Department of Health and Human Services

OFFICE OF

INSPECTOR GENERAL

CMS IS TAKING STEPS TO 

IMPROVE OVERSIGHT OF

PROVIDER-BASED FACILITIES,

BUT VULNERABILITIES REMAIN

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 providerbased 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 oncampus, 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 threequarters 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 offcampus facility was operating under the control of the main provider and that 

beneficiaries were notified of potential cost increases for services at the provider-based 

facility. These facilities may be billing Medicare improperly and may be receiving 

overpayments. Further, beneficiaries may be overpaying for services in these facilities. 

CMS’s efforts to gather information on the volume of the services provided by offcampus 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
 

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

(OEI-04-12-00380)

1

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 providerbased 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 providerbased 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 hospital’s administrative and financial 

control). 
 

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

(OEI-04-12-00380)

2

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 nonhospital 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. 
 

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

(OEI-04-12-00380)

3

A freestanding facility, such as a physician’s 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 facility’s 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-NetworkMLN/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. 
 

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

(OEI-04-12-00380)

4

cover the costs of the professional component of the patient’s 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 oncampus 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 providerbased facilities.15

 

Physician claims for the professional component of the services are billed 

under the attending physician’s 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 offcampus 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. 
 

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

(OEI-04-12-00380)

5

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

November 1, 2015

Off-campus provider-based facilities that began billing for 

provider-based services after this date may continue to receive 

higher provider-based payment only until December 31, 2016.

January 1, 2016

Date after which physicians must use place-of-service code 19 

on professional claims for services in off-campus providerbased 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.*

January 1, 2017

Only those off-campus provider-based facilities that billed for 

provider-based services before November 2, 2015, may 

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 Providerbased 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.
 

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

(OEI-04-12-00380)

6

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 

CMS’s 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 providerbased 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 FeeFor-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 providerbased requirements. These include attestation reviews, provider self-disclosure, or audits. 
 

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

(OEI-04-12-00380)

7

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 CMS’s 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 OIG’s 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. 
 

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

(OEI-04-12-00380)

8

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-ofservice codes. For example, they used code 11 for a freestanding 

physician’s 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 placeof-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. 
 

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

(OEI-04-12-00380)

9

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.
 

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

(OEI-04-12-00380)

10

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 twothirds (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. 
 

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

(OEI-04-12-00380)

11

Table 2: Percentage of Hospitals That Attested for None, Some, or All of 

Their Provider-Based Facilities, 2013 

Portion of Hospitals’ Provider-Based 

Facilities for Which They Voluntarily 

Attested

Percentage of Hospitals With 

Provider-Based Facilities

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 CMS’s 

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 twodigit modifier for services in an off-campus provider-based facility.33

 

These are positive steps designed to support CMS’s efforts to determine 

the frequency, type, and cost of services furnished in off-campus providerbased facilities. Further, these changes will support CMS’s 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; PhysicianOwned 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”. 
 

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

(OEI-04-12-00380)

12

match the facility and professional components of a claim from claims 

data. 

CMS cannot identify billing for all provider-based services from 

claims data

CMS’s 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 agency’s 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 facility’s 

address (e.g., suite or building number) from the hospital’s 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 offcampus facilities in one building or campus, and the physician claim does 

not specify the exact location of the service. 

Further, CMS’s 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 offcampus 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. 
 

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

(OEI-04-12-00380)

13

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 offcampus 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 offand on-campus provider-based facilities, respectively. 
 

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

(OEI-04-12-00380)

14

Table 3: Number of Hospitals That Owned Off-Campus Provider-Based Facilities That Did 

Not Meet At Least One Provider-Based Requirement 

Category of 

Requirements

Number of Hospitals That Owned Provider-Based Facilities That Did Not Meet

Requirements

Provided Information That Did 

Not Support Meeting

Requirements

Stated That They Did Not 

Have Required 

Documentation to Support 

Meeting Requirements

Total Number of 

Hospitals

Administration and 

Supervision 21 4 25

Operation Under the 

Control of the Hospital 24 3 24

Clinical Services 

Integration 18 9 23

Beneficiary Awareness 10 0 10

Compliance With 

Hospital Rules 2 0 2

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.
 

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

(OEI-04-12-00380)

15

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. 
 

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

(OEI-04-12-00380)

16

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 providerbased 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 CMS’s efforts to determine 

the frequency, type, and cost of services furnished in off-campus providerbased facilities. Further, these changes should support CMS’s 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 providerbased 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. CMS’s 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 
 

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

(OEI-04-12-00380)

17

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 offcampus 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 providerbased 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 providerbased 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.
 

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

(OEI-04-12-00380)

18

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 providerbased 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 providerbased 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 providerbased 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.
 

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

(OEI-04-12-00380)

19

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. 

CMS’s 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 oncampus 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 OIG’s 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 

provider’s prospective payment to those for freestanding units found to be 

out of compliance.

For the full text of CMS’s comments, see Appendix F.
 

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

(OEI-04-12-00380)

20

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 provider’s 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 providerbased 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 providerbased facility, and examples of inpatient and outpatient service integration.
 

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

(OEI-04-12-00380)

21

(3) Financial Integration: The main provider and a provider-based facility 

must have fully integrated financial operations. The costs of a providerbased facility must be reported in the appropriate cost center on the main 

provider’s cost center and the financial status of any provider-based 

facility must also be incorporated and readily identified in the main 

provider’s trial balance. Documentation may include the appropriate 

section of a main provider’s cost report or trial balance that show the 

provider-based facility’s 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 provider’s agreement with Medicare and must also meet 

Medicare payment rules. Documentation may include copies of antidumping 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. 
 

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

(OEI-04-12-00380)

22

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 provider’s 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 coinsurance 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 physician’s 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. 
 

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

(OEI-04-12-00380)

23

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 providerbased 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 CMS’s 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. 
 

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

(OEI-04-12-00380)

24

Table B-1: Hospital Response Rate by Stratum, 2013

Stratum 

Number of 

Hospitals in 

Stratum

Number of 

Hospitals in 

Sample

Number of 

Hospital 

Respondents

Response Rate 

0–300 Beds 4,232 150 127 85%

301–1,000 Beds 854 150 123 82%

Greater Than 

1,000 Beds 33 33 22 67%

 Total 5,119 333 272 84%*

Source: OIG analysis of CMS’s 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 nonhospital preacute or postacute health care organizations. American Hospital Association, 

Fast Facts on US Hospitals. Accessed at www.aha.org/research/rc/stat-studies/fastfacts.shtml on February 26, 2016. 
 

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

(OEI-04-12-00380)

25

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 offcampus 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 

(OEI-04-12-00380)

26

Table B-2: Selection of Hospitals in Our Purposive Sample, 2013

Stratum 

Number of 

Hospitals 

Selected in 

Stratum

Number of 

Hospitals in 

Sample

Percentage of 

Hospitals 

Selected Out 

of Stratum 

Owns 0-5 ProviderBased Facilities 30 17 57%

Owns 6-10 ProviderBased Facilities 27 17 63%

Owns Greater Than 10 

Provider-Based Facilities 27 16 59%

 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 providerbased 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 providerbased 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 CMS’s management 
 

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

(OEI-04-12-00380)

27

information system data that contained the number of attestations received 

in 2012 and the results of CMS’s 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 

(OEI-04-12-00380)

28

APPENDIX C 

Sample Sizes, Point Estimates, and 95-Percent Confidence 

Intervals

Estimate Description Sample 

Size

Point 

Estimate

Confidence

Interval

Percentage of hospitals that owned at least one on- or off-campus providerbased facility 272 49.7% 42.4%–57.0%

Average number of provider-based facilities that hospitals owned 168 6.0 4.8–7.2

Percentage of hospitals that own provider-based facilities that have not attested 

for at least one (i.e., some or none) of these facilities 168 60.9% 51.2%–70.6%

Percentage of hospitals that own provider-based facilities that have not attested 

for any (i.e., none) of their facilities 168 43.1% 33.2%–53.1%

Percentage of hospitals that own provider-based facilities that have attested for 

some of their facilities 168 18.3% 10.5%–26.1%

Percentage of hospitals that own provider-based facilities that have attested for 

all of their facilities 168 38.6% 28.6%–48.5%

Source: OIG analysis of 2013 hospital respondent data, 2015 
 

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

(OEI-04-12-00380)

29

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 offcampus 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 providerbased 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 

(OEI-04-12-00380)

30

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 providerbased 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 hospital’s 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 providerbased 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 hospital’s 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 

(OEI-04-12-00380)

31

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 providerbased facility’s financial status was readily incorporated into the main 

provider’s 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 providerbased 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 

(OEI-04-12-00380)

32

APPENDIX E

Number and Percentage of Attestations that CMS Regional 

Offices Approved for Provider-Based Status, 2012

Regional Office

Number of 

Attestations 

Approved

Number of 

On-Campus 

Attestations 

Approved

Number of 

Off-Campus 

Attestations 

Approved

Number of 

Attestations 

for Which 

Regional 

Offices 

Made 

Decisions

Percentage 

of 

Attestations 

Approved

1 – Connecticut, Maine, Massachusetts, 

New Hampshire, Rhode Island, Vermont 77 23 54 79 97%

2 – New Jersey, New York, Puerto Rico, 

Virgin Islands 6 1 5 10 60%

3 – Delaware, District of Columbia, 

Maryland, Pennsylvania, Virginia, West 

Virginia

6 5 1 29 21%

4 – Alabama, Florida, Georgia, Kentucky, 

Mississippi, North Carolina, South 

Carolina, Tennessee

255 66 189 267 96%

5 – Illinois, Indiana, Ohio, Michigan, 

Minnesota, Wisconsin 89 28 61 102 87%

6 – Arkansas, Louisiana, New Mexico, 

Oklahoma, Texas 61 10 51 64 95%

7 – Kansas, Iowa, Missouri, Nebraska 17 5 12 25 68%

8 – Colorado, Montana, North Dakota, 

South Dakota, Utah, Wyoming 53 22 31 55 96%

9 – American Samoa, Arizona, California, 

Guam, Hawaii, Nevada, Northern Mariana 

Islands

25 7 18 26 96%

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. 
APPENDIX F

Agency Comments

tI'~~p.nJt·b·l~

( DEPARTMENT OF HEALTI-I & I-IUMk"\J SERVICES <:z't- Canters tor Meotcarc & M~dico16S.",IOO~

200 I ndo po ndanee Avenue SW

WeshlnQlon, PC 20201

FEB Z 9 1616

To: Daniel R. Levinson

Inspector General

Office of Inspector General

}l;ndrew M,'STa,'t(( /S/

Acting Administrator

Centers for Medicare & Medicaid Services

From:

Subject: CMS is Taking Steps to Improve Oversight of Provider-Based Facilities, But

Vulnerabilities Remain (OE[-04-12-00380)

The Centers for Medicare & Medicaid Services (eMS) appreciates the opportunity to review and

comment on the Office of Inspector General's (OIG) draft report. CMS is committed to

protecting taxpayer dollars by ensuring proper billing by provider-based facilities.

Medicare payments tor physicians' services vary depending on whether they are furnished at a

freestanding facility or provider-based facility. A provider-based facility operates under a

hospital's ownership and meets the requirements in our regulations while a freestanding facility

furnishes services to Medicare beneficiaries but is not integrated with a hospital. Under our

regulations, provider-based facilities can either be on-campus (within 250 yards from the main

provider) or off-campus (greater than 250 yards). Total Medicare payment for services furnished

in provider-based facilities is generally hi gher than Medicare payment for the same services

furnished in freestanding facilities because those services arc also paid under the Hospital

Outpatient Prospective Payment System (OPPS).

As OlG noted in its report, CMS has taken positive steps to address vulnerabilities in providerbased billing. In 2015, the President's FY 2016 HHS budget included a proposal 10 equalize

payments for services furnished in all off-campus provider-based and Freestanding facilities, The

amendments made by section 603 of the Bipartisan Budget Act of2015 partially enacted this

proposal by requiring certain off-campus provider-based facilities to be paid under the applicable

payment systems other than the OPPS beginning on January 1, 2017, eMS is working to

implement this provision.

In addition, CMS continues to seek a better understanding of the growing trend toward hospital

acquisition of physicians' offices and the impact on beneficiary cost-sharing. In order to better

track these trends, on J anuary I, 2016, eMS began req uiring faci lities to use a modifier on

hospital outpatient claims identifying when a service has been furnished in an off-campus

provider-based department. Similarly, CMS requires physicians to use a new place-of-service

eMS is Taking Steps To Improve Oversight of Provider-Based Facilities, But Vulnerabilities Remain

(OEI-04-12-00380)

33

APPENDIX F 

Agency Comments 

d'>f''9J1.V!Cl:,,',f{,.~ 

( ~E.. ~	 DEPARTMENT OF HEALTH & HUMAN SERVICES Centers for Medicare & Medicaid Services

'<1~ 

l'.t~V.rau 200 Independence Avenue SW 

Washington, DC 20201 

FEB Z 9 2016 

To: 	 Daniel R. Levinson 


Inspector General 


From: 


Acting Administrator 


Centers for Medicare & Medicaid Services 


~e?'his":or~neral 

~e\iivt 

/S/

Subject: 	 CMS is Taking Steps to Improve Oversight of Provider-Based Facilities, But 

Vulnerabilities Remain (OEl-04-12-00380) 

The Centers for Medicare & Medicaid Services (CMS) appreciates the opportunity to review and 

comment on the Office of Inspector General's (OIG) draft report. CMS is committed to 

protecting taxpayer dollars by ensuring proper billing by provider-based facilities. 

Medicare payments for physicians' services vary depending on whether they are furnished at a 

:freestanding facility or provider-based facility. A provider~based facility operates under a 

hospital's ownership and meets the requirements in our regulations while a freestanding facility 

furnishes services to Medicare beneficiaries but is not integrated with a hospital. Under our 

regulations, provider-based facilities can either he on-campus (within 250 yards from the main 

provider) or off-campus (greater than 250 yards). Total Medicare payment for services furnished 

in provider-based facilities is generally higher than Medical'e payment for the same services 

furnished in freestanding facilities because those services are also paid under the Hospital 

Outpatient Prospective Payment System (OPPS). 

As OIG noted in its report, CMS has taken positive steps to address vulnerabilities in provider~ 

based billing. ln 2015, the President's FY 2016 HHS budget included a proposal to equalize 

payments for services furnished in all off-campus provider-based and freestanding facilities. The 

amendments made by section 603 of the Bipartisan Budget Act of2015 partially enacted this 

proposal by requiring certain off-campus provider-based facilities to be paid under the applicable 

payment systems other than the OPPS beginning on January 1, 2017. CMS is working to 

implement this provision. 

In addition, CMS continues to seek a better understanding of the growing trend toward hospital 

acquisition of physicians' offices and the impact on beneficiary cost-sharing. In order to better 

track these trends, on January 1, 2016, CMS began requiring facilities to use a modifier on 

hospital outpatient claims identifying when a service has been furnished in an off-campus 

provider-based department. Similarly, CMS requires physicians to use a new place-of~service 

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

(OEl-04-12-00380) 

33 
 

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

(OEI-04-12-00380)

34
CMS is Taking Steps To Improve Oversight of Provider-Based Facilities, But Vulnerabilities Remain 

(OEI-04-12-00380)

35
 

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

(OEI-04-12-00380)

36

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.
Office of Inspector General

http://oig.hhs.gov 

The mission of the Office of Inspector General (OIG), as mandated by Public Law 95452, as 

amended, is to protect the integrity of the Department of Health and Human Services 

(HHS) programs, as well as the health and welfare of individuals served by those programs. 

This statutory mission is carried out through a nationwide network of audits, investigations, 

and inspections conducted by the following operating components: 

Office of Audit Services 

The Office of Audit Services (OAS) provides auditing services for HHS, either by conducting 

audits with its own audit resources or by overseeing audit work done by others. Audits 

examine the performance of HHS programs and/or its grantees and contractors in carrying 

out their respective responsibilities and are intended to provide independent assessments of 

HHS programs and operations. These assessments help reduce waste, abuse, and 

mismanagement and promote economy and efficiency throughout HHS. 

Office of Evaluation and Inspections 

The Office of Evaluation and Inspections (OEI) conducts national evaluations to provide 

HHS, Congress, and the public with timely, useful, and reliable information on significant 

issues. These evaluations focus on preventing fraud, waste, or abuse and promoting 

economy, efficiency, and effectiveness of departmental programs. To promote impact, OEI 

reports also present practical recommendations for improving program operations. 

Office of Investigations 

The Office of Investigations (OI) conducts criminal, civil, and administrative investigations 

of fraud and misconduct related to HHS programs, operations, and individuals. With 

investigators working in all 50 States and the District of Columbia, OI utilizes its resources 

by actively coordinating with the Department of Justice and other Federal, State, and local 

law enforcement authorities. The investigative efforts of OI often lead to criminal 

convictions, administrative sanctions, and/or civil monetary penalties. 

Office of Counsel to the Inspector General 

The Office of Counsel to the Inspector General (OCIG) provides general legal services to 

OIG, rendering advice and opinions on HHS programs and operations and providing all 

legal support for OIG’s internal operations. OCIG represents OIG in all civil and 

administrative fraud and abuse cases involving HHS programs, including False Claims Act, 

program exclusion, and civil monetary penalty cases. In connection with these cases, OCIG 

also negotiates and monitors corporate integrity agreements. OCIG renders advisory 

opinions, issues compliance program guidance, publishes fraud alerts, and provides other 

guidance to the health care industry concerning the anti-kickback statute and other OIG 

enforcement authorities.