OIG Report: Medicare Payment Discrepancies Seen Between Provider-Based and Freestanding Facilities
Legal Intelligencer article by Lamb McErlane PC Health Law attorneys Vasilios J. Kalogredis and Rachel E. (Lusk) Klebanoff.
In June, the U.S. Department of Health and Human Services Office of Inspector General (OIG) released Report No. A-07-18-02815 summarizing OIG’s findings of an audit assessing the discrepancy in Medicare payments to provider-based facilities versus freestanding facilities in calendar years 2010 through 2017 in eight selected States.
OIG’s audit covered $3.95 billion in actual payments that Medicare and Medicare beneficiaries made for evaluation and management (“E&M”) services they received at provider-based facilities in the selected States. Those States were California, Colorado, Florida, Louisiana, Michigan, Missouri, New York and Texas.
Purpose of the Audit
In the past, hospitals that purchased physician practices could treat them as either part of the hospital and, therefore, integrated into the hospital for financial and billing purposes (“provider-based”), or as separate from it (“freestanding facilities”). But in more recent years, three reports submitted by the Medicare Payment Advisory Commission (MedPAC) to Congress and a previous OIG report found that hospitals were increasingly purchasing physician practices and operating them as provider-based facilities because of their higher payment rates, and that Medicare payments and beneficiary coinsurance payments were substantially higher for services in provider-based facilities than they were for the same exact services in freestanding facilities.
Based on these reports, OIG’s objective in conducting the audit was to identify the potential cost savings to both the Medicare program and its beneficiaries by comparing their payments made for certain E&M services performed at provider-based facilities in CY 2010 through CY 2017 in the eight selected States with what Medicare and its beneficiaries would have paid for the same type of services performed at freestanding facilities in the same eight States.
OIG conducted the audit by developing a database of payments made to physicians and provider-based facilities based on outpatient and Physician Fee Schedule (PFS) claims for E&M services performed in these facilities. OIG then compared those payments to what would have been paid at freestanding facilities.
Audit Findings
OIG found that both the Medicare program and its beneficiaries could have realized significant cost savings for E&M services, but instead paid substantially more for such services rendered at provider-based facilities than they would have paid for the same type of services rendered at freestanding facilities during its audit period in the selected States. The Medicare program paid $3.2 billion and its beneficiaries paid $794 million for E&M services.
If the physicians in the selected States had been paid at the freestanding PFS non-facility rate and hospitals paid nothing under the Outpatient Prospective Payment System for OIG’s audit period, the Medicare program could have realized cost savings of $1.3 billion and its beneficiaries could have realized cost savings of $334 million, for combined savings totaling over $1.6 billion. In addition, beneficiaries would have been required to make only one coinsurance payment rather than two (as they are currently required to do) and the cost-sharing would generally be lower because it would be based only on the freestanding facility rate.
The Centers for Medicare & Medicaid Services (CMS) has taken some steps intended to equalize payments. If these changes had been in effect during the period covered by OIG’s audit, the potential cost savings of these changes for E&M services in the selected States for OIG’s audit period could have been a combined $1.4 billion for the Medicare program and its beneficiaries. However, the combined $1.4 billion in potential cost savings would still have been less than the $1.6 billion in potential cost savings if E&M services had been paid at the freestanding PFS non-facility rate.
OIG Recommendations and CMS Comments
At the conclusion of its Report, OIG recommended that CMS pursue legislative or regulatory changes to lower costs for both the Medicare program and beneficiaries, by equalizing payments as appropriate between provider-based facilities and freestanding facilities for E&M services.
CMS did not directly agree or disagree with OIG’s recommendation. Instead, it referred to regulatory action it had taken and added that any changes to further implement OIG’s recommendation “may require legislative action.” OIG commended CMS for the regulatory action it has taken and noted that its comments are closely aligned with OIG’s findings and recommendations. That being said, OIG continues to recommend that CMS pursue legislative or regulatory changes to lower costs by equalizing payments between the two types of facilities.
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Vasilios J. (Bill) Kalogredis, Esq. has been advising physicians, dentists, and other health care professionals and their businesses as to contractual, regulatory and transactional matters for over 45 years. He is Chairman of Lamb McErlane PC’s Health Law Department. bkalogredis@lambmcerlane.com. 610-701-4402.
Rachel E. (Lusk) Klebanoff, Esq. is a senior associate at Lamb McErlane PC who has been representing physicians, dentists, mid-level practitioners, medical group practices, and other health-related entities in a wide range of transactional, regulatory, and compliance matters for almost a decade. rlusk@lambmcerlane.com. 610-701-4416.