because some hospitals owned facilities that did not meet requirements for both methods 
we used to determine compliance. 
Source: OIG analysis of hospitals supporting documentation for off-campus provider-based facilities, 2015. 
CMS reported challenges with the provider-based 
review process primarily because of difficulties 
obtaining documentation  
Eight of 10 CMS regional offices and six of 14 MACs reported challenges 
with the provider-based review process primarily because they 
experienced difficulties obtaining documentation from hospitals.  CMS 
regional offices and MACs also reported challenges associated with 
unclear CMS guidance regarding documentation necessary to support 
compliance with provider-based requirements.   
Four CMS regional offices reported receiving incomplete provider 
documentation from MACs or hospitals.  As a result, CMS regional 
offices had to request additional information from MACs.  This increased 
the workload for CMS regional offices and may further contribute to 
delays in attestation approvals and denials.   
Two CMS regional offices reported challenges related to the lack of CMS 
guidance regarding specific documents hospitals must submit with 
attestations for off-campus provider-based facilities to demonstrate 
compliance with provider-based requirements.35  Of the two remaining 
____________________________________________________________ 
35 CMS Transmittal A-03-030 provides background on the provider-based regulations at 
42 CFR  413.65, and includes provider-based requirements and instructions to providers 
for submitting provider-based attestations. 
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regional offices, one reported challenges related to working with a new 
MAC and another reported inconsistencies between requirements in the 
regulation and the CMS transmittal. 
In addition, of the six MACs reporting challenges with the provider-based 
review process, five reported challenges obtaining the required 
documentation from hospitals.  These challenges may delay the attestation 
review process if MACs must review attestation multiple times because 
they received multiple rounds of documentation.  The remaining MAC 
reporting challenges indicated that different CMS regional offices in the 
same MAC jurisdiction look for varying types of supporting 
documentation from providers for the same requirement.   
The lack of specific guidance on the documentation needed to support 
compliance with provider-based requirements may contribute to 
inconsistencies in the attestation approval process across CMS regional 
offices, as well as delays and review burden.  Separate offices may apply 
different thresholds for the documentation needed to support the same 
requirement.  These differences may account for the range of attestation 
approval rates found across CMS regional offices.  For instance, in 2012, 
the percentage of attestations that regional offices approved ranged from 
21 to 98 percent.  This may indicate that some CMS regional offices have 
different approval thresholds (e.g., lower documentation thresholds may 
contribute to a greater approval rate).  See Appendix E for the number and 
percentage of attestations that CMS regional offices approved for on- and 
off-campus provider-based status in 2012.     
 
 
 
   
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CONCLUSION AND RECOMMENDATIONS 
Dating back to 1999, OIG has identified vulnerabilities associated with the 
provider-based status designation.  These include oversight challenges 
confronting CMS and increased costs to Medicare and its beneficiaries, 
with no documented benefits.  Based on these findings, OIG has 
recommended eliminating the provider-based designation.  MedPAC has 
recommended equalizing payment for certain services in hospital 
outpatient departments and physician offices.  The Bipartisan Budget Act 
of 2015 eliminates 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.    
CMS is taking steps to improve its monitoring of provider-based billing; 
however, vulnerabilities remain.  Changes, effective January 2016, in the 
way CMS distinguishes off-campus provider-based services on Medicare 
claims should improve oversight of provider-based billing.  Specifically, 
CMS now requires claims for services provided in off-campus provider-
based facilities to be billed using a new place-of-service code.  In addition, 
CMS now requires a modifier on hospital outpatient claims identifying 
when a service has been provided in an off-campus provider-based facility.  
These are positive steps designed to support CMSs efforts to determine 
the frequency, type, and cost of services furnished in off-campus provider-
based facilities.  Further, these changes should support CMSs ability to 
match the facility and professional components of a claim from claims 
data.  However, CMS has not taken similar actions for on-campus 
provider-based facilities, which have also been of concern to OIG.  
Further, the new modifier and place-of-service code do not allow CMS to 
distinguish when services are furnished in different off-campus provider-
based facilities owned by the same hospital.    
In addition, not all hospitals voluntarily attest to CMS that all of their 
provider-based facilities meet requirements, and for those that do, CMS 
may have challenges obtaining supporting documentation from hospitals.  
Some hospitals off-campus facilities with a provider-based designation do 
not meet all requirements and may be billing Medicare improperly, 
resulting in overpayments by Medicare and its beneficiaries for services in 
these facilities.  CMSs efforts to gather information on the volume of 
costs associated with off-campus provider-based facilities are positive 
steps to improve oversight.  However, CMS has no independent way of 
determining the amount of overpayments to on-campus provider-based 
facilities or hospitals with multiple off-campus facilities. 
Finally, CMS has not provided OIG with evidence to support its 
contention that the provider-based billing designation delivers benefits that 
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justify the additional costs.  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 changes, we recommend that it do the following: 
Implement systems and methods to monitor billing by all 
provider-based facilities  
CMS should implement systems and methods to monitor on- and off-
campus billing by provider-based facilities to help it implement the 
Bipartisan Budget Act of 2015 and better monitor billing by individual 
facilities.  To implement the Bipartisan Budget Act of 2015, CMS should 
develop methods for monitoring off-campus outpatient facilities that did 
not bill under the OPPS before November 2, 2015, and ensuring that these 
facilities do not receive payment from the OPPS on or after January 1, 
2017.   
CMS also issued new requirements for provider-based facilities to include 
new modifiers or codes effective 2016; however, CMS will still be unable 
to fully match all facility and professional claims to specific provider-
based facilities or determine which services are furnished in on-campus 
provider-based facilities.  To address this issue, CMS could require all 
provider-based facilities to have a unique identification number on their 
claims.   
Require hospitals to submit attestations for all their provider-
based facilities  
To ensure that hospitals and their facilities meet provider-based 
requirements, CMS should require hospitals to submit attestations for all 
of their provider-based facilities, both on and off campus.  CMS also 
should require hospitals to submit documentation for on-campus facilities, 
so regional office and MAC staff may review it for compliance with 
provider-based requirements.  Further, CMS should establish a deadline 
after which it would deny claims for services in provider-based facilities 
that do not have an attestation on file with CMS.  Finally, CMS should 
determine how to address the issue of grandfathered facilities that do not 
meet regulatory requirements after January 1, 2017, and determine 
whether they may continue billing as provider-based facilities if they later 
come into compliance. 
 
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Ensure that regional offices and MACs apply provider-based 
requirements appropriately when conducting attestation 
reviews  
CMS should ensure that its regional offices and MACs apply provider-
based requirements appropriately when reviewing documentation during 
their attestations reviews.  Specifically, CMS should further specify and 
provide guidance to its regional offices, MACs, and hospitals regarding 
the documentation necessary to demonstrate compliance with provider-
based requirements.  Such actions could reduce delays, burden, and 
inconsistencies that CMS regional offices and MACs reported in the 
attestation review process.  In addition, the CMS central office could 
review a sample of attestations for selected provider-based facilities to 
ensure that its regional offices and MACs are applying the requirements 
consistently and accurately and that the facilities are submitting acceptable 
documentation and meeting requirements. 
Take appropriate action against hospitals and their off-campus 
provider-based facilities that we identified as not meeting 
requirements  
In a separate memorandum, we will refer to CMS for appropriate action 
the hospitals and their off-campus facilities that did not meet provider-
based requirements.  At a minimum, CMS should determine whether 
additional followup is necessary to ensure that these hospitals meet 
provider-based requirements.  Moreover, if CMS determines that hospitals 
and facilities were improperly billing as provider-based, it should seek to 
recover overpayments and take action to ensure they do not receive higher 
provider-based payment in the future until non-compliance is corrected. 
 
 
 
 
 
 
 
 
 
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AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 
RESPONSE 
Of the four new recommendations in our report, CMS partially concurred 
with one recommendation, did not concur with one recommendation, and 
concurred with our remaining two recommendations. 
CMS partially concurred with our first recommendation to implement 
systems and methods to monitor billing by all provider-based facilities.  
CMSs view is that the primary policy concerns regarding this issue apply 
to off-campus provider-based facilities (i.e., those that are more than 250 
yards but less than or equal to 35 miles from the main buildings of the 
main provider), and CMS does not have the same concerns for on-campus 
provider-based facilities (i.e., those within 250 yards of the main buildings 
of the main provider).  Therefore, CMS does not believe it is prudent to 
focus its resources on distinguishing among services provided in on-
campus provider-based facilities and those on the main campus of the 
hospital.  However, OIG continues to believe that monitoring appropriate 
billing is important for both off-campus and on-campus provider-based 
facilities. 
CMS did not concur with our second recommendation to require hospitals 
to submit attestations for all of their provider-based facilities.  CMS stated 
that it shares OIGs concerns about vulnerabilities in provider-based 
billing and described steps it has taken to address this issue.  These include 
implementing a new modifier and place-of-service codes for claims 
furnished in an off-campus provider-based facility.  Although these are 
positive steps, we do not believe they fully address vulnerabilities.  We 
continue to recommend that CMS require hospitals to submit attestations 
for all provider-based facilities, to ensure that CMS is aware of all 
provider-based facilities and that they meet provider-based requirements. 
CMS concurred with our third recommendation to ensure that regional 
offices and MACs apply provider-based requirements appropriately when 
conducting attestation reviews, and it described actions it has taken toward 
this end. 
Finally, CMS concurred with our fourth recommendation to take 
appropriate action against hospitals and their off-campus provider-based 
facilities that we identified as not meeting requirements and indicated that 
it will work with the MACs to recover any overpayments and revise the 
providers prospective payment to those for freestanding units found to be 
out of compliance. 
For the full text of CMSs comments, see Appendix F. 
 
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APPENDIX A  
42 CFR  413.65(d) and Transmittal A-03-030 describe the following 
requirements that are applicable to both hospitals and on- and off-campus 
provider-based facilities, as well as additional requirements applicable 
only to off-campus facilities. 
Provider-Based Requirements 
 (1) Licensure:  A provider-based facility and the main provider must be 
operated under the same license, unless State laws prohibit this or require 
separate licenses.  Documentation may include a copy of the State license 
or documentation that the State in which the facility is located requires a 
separate license. 
(2) Clinical Services Integration:  A provider-based facility and main 
provider must have integrated clinical services as evidenced by the 
following: 
  professional staff of the provider-based facility have clinical privileges 
at the main provider; 
  the main provider maintains the same monitoring and oversight of the 
facility as it does for any other hospital department; 
  the medical director of the provider-based facility maintains a 
reporting relationship with the main providers chief medical officer or 
other similar official who has the same frequency, intensity, and level 
of accountability as the relationship between this official and other 
medical directors within the main provider; 
  medical staff committees or other professional committees at the main 
provider are responsible for medical activities in the provider-based 
facility, including quality assurance, utilization review, and the 
coordination and integration of services, to extent practicable, between 
the provider-based facility and the main provider;  
  the main provider and facility seeking provider-based status have a 
unified retrieval system for medical records; and 
  inpatient and outpatient services of the main provider and  provider-
based facility are integrated and patients have full access to all services 
of the main provider. 
Documentation may include information about whether professional staff 
of the provider-based facility have clinical privileges at the main provider, 
a copy of the record retrieval policy of the main provider and provider-
based facility, and examples of inpatient and outpatient service integration. 
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(3) Financial Integration:  The main provider and a provider-based facility 
must have fully integrated financial operations.  The costs of a provider-
based facility must be reported in the appropriate cost center on the main 
providers cost center and the financial status of any provider-based 
facility must also be incorporated and readily identified in the main 
providers trial balance.  Documentation may include the appropriate 
section of a main providers cost report or trial balance that show the 
provider-based facilitys revenues and expenses. 
(4) Public Awareness:  The provider-based facility is held out to the public 
and other payers as part of the main provider.  Documentation may include 
letterhead with a shared name, websites, and other examples to show that 
the facility is part of the main provider. 
(5) Compliance with Hospital Rules:  Hospital-based entities and on- and 
off-campus provider-based facilities (i.e., hospital outpatient departments) 
must comply with applicable hospital anti-dumping, nondiscrimination, 
and health and safety rules.36  Provider-based facilities are also subject to 
the main providers agreement with Medicare and must also meet 
Medicare payment rules.  Documentation may include copies of anti-
dumping and nondiscrimination policies. 
Additional Provider-Based Requirements for Off-Campus 
Facilities  
(1) Operation Under the Ownership and Control of the Main Provider:  An 
off-campus provider-based facility must operate under the ownership and 
control of the main provider.  The main provider must own 100-percent of 
the provider-based facility and have final responsibility and approval for 
administrative and personnel decisions.  A provider-based facility and 
main provider must also have the same governing body and operate under 
the same organizational documents.  Documentation may include bylaws 
for the main provider and provider-based facility. 
(2) Administration and Supervision:  The reporting relationship between 
an off-campus provider-based facility and main provider must have the 
same frequency, intensity, and level of accountability that exists between 
the main provider and one of its existing facilities.  This criterion includes 
additional requirements concerning direct supervision, monitoring, and 
oversight of the provider-based facility and the integration of 
administrative functions (e.g., billing services, payroll).  Documentation 
____________________________________________________________ 
36 42 CFR  413.65(g) sets forth requirements applicable only to provider-based facilities 
(i.e., hospital outpatient departments), as well as requirements applicable to both 
provider-based facilities and hospital-based entities.  For hospital antidumping rules, see 
42 CFR  489.20(1), (m), (q), and (r) and  489.24.  For hospital nondiscrimination 
rules, see 42 CFR  489.10(b).  For hospital health and safety rules, see 42 CFR part 482.  
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may include an organizational chart that reflects reporting relationships 
and a list of the integrated administrative functions. 
(3) Location:  A provider-based facility must be located within a 35-mile 
radius of the main providers campus.  There are several exceptions to this 
criterion, including facilities that are owned by the main provider with a 
disproportionate share adjustment, facilities that demonstrate high levels 
of integration with the main provider, and rural health centers that meet 
the other provider-based requirements.37  Documentation may include 
maps indicating the location of each facility. 
(4) Obligation to Deliver Written Notice to Beneficiaries:  When providing 
treatment to a Medicare beneficiary that is not required by anti-dumping 
rules, off-campus provider-based facilities (i.e., hospital outpatient 
departments) must give beneficiaries written notice of potential co-
insurance liabilities before delivering the service.38  This notice must 
indicate the beneficiary will incur a coinsurance liability for an outpatient 
visit to the hospital, as well as for the physicians service and an estimate 
of the amount of that additional liability.  Documentation may include a 
copy of the form given to patients and a copy of policies regarding 
distribution of the form.39    
 
 
 
 
 
 
 
 
____________________________________________________________ 
37 Disproportionate share adjustments (i.e., increased payments) are available to certain 
hospitals that serve a disproportionate share of low-income patients.  42 CFR  412.106. 
38 If a provider-based facility provides examination or treatment that is required to be 
provided by the antidumping rules of 42 CFR  489.24, notice must be given as soon as 
possible after the existence of an emergency has been ruled out or the emergency 
condition has been stabilized. 
39 Notices are not required if the facility furnishes services for which the beneficiary will 
not be charged coinsurance.  However, an Advance Beneficiary Notice (ABN) does not 
meet this requirement.  An ABN must be issued when a provider believes that Medicare 
may not pay for an item or service that it usually covers because the item or service is not 
considered medically reasonable and necessary.  In these cases, the beneficiary must pay 
the provider directly for any noncovered services.   
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APPENDIX B 
Detailed Methodology  
To determine the number of provider-based facilities that hospitals owned, 
we selected a random stratified statistical sample of hospitals from the 
population of hospitals participating in Medicare nationwide.  We sent an 
information request to each hospital selected.  We collected information 
from CMS regional offices and MACs to determine the extent to which 
CMS has procedures to oversee provider-based billing.  We also asked 
CMS whether it has conducted analyses to determine the benefits of the 
provider-based designation. 
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 these facilities met all 
provider-based requirements.  We determined the extent to which these 
hospitals and their off-campus provider-based facilities met all provider-
based requirements.40  Finally, we collected and analyzed data to 
determine the number of attestations that CMS reviewed in 2012 and the 
results of these reviews, as well as whether there were challenges 
associated with this review process. 
Data Collection and Analysis 
Determining the Number of Hospitals That Owned Provider-Based 
Facilities.  We sent an information request to 333 sampled hospitals.  To 
select our sample, we used CMSs Certification and Survey Provider 
Enhanced Reporting database to identify the population of 5,119 hospitals 
that participated in Medicare and received OPPS payments in 2012.  We 
organized these hospitals into three strata based on the number of beds in 
the hospital.   
We randomly selected hospitals from each strata, resulting in a total of 333 
hospitals.  Of these 333 hospitals, 272 responded to our request, a 
weighted response rate of 84 percent.  Table B-1 shows the number of 
hospitals in each stratum, the number of sampled hospitals in each 
stratum, the number of hospital respondents, and response rate for each 
stratum. 
 
____________________________________________________________ 
40 We collected and analyzed supporting documentation from off-campus provider-based 
facilities because the hospitals that own them must maintain supporting documentation 
for these facilities even if they do not submit a voluntary attestation.  Hospitals that own 
on-campus provider-based facilities and choose to submit a voluntary attestation have to 
attest only that these facilities meet requirements but are not required to submit 
supporting accompanying documentation. 
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Table B-1:  Hospital Response Rate by Stratum, 2013 
Number of  Number of  Number of 
Stratum   Hospitals in  Hospitals in  Hospital  Response Rate  
Stratum  Sample  Respondents 
0300 Beds  4,232  150  127  85% 
3011,000 Beds    854  150  123  82% 
Greater Than 
33  33  22  67% 
1,000 Beds 
     Total  5,119  333  272  84%* 
Source:  OIG analysis of CMSs Certification and Survey Provider Enhanced Reporting database and 2013 hospital 
respondent data, 2015. 
*Total response weight is weighted by each stratum. 
The estimates in this report were derived from measures obtained from the 
272 responding hospitals in our sample of 333 hospitals. 
We sent an information request to hospitals in May 2013 to obtain 
information about the provider-based facilities the hospitals owned.  The 
information request asked hospitals to report the following information:  
  the number of provider-based facilities the hospital owned and the 
number that were on and off campus,  
  the number of provider-based facilities for which the hospital had 
attested,  
  the distance in miles between the provider-based facility and the 
owning hospital for all provider-based facilities owned by the hospital, 
and 
  ownership type (e.g., part of a health system).41 
We analyzed the responses to determine the extent to which hospitals 
owned provider-based facilities and to identify the locations of these 
facilities.   
Assessing CMS Oversight of Provider-Based Billing.  We sent a separate 
information request to all 10 CMS regional offices and 14 MAC 
____________________________________________________________ 
41 For purposes of this report, we define provider-based facilities as those that are owned 
by and integrated with a hospital and billing Medicare as a hospital outpatient 
department.  Additionally, according to the American Hospital Association, a system is 
either a multihospital or a diversified single hospital system.  A multihospital system is 
two or more hospitals owned, leased, sponsored, or contract managed by a central 
organization.  Single, freestanding hospitals may be categorized as a system by bringing 
into membership three or more, and at least 25 percent, of their owned or leased non-
hospital preacute or postacute health care organizations.  American Hospital Association, 
Fast Facts on US Hospitals.  Accessed at www.aha.org/research/rc/stat-studies/fast-
facts.shtml on February 26, 2016. 
CMS is Taking Steps To Improve Oversight of Provider-Based Facilities, But Vulnerabilities Remain   24 
(OEI-04-12-00380) 
   
   
jurisdictions that were operational in 2012.42  We asked them to document  
the procedures they used to ensure appropriate provider-based billing, 
such as how CMS identified facilities that were improperly billing as 
provider-based (i.e., hospitals and provider-based facilities billing 
Medicare but not meeting these requirements), and whether resulting 
overpayments were recouped from these facilities and owning hospitals.   
We also asked CMS and MAC staff how CMS calculates overpayment 
amounts to facilities improperly billing as provider-based. 
We received responses from all 10 CMS regional offices and 14 MAC 
jurisdictions.  We reviewed responses and supporting documentation.  
We also spoke with CMS staff to determine whether they have conducted 
analyses to determine the benefits of the provider-based designation. 
Determining the Extent to Which Hospitals and Off-Campus Facilities 
That They Owned Met Provider-Based Requirements.  Of the 272 hospitals 
that responded to our request, 84 hospitals reported a total 694 off-campus 
provider-based facilities for which they had not voluntarily attested.  To 
ensure that we selected facilities from different types of hospitals we 
organized these 84 hospitals into three strata based on the number of off-
campus provider-based facilities that the hospitals owned.  We purposively 
selected a total of 50 hospitals and facilities from these three strata based 
on location of the provider-based facility to the hospital and size (i.e., 
number of beds) of the hospital.  We applied this criteria to ensure 
variability in facility distance from the hospital (i.e., over 250 yards to no 
more than 35 miles) and hospital size.  
See Table B-2 for selection of hospitals in our purposive sample, as well 
as the number of hospitals in each stratum, the number of hospitals 
selected from each stratum, and the percentage of hospitals selected out of 
those in each stratum. 
 
 
 
 
 
 
 
____________________________________________________________ 
42 We defined operational MAC jurisdictions as those that reviewed provider-based 
attestations in 2012. 
CMS is Taking Steps To Improve Oversight of Provider-Based Facilities, But Vulnerabilities Remain   25 
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Table B-2:  Selection of Hospitals in Our Purposive Sample, 2013 
Number of  Percentage of 
Number of 
Hospitals  Hospitals 
Stratum   Hospitals in 
Selected in  Selected Out 
Sample 
Stratum  of Stratum  
Owns 0-5 Provider-
30  17  57% 
Based Facilities 
Owns 6-10 Provider-
27  17  63% 
Based Facilities 
Owns Greater Than 10  
27  16  59% 
Provider-Based Facilities 
     Total  84  50  60%* 
                                  Source:  OIG analysis of 2013 hospital respondent data, 2015. 
                                  *Total is weighted by each stratum. 
We sent an information request to the 50 hospitals in our sample and asked 
whether the hospital and the selected off-campus provider-based facilities 
that they owned met requirements in 42 CFR  413.65.  We requested 
supporting documentation for these responses.  We received responses and 
documentation from all 50 hospitals and determined whether hospitals and 
facilities met all provider-based requirements.  If the hospital indicated 
they met a requirement, we asked it to provide supporting documentation.  
For instance, if a hospital stated that it owned 100-percent of a provider-
based facility (one of the requirements for an off-campus facility), we 
asked for documentation supporting this response.  While CMS 
Transmittal A-03-030 contains examples of documents that indicate 
compliance with provider-based requirements, CMS has not developed a 
list of specific documents that must be submitted with attestations to 
support compliance with these requirements.  Therefore, we were 
conservative in our analysis and if the documentation submitted was not 
among the types of acceptable example documents listed in CMS 
Transmittal A-03-030, we reviewed the content of the documentation to 
determine whether it met requirements. 
We determined that hospitals and their provider-based facilities did not 
meet requirements if the hospitals provided documentation that did not 
meet requirements (e.g., stating that the hospital and provider-based 
facility were integrated but providing documentation that did not support 
this response) or if the hospital reported that it did not have documentation 
that it met requirements.  Additionally, if hospitals and their provider-
based facilities did not meet one element of a requirement, we determined 
that they did not meet the requirement.   
Determining the Number of Attestations CMS Reviewed in 2012 and the 
Results of These Reviews.  To determine the number of provider-based 
attestations that CMS reviewed in 2012, we reviewed CMSs management 
CMS is Taking Steps To Improve Oversight of Provider-Based Facilities, But Vulnerabilities Remain   26 
(OEI-04-12-00380) 
   
   
information system data that contained the number of attestations received 
in 2012 and the results of CMSs reviews of these attestations (e.g., 
approvals and denials).  At that time, the database contained observations 
for 942 attestations; however, CMS had entered decisions (e.g., approval, 
denial) for only 715 of these 942 attestations.  Therefore, we did not 
include the remaining 227 attestations in our analysis.  Of these 715 
attestations, we determined the number and percentage that were approved 
for provider-based status, and whether they were on or off campus.  We 
also calculated the number of attestations that regional offices returned 
because the attestations lacked documentation or were incomplete in other 
ways, as well as those the hospital withdrew or cancelled submitting it.   
In addition, we collected information from CMS and MACs about the 
provider-based review process, such as whether CMS or MACs had 
experienced any challenges during its reviews, and the reason for these 
challenges.  We received responses from all 10 CMS regional offices and 
14 MAC jurisdictions.   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CMS is Taking Steps To Improve Oversight of Provider-Based Facilities, But Vulnerabilities Remain   27 
(OEI-04-12-00380) 
   
   
APPENDIX C  
Sample Sizes, Point Estimates, and 95-Percent Confidence 
Intervals 
Sample  Point  Confidence 
Estimate Description 
Size  Estimate  Interval 
Percentage of hospitals that owned at least one on- or off-campus provider-
272  49.7%  42.4%57.0% 
based facility 
Average number of provider-based facilities that hospitals owned  168  6.0  4.87.2 
Percentage of hospitals that own provider-based facilities that have not attested 
168  60.9%  51.2%70.6% 
for at least one (i.e., some or none) of these facilities 
Percentage of hospitals that own provider-based facilities that have not attested 
168  43.1%  33.2%53.1% 
for any (i.e., none) of their facilities 
Percentage of hospitals that own provider-based facilities that have attested for 
168  18.3%  10.5%26.1% 
some of their facilities 
Percentage of hospitals that own provider-based facilities that have attested for 
168  38.6%  28.6%48.5% 
all of their facilities 
Source:  OIG analysis of 2013 hospital respondent data, 2015 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CMS is Taking Steps To Improve Oversight of Provider-Based Facilities, But Vulnerabilities Remain   28 
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APPENDIX D  
Description and Number of Hospitals That Owned Facilities 
That Did Not Meet Provider-Based Requirements  
Thirty-seven of the 50 hospitals in our sample provided information for 
their off-campus facilities that did not support compliance with at least 
one provider-based requirement.  Twenty-four hospitals that owned off-
campus provider-based facilities did not meet requirements to operate their 
provider-based facility under the control of the hospital.  Of these, 14 
hospitals owned provider-based facilities that did not meet the requirement 
that the main provider have final approval or responsibility over the 
facility for decisions, such as personnel actions and medical staff 
appointments.  The remaining 10 hospitals owned facilities that did not 
meet other requirements, such as showing that the provider-based facility 
and main provider operated under the same organizational documents or 
that these providers were governed by the same body.   
Twenty-one hospitals owned off-campus facilities that did not meet 
requirements related to the administration and supervision of the provider-
based facility.  All of these hospitals owned facilities that did not meet the 
requirement that administrative functions (e.g., human resources, billing 
services) be integrated with those of the main provider.   
Eighteen hospitals in our sample owned off-campus facilities that did not 
meet the clinical services integration requirements, despite this being one 
potential benefit of provider-based billing.  Of these, seven hospitals 
submitted documentation that indicated beneficiaries treated at the 
provider-based facility who required further care did not have full access 
to services at the main provider.  The remaining 11 hospitals owned 
facilities that did not meet other requirements, such as integrating the 
medical records of the provider-based facility and the main provider or 
ensuring that professional committees at the main provider were 
responsible for quality assurance activities and integration of services in 
the provider-based facility. 
Ten hospitals owned off-campus facilities that did not meet requirements 
to make beneficiaries aware that the facility was a part of the hospital.  
This noncompliance could lead to beneficiaries being unaware of the 
additional co-insurance liability incurred when receiving services at these 
facilities.   
Additionally, two hospitals owned off-campus facilities that did not meet 
requirements to comply with hospital rules.  These hospitals owned 
facilities that did not report compliance related to billing correct place-of -
service codes.  For instance, one of the hospitals reported that physicians 
CMS is Taking Steps To Improve Oversight of Provider-Based Facilities, But Vulnerabilities Remain   29 
(OEI-04-12-00380) 
   
   
in the facility billed place-of-service code 11 for provider-based services, 
while these facilities should have used code 22.  Code 11 should be used 
by facilities that are not under the control of an owning hospital.  Using 
the incorrect service code could result in potential overpayments.43   
Nineteen of the 50 hospitals in our sample reported that they did not have 
documentation to support that the off-campus facilities that they owned 
met provider-based requirements.  These 19 hospitals in our sample 
reported that they owned off-campus facilities that met provider-based 
requirements but stated that they did not have supporting documentation.  
Specifically, nine hospitals in our sample did not have documentation 
supporting that clinical services at the provider-based facility were 
integrated with those of the main provider.  Of these, six hospitals did not 
have documentation to support that medical records from the provider-
based facility were integrated with those of the main hospital.  The 
remaining three hospitals did not have documentation to support other 
requirements, such as the requirement that medical committees at the main 
provider are responsible for medical activities in the provider-based 
facility.  
Five hospitals stated that they did not have documentation of a hospital 
license or regulations stating that off-campus provider-based facilities that 
they owned do not need to be included on the hospitals license. 
Four hospitals in our sample stated that they did not have supporting 
documentation showing that the off-campus facilities they owned met 
requirements related to the administration and supervision of the provider-
based facility.  Nor did these hospitals have documentation showing that 
the hospital was responsible for certain administration functions, such as 
human resource and purchasing services, which were integrated with the 
main provider.   
Three hospitals stated that they did not have supporting documentation 
showing that the off-campus provider-based facilities they owned operated 
under the control of the main provider.  For instance, hospitals did not 
have documentation showing that the provider-based facility operated 
under the same organizational documents (e.g., bylaws) as the main 
provider.   
____________________________________________________________ 
43 If a provider-based facility uses the incorrect place of service code when billing for 
physician services, Medicare and beneficiaries pay for the hospitals facility component 
of the service under OPPS and for the physician component of the service under the 
MPFS (i.e., non-facility) rate.  This results in an overpayment because the Medicare 
reimbursement equals the non-facility MPFS rate plus the OPPS rate, rather than the 
reduced (i.e., facility) MPFS rate plus the OPPS rate.   
CMS is Taking Steps To Improve Oversight of Provider-Based Facilities, But Vulnerabilities Remain   30 
(OEI-04-12-00380) 
   
   
For the remaining three requirements, hospitals stated that they did not 
have supporting documentation showing that the facilities they owned met 
requirements related to financial integration, public awareness, and 
location of the provider-based facility relative to the main provider.  For 
instance, one hospital did not have documentation showing the provider-
based facilitys financial status was readily incorporated into the main 
providers trial balance.  Another hospital stated that it did not have 
documentation to make beneficiaries aware that the provider-based facility 
it owned is part of the hospital, which would cause beneficiaries to incur 
higher copayments.  Specifically, this hospital did not have documentation 
of written notices informing beneficiaries that the facility is provider-
based and that a visit to the facility would result in an additional 
copayment.  Finally, one hospital stated that it did not have documentation 
to support that the provider-based facility it owned was clearly identified 
as part of the main provider and another hospital did not have 
documentation to support that its provider-based facility was less than 35 
miles from the main provider. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CMS is Taking Steps To Improve Oversight of Provider-Based Facilities, But Vulnerabilities Remain   31 
(OEI-04-12-00380) 
   
   
APPENDIX E 
Number and Percentage of Attestations that CMS Regional 
Offices Approved for Provider-Based Status, 2012 
Number of 
Attestations 
Number of  Number of  Percentage 
Number of  for Which 
On-Campus  Off-Campus  of 
Regional Office  Attestations  Regional 
Attestations  Attestations  Attestations 
Approved  Offices 
Approved  Approved  Approved 
Made 
Decisions 
1  Connecticut, Maine, Massachusetts, 
77  23  54  79  97% 
New Hampshire, Rhode Island, Vermont 
2  New Jersey, New York, Puerto Rico, 
6  1  5  10  60% 
Virgin Islands 
3  Delaware, District of Columbia, 
Maryland, Pennsylvania, Virginia, West  6  5  1  29  21% 
Virginia 
4  Alabama, Florida, Georgia, Kentucky, 
Mississippi, North Carolina, South  255  66  189  267  96% 
Carolina, Tennessee 
5  Illinois, Indiana, Ohio, Michigan, 
89  28  61  102  87% 
Minnesota, Wisconsin 
6  Arkansas, Louisiana, New Mexico, 
61  10  51  64  95% 
Oklahoma, Texas 
7  Kansas, Iowa, Missouri, Nebraska  17  5  12  25  68% 
8  Colorado, Montana, North Dakota, 
53  22  31  55  96% 
South Dakota, Utah, Wyoming 
9  American Samoa, Arizona, California, 
Guam, Hawaii, Nevada, Northern Mariana  25  7  18  26  96% 
Islands 
10  Alaska, Idaho, Oregon, Washington  57  18  39  58  98% 
     Total  646  181  461  715  90% 
Source:  OIG analysis of CMS management information system database, 2015. 
 
 
 
 
 
 
 
 
CMS is Taking Steps To Improve Oversight of Provider-Based Facilities, But Vulnerabilities Remain   32 
(OEI-04-12-00380) 
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CMS is Taking Steps To Improve Oversight of Provider-Based Facilities, But Vulnerabilities Remain   34 
(OEI-04-12-00380) 
   
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CMS is Taking Steps To Improve Oversight of Provider-Based Facilities, But Vulnerabilities Remain   35 
(OEI-04-12-00380) 
   
   
ACKNOWLEDGMENTS 
This report was prepared under the direction of Dwayne Grant, Regional 
Inspector General for Evaluation and Inspections in the Atlanta regional 
office, and Jaime Stewart, Deputy Regional Inspector General.  
David Samchok served as lead analyst for this study.  Central office staff 
who provided support include Clarence Arnold, Evan Godfrey, and Joanne 
Legomsky. 
 
CMS is Taking Steps To Improve Oversight of Provider-Based Facilities, But Vulnerabilities Remain   36 
(OEI-04-12-00380) 
   
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amended, is  to protect the integrity of the Department of  Health and Human Services  
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This statutory mission is carried  out through a nationwide network of audits, investigations,  
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