Franciscan Health Michigan City, DAB CR5793 (2021)

DECISION

Petitioner, Franciscan Health Michigan City, I also refer to Petitioner by its previous name, Franciscan St. Anthony Health Michigan City.  See CMS Ex. 8 at 21. seeks reversal of the determination by the Centers for Medicare & Medicaid Services (CMS) denying provider-based status to its off-campus Woodland Cancer Care Center (Woodland).  Petitioner has not demonstrated that Woodland complied with the provider-based status requirements enumerated in 42 C.F.R. § 413.65, specifically the requirements that physician services are billed with the correct site-of-service code and that all Medicare patients are treated as hospital patients for billing purposes.  42 C.F.R. § 413.65(g)(2), (5).  I affirm the denial of provider-based status to Petitioner’s Woodland facility.

I.  Background and Procedural History

Petitioner is a hospital in Michigan City, Indiana.  See P. Ex. 1 at 9-10.  In November 2012, it began providing services at the Woodland facility, which is located

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approximately four miles from the hospital campus.  CMS Ex. 8 at 21; see P. Ex. 1 at 13, 608.

Following the issuance of Department of Health and Human Services Office of the Inspector General (OIG) audit report OEF-04-12-00380, CMS is Taking Steps to Improve Oversight of Provider-Based Facilities, but Vulnerabilities Remain, which addressed, in part, Woodland’s billing practices, CMS determined, on June 29, 2017, that Petitioner’s Woodland facility did not meet the requirements for provider-based status set forth in 42 C.F.R. § 413.65(g)(2), (5). CMS also denied provider-based status because Petitioner did not comply with  42 C.F.R. § 413.65(a)(2) and (g)(3).  See CMS Exs. 1 at 2; 6 at 1-2.  Because I have affirmed the denial of provider-based status pursuant to 42 C.F.R. § 413.65(g)(2), (5), it is unnecessary to address any other basis for CMS’s denial of provider-based status.   CMS Exs. 2, 6.

Petitioner, through counsel, requested reconsideration of CMS’s determination in a letter dated August 28, 2017.  CMS Ex. 7.  On March 23, 2018, CMS upheld the denial of provider-based status pursuant to, inter alia, 42 C.F.R. § 413.65(g)(2), (5), stating, “Woodland was not billing with the correct site of service, it was not treating all Medicare patients, for billing purposes, as hospital patients and thus could not have provider-based status as a department of a provider.”  CMS Ex. 1 at 3.

On May 22, 2018, Petitioner requested a hearing.  Administrative Law Judge (ALJ) Carolyn Cozad Hughes issued an acknowledgment and pre-hearing order (Pre-Hearing Order) setting the requirements and schedule for pre-hearing submissions. The case was reassigned to me on March 8, 2019.   CMS filed a combined pre-hearing brief and motion for summary judgment (CMS Br.), along with nine proposed exhibits (CMS Exs. 1-9).  Petitioner filed a combined brief, response in opposition to CMS’s motion for summary judgment, and cross-motion for summary judgment (P. Br.) and five proposed exhibits (P. Exs. 1-5).  CMS filed a response in opposition to Petitioner’s motion for summary judgment (CMS Response).

Because I overrule CMS’s evidentiary objections to P. Exs. 1, 4, and 5, I admit CMS Exs. 1-9 and P. Exs. 1-5 into the evidentiary record.  P. Ex. 1 is Petitioner’s March 2018 request for a determination of provider-based status, along with 627 pages of supporting documentation.  Although this submission is largely irrelevant, I nonetheless admit it into the evidentiary record because it contains factual information that is not available elsewhere in the evidentiary record. Not only do I cite to P. Ex. 1, but CMS also cites to P. Ex. 1.  CMS Response at 10 n.10 (citing P. Ex. 1 at 23).    42 C.F.R. § 498.61 (the ALJ rules on the

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admissibility of evidence).  P. Ex. 4 is Petitioner’s rebuttal statement in connection with a Medicare overpayment, along with copies of overpayment-related correspondence issued by a Medicare administrative contractor.  Although P. Ex. 4 is largely irrelevant because it pertains to a matter outside of my jurisdiction, I admit P. Ex. 4 because I cite to factual information contained therein.  Id.  P. Ex. 5, which includes copies of Form CMS-1450 claim submissions, is also largely irrelevant; I nonetheless admit it into the evidentiary record because it contains information that I cite to herein. CMS also cites to P. Ex. 5.  See CMS Response at 4.   Id.  

Neither party has submitted written direct testimony, and therefore, a hearing is unnecessary for the purpose of cross-examination of any witnesses.  Pre-Hearing Order §§ 7-9; see September 29, 2020 letter from Petitioner (“[B]oth parties have stated their belief that this case could be decided based on the pleadings and that a hearing is unnecessary.”).  The matter is ready for a decision on the merits. As an in-person hearing to cross-examine witnesses is not necessary, it is unnecessary to further address the parties’ motions for summary judgment.

II.  Issue

Whether CMS had a legitimate basis, pursuant to 42 C.F.R. § 413.65, to deny Petitioner’s Woodland facility provider-based status.

II.  Jurisdiction

I have jurisdiction to hear and decide this case.  42 C.F.R. §§ 498.3(b)(2), 498.22; see Union Hospital, Inc., DAB No. 2463 at 2 (2012).

III.  Discussion

A.  Factual background

On June 12, 2016, OIG issued the aforementioned audit report OEF-04-12-00380 addressing its investigation of 50 hospitals that owned at least one provider-based facility.  CMS Ex. 2.  OIG explained, “Provider-based status is a Medicare payment designation established by the Social Security Act . . . [that] allows health care facilities with this designation to bill Medicare as a hospital outpatient department and thereby receive higher payments.”  CMS Ex. 2 at 6.  OIG reported that “Medicare often pays over 50 percent more for services performed in provider-based facilities than for the same services performed in a non-hospital based facility (i.e., a freestanding facility).”  CMS Ex. 2 at 6.  OIG observed that because Medicare beneficiaries must pay a copayment of

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20 percent for Medicare Part B services, “beneficiaries generally are responsible for higher copayments for most services in provider-based facilities than in freestanding facilities.” The OIG audit report includes a table showing that Medicare paid an average of $68.53 more for a service provided at provider-based facility than at a freestanding facility.  CMS Ex. 2 at 6.  Likewise, the corresponding copayment owed by a Medicare beneficiary for a service provided at a freestanding facility (i.e., a physician’s office) would be $14.90, whereas the beneficiary copayment would increase to $28.61 for the same service provided at a provider-based facility.  CMS Ex. 2 at 6.   CMS Ex. 2 at 6.

OIG reported that of the 50 hospitals that reported owning off-campus provider-based facilities it had examined, “more than three-quarters of the 50 hospitals [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.” When a hospital submits an attestation, it requests that CMS make a determination of whether it meets the requirements for provider-based status.  42 C.F.R. § 413.65(b)(3)(ii).     CMS Ex. 2 at 3.  Among the unmet requirements addressed by OIG, one requirement was that provider‑based facilities use the correct place-of-service code CMS, OIG, and Petitioner have used the terms “place-of-service” and “site-of-service” to describe the location of services reported on a Form CMS-1500; I use those terms interchangeably. when billing Medicare for services.  CMS Ex. 2 at 15.  OIG explained that place-of-service codes aid CMS’s oversight of provider-based facilities.  CMS Ex. 2 at 15; see CMS Transmittal 3315, updating CMS Pub. 100-04, Medicare Claims Processing Manual, effective January 1, 2016.  OIG discussed the difficulty CMS faced in identifying claims for provider-based services (CMS Ex. 2 at 16), stating:

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 expenses for the facility.[OIG’s report includes a footnote explaining that code 11 is used for freestanding physician offices, code 19 is used for hospital off-campus facilities, and code 22 is used for on-campus provider-based facilities.  CMS Ex. 2 at 17 n.34; see https:// www.cms.gov/Medicare/Coding/place-of-service-codes/Place_of_Service_Code_Set  (current list of place-of-service codes) (last visited December 21, 2020).]  This would result in an overpayment that CMS could not identify from the claims data.

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CMS Ex. 2 at 17.

Appendix D of the OIG report summarizes the bases for OIG’s determination that 37 hospitals in its 50-hospital sample did not comply with at least one provider-based requirement.  CMS Ex. 2 at 33.  OIG reported that “two hospitals owned off-campus facilities that did not meet requirements to comply with hospital rules” and “owned facilities that did not report compliance related to billing correct place-of-service codes.”  CMS Ex. 2 at 33.   Addressing one particular circumstance, OIG explained:

For instance, one of the hospitals reported that physicians 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.

CMS Ex. 2 at 34.  OIG further explained:

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 [Outpatient Prospective Payment System] and for the physician component of the service under the MPFS [Medicare Physician Fee Schedule] (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 Ex. 2 at 34 n.43.

On September 13, 2016, CMS sent an email message to Petitioner explaining that it “was one of many facilities cited [in the OIG audit report] for not fully complying with the provider-based regulation.”  CMS Ex. 3 at 1.  CMS remarked that Petitioner “was not responsive” to OIG’s request for information.  CMS Ex. 3 at 1.  CMS informed Petitioner that it needed specific documentation, to include “[d]ocumentation showing that the physician services furnished at the subject facility is are [sic] billed with the correct site‑of-service (i.e. place of service code 19 or 22 on Form 1500) so that appropriate physician and practitioner payment amounts can be determined.”  CMS Ex. 3 at 1.

Scott Mundell, the Director of Business Development for Franciscan Health, Northern Indiana (CMS Ex. 4 at 1) and the Administrative Director of Business Development for Franciscan Alliance, Inc. (CMS Ex. 5 at 2), sent CMS an undated letter in response to CMS’s inquiry.  Rather than reporting that Petitioner billed for services provided at

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Woodland with a site-of-service code of 19 or 22 for a hospital facility, as had been requested, Mr. Mundell explained, “The hospital use[s] service code 11, office for the site-of[-] service.”  CMS Ex. 4 at 1; see CMS Ex. 3 at 1.  Mr. Mundell explained that Woodland “is a department of the hospital and [is] on the same registration, billing and medical record system.”  CMS Ex. 4 at 1.  Pursuant to CMS’s request for documentation, Mr. Mundell attached a sample Form CMS-1500 (Health Insurance Claim Form) for Woodland that listed Franciscan Physician Network as the billing provider and a site‑of‑service code of 11.  CMS Ex. 4 at 3.

In response to Mr. Mundell’s correspondence, CMS stated, in an email message dated October 7, 2016, that “it appears that the hospital is billing place of service code 11 instead of 22.”  CMS inquired, “Is there a reason why?”  CMS Ex. 5 at 1. 

In an October 7, 2016 reply, Mr. Mundell stated, “We use the 11 code, so that an additional facility charge is not included in the patient’s bill.”  CMS Ex. 5 at 1.  Mr. Mundell added, “This is the standard office code paid at the lower non-facility rate.”  CMS Ex. 5 at 1.

On June 29, 2017, CMS issued a notice denying provider-based status for Petitioner’s Woodland facility because Woodland failed to meet the provider-based criteria to be “a department of Franciscan Health Michigan City.”  CMS Ex. 6 at 2; see 42 C.F.R. § 413.65(g)(2), (5).  CMS explained that “the Main Provider[A “main provider,” for purposes of the Medicare program, “means a provider that either creates, or acquires ownership of, another entity to deliver additional health care services under its name, ownership, and financial and administrative control.”  Petitioner, under this definition, is the main provider.  42 C.F.R. § 413.65(a)(2).] billed for provider-based services during the [OIG] audit period using place of service code 11, which is reserved for office location, other than a hospital, skilled nursing facility (SNF), military treatment facility, community health center, State or local public health clinic, or intermediate care facility (ICF), where the health professional routinely provides health examinations, diagnosis, and treatment of illness or injury on an ambulatory basis.”  CMS Ex. 6 at 2.  CMS discussed that provider-based services “are required to be billed using place of service code 19 (22 prior to January 1, 2016),” and this “place of service code is reserved for “off-campus hospital provider based department which provides diagnostic, therapeutic (both surgical and nonsurgical), and rehabilitation services to sick or injured persons who do not require hospitalization or institutionalization.”  CMS Ex. 6 at 2.  CMS determined that because Woodland did not bill services “with the correct site‑of‑service, it is not treating all Medicare patients, for billing purposes, as hospital outpatients and thus cannot have provider-based status as a department of a provider.”  CMS Ex. 6 at 3.  CMS explained that, within 30 days, Petitioner could pursue one of three options (notify CMS that it intends to make the necessary changes to comply with the requirements for provider-based status, notify CMS that it intends to enroll and bill as

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a freestanding facility, or do neither, with the result that “all payment will end as of the 30th day after the date of the notice.”). In a letter dated July 27, 2017, Petitioner informed CMS that “in protest,” it intended to request provider-based status.  P. Ex. 2.  Petitioner followed up on this correspondence in a letter dated September 17, 2017.  CMS Ex. 8.  CMS rejected Petitioner’s request on January 8, 2018, because it had not submitted “a complete request for a provider-based determination as required under option one of the June 29, 2017 notice of denial.”  P. Ex. 3.  In March 2018, Petitioner submitted what it described as a “complete request” for provider-based status.  P. Ex. 1.   CMS Ex. 6 at 3-4.  CMS also informed Petitioner that it could submit a request for reconsideration within 60 days.  CMS Ex. 6 at 4.

Petitioner submitted a request for reconsideration dated August 28, 2017.  CMS Ex. 7.  With respect to the denial of provider-based status based on the reasons cited above, Petitioner argued the following:

The June 29 letter incorrectly states that “the Main Provider billed for provider-based services during the audit period using place of service code 11” and did not “treat all Medicare patients, for billing purposes, as hospital outpatients,” as required by 42 C.F.R. § 413.65(g)(5).

That is false.  The hospital, Franciscan Health Michigan City, has consistently billed all Medicare patients for services furnished at Woodland Cancer Care Center as hospital outpatient services.  Any alleged billing mistake was not the hospital’s, but rather the physicians’.  The hospital had policies and procedures in place requiring physicians to comply with all state and federal law, including Medicare rules.  Exhibit 5 (Professional Service Agreement) ¶¶ 3.4, 3.51.  It is not appropriate to deny provider-based status for Woodland Cancer Care Center due to alleged mistakes committed by others.  TEHC, LLC, DAB No. CR4371 (Oct. 29, 2015) (reversing CMS’s revocation of a home health services provider’s Medicare billing privileges even though the referring physician had not conducted the required face‑to-face encounter with the patient or provide a valid physician order as is required, because the provider reasonably relied on the orders that it received from a physician’s office); see also 73 Fed. Reg. 36,448, 36,455 (June 27, 2008) (confirming that accidental billing errors are not grounds for revocation).  Despite any alleged error by the

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physician group, the Provider and Woodland Cancer Care Center has [sic] always been in compliance with 42 C.F.R. § 413.65(g)(5).

CMS Ex. 7 at 4-5.  Petitioner submitted five supporting exhibits, to include a copy of the professional services agreement between Franciscan Alliance, Inc., d/b/a Franciscan St. Anthony Health – Michigan City, referred to as “the Owner,” The agreement reported that Franciscan Alliance, Inc., d/b/a Franciscan St. Anthony Health – Michigan City, was the owner of the hospital.  CMS Ex. 7 at 256. and Cancer Health Treatment Centers, P.C., referred to as the “the Contractor.”  CMS Ex. 7 at 256.  The agreement addressed the specialist services the contractor would provide at Woodland. Exhibit D to the agreement lists three of the contractor’s specialists by name, with two specialists being physicians and one specialist being a nurse practitioner.  CMS Ex. 7 at 279.   CMS Ex. 7 at 256.  Section 3.4, which Petitioner referenced, provided that the contractor agreed to perform specialist services “in conformance with all requirements of the federal and State constitutions and all federal and State statutes as now or hereafter in effect.”  CMS Ex. 7 at 261.  Section 3.5.1, which Petitioner also referenced, stated that “[e]ach party shall comply with all applicable federal, state and local laws (including but not limited to all Medicare/Medicaid program, Stark Law (42 U.S.C. § 1395nn), Anti‑Kickback Statute (42 U.S.C. § 1320a-7b(b) and tax law requirements) and the standards of HFAP and the rules and standards of any other applicable accrediting organizations that accredit all or a portion of the services offered through the Department by Owner.”  CMS Ex. 7 at 261.

Although not discussed by Petitioner in its request for reconsideration, the agreement outlined how the contractor’s services would be billed and how the contractor would be reimbursed.  CMS Ex. 7 at 267-68.  Section 6 stated that Petitioner would compensate the contractor no less than $770,235 during the first year of the contract, and that compensation would be based on a “per work relative unit value (wRVU) basis.” Exhibit C to the agreement addressed the compensation methodology, stating, “Compensation will be based on a worked Relative Value Unit (wRVU) of Ninety-One Dollars ($91.00) for each wRVU.”  CMS Ex. 7 at 278.   CMS Ex. 7 at 268. 

Because Petitioner agreed to reimburse the contractor for its services, the contractor agreed that Petitioner, and not it, would bill for its services, stating: 

Owner Billing and Collection.  Owner shall separately bill and collect for Specialist Services furnished by Contractor and for Hospital Services furnished to Patients, affording

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courtesy and other allowances in accordance with Hospital Policies.  Contractor agrees that it will at no time make a charge to any Medicare or Medicaid patient, or to any other party with respect to such Patient, for any Specialist Service performed hereunder which constitutes a “physician service to a provider,” as described in 42 C.F.R. Section 415.102(c).  Contractor also agrees to accept assignment of benefits (and respect the terms thereof) for all Specialist Services furnished to Patients who are beneficiaries under the Medicare Program, Medicaid Program, and other third party payment programs.  Each party covenants to bill and collect for services in compliance with all applicable federal and State laws, rules, regulations and interpretations thereof.

CMS Ex. 7 at 267 (emphasis modified).

In a letter dated August 31, 2017, Robert M. Corbin, who identified that he held the dual roles of General Counsel of the Franciscan Physician Network and General Counsel of Franciscan Alliance, Inc. Corporate Real Estate, informed WPS Government Health Administrators, a Medicare administrative contractor, that the purpose of his correspondence was “to repay an inadvertent overpayment by Franciscan Physician Network.”The physical address listed on the Franciscan Physician Network letterhead is also the address for Franciscan Alliance, Inc., which owns Petitioner.  CMS Ex. 8 at 16-17; see P. Ex. 1 at 564 (bylaws of Franciscan Alliance, Inc., listing the location of the corporate office that “serve[s] as headquarters for its principal officers and other executive personnel and to house the principal executive activities and functions of the Corporation.”).    CMS Ex. 8 at 21.  Mr. Corbin explained the following:

The overpayment is related to professional services performed under Part B at the Woodland Cancer Center, an off-campus hospital outpatient department of Franciscan Heath Michigan City, formerly Franciscan St. Anthony Health Michigan City.  The physician’s [sic] professional services, billed through Franciscan Physician Network, were billed with an incorrect place of service code 11 for a free standing clinic verses [sic] a place of service code 19 for an off-campus hospital outpatient facility (prior to January 1, 2016 place of service code 22).  [Franciscan Physician Network] recognized the error in the place of service code in connection with the CMS audit (#OEI-04-12-00380) of the off-campus hospital outpatient department.

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Franciscan Physician Network has reviewed all of the billing and calculated the overpayment for the period of November 7, 2012 (first days of billing place of service 11) through April 11, 2017 (date place of service 11 was corrected to place of service 19) to be $184,915.41.

CMS Ex. 8 at 21.  Franciscan Physician Network submitted a refund form citing “Billing Error” as the reason for its refund of $184,915.41. I make no finding regarding the amount of any overpayment resulting from the admitted billing error.  Petitioner submitted documentation showing that, in October 2017, WPS issued seven separate notices informing Franciscan Physician Network of overpayments totaling $755,716.64.  P. Ex. 4.    CMS Ex. 8 at 20.

In its reconsidered determination, CMS upheld the denial of provider-based status based on noncompliance with, inter alia, 42 C.F.R. § 413.65(g)(2), (5).  CMS Ex. 1 at 6.  CMS explained:

Although the OIG report generally states that the physician files the claim for the professional component, the evidence presented to CMS shows a variance as to who actually submitted claims for professional services at Woodland.  Franciscan’s Professional Services Agreement indicates that Franciscan itself would submit claims on behalf of the physicians, who are identified as “Cancer Health Treatment Center, P.C.,” but the Form 1500 provided to CMS by Franciscan identifies “Franciscan Physician Network” as the “Billing Provider” who furnished the services at a facility identified to [CMS] as “HP CC Oncology.”

Physicians who provide services at a freestanding office are required to bill Medicare using the correct place of service code for that location, such as code 11.  However, free standing facilities are not integrated with a main provider.  To qualify for provider-based status, Woodland needed to treat all Medicare patients, for billing purposes, as hospital outpatients, and could not treat some Medicare patients as hospital outpatients and others as physician office patients by billing under code 11.

CMS Ex. 1 at 6.

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B.  Relevant legal authorities

Petitioner, as a hospital, is a “provider of services” pursuant to section 1861 of the Social Security Act.  42 U.S.C. § 1395x(u); 42 C.F.R. § 400.202.  Under Medicare Part A, a provider is entitled to reimbursement for qualified medical care and services it furnishes to Medicare beneficiaries.  42 U.S.C. §§ 1395c, 1395d, 1395f, 1395g.  A provider such as Petitioner, pursuant to the requirement of 42 C.F.R. § 413.65, may establish a provider‑based facility that is reimbursed by Medicare at the rate for a hospital outpatient department.  See 84 Fed. Reg. 37046, 37140 (July 31, 2018) (discussing a 2018 Medicare Payment Advisory Commission report that “[a] large source of growth in [Medicare] spending appears to be the result of the unnecessary shift from (lower cost) physician offices to (higher cost) [hospital outpatient departments.”). As previously discussed, OIG reported that “Medicare often pays over 50 percent more for services performed in provider-based facilities than for the same services performed in a non-hospital based facility.”  CMS Ex. 2 at 6.  

A facility that is seeking provider-based status “must meet all of the following requirements” outlined in 42 C.F.R. § 413.65(d)-(h), as applicable, “to be determined by CMS to have provider-based status.”  42 C.F.R. § 413.65(d); see Union Hospital, DAB No. 2463 at 1 (“[I]n order to receive payment applicable for provider based facilities, the facility must show that the qualifications for ‘provider based status’ are met.”).  Section 413.65 includes the following relevant definitions:

Department of a provider means a facility or organization that is either created by, or acquired by, a main provider for the purpose of furnishing health care services of the same type as those furnished by the main provider under the name, ownership, and financial and administrative control of the main provider, in accordance with the provisions of this section.  A department of a provider comprises both the specific physical facility that serves as the site of services of a type for which payment could be claimed under the Medicare or Medicaid program, and the personnel and equipment needed to deliver the services at that facility.  A department of a provider may not by itself be qualified to participate in Medicare as a provider under § 489.2 of this chapter, and the Medicare conditions of participation do not apply to a department as an independent entity.  For purposes of this part, the term “department of a provider” does not include [a Rural Health Clinic] or, except as specified in paragraph (n) of this section, [a Federally Qualified Health Center].

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Provider-based entity means a provider of health care services, or [a rural health clinic] as defined in § 405.2401(b) of this chapter, that is either created by, or acquired by, a main provider for the purpose of furnishing health care services of a different type from those of the main provider under the ownership and administrative and financial control of the main provider, in accordance with the provisions of this section.  A provider-based entity comprises both the specific physical facility that serves as the site of services of a type for which payment could be claimed under the Medicare or Medicaid program, and the personnel and equipment needed to deliver the services at that facility.  A provider-based entity may, by itself, be qualified to participate in Medicare as a provider under § 489.2 of this chapter, and the Medicare conditions of participation do apply to a provider-based entity as an independent entity.

Provider-based status means the relationship between a main provider and a provider-based entity or a department of a provider, remote location of a hospital, or satellite facility, that complies with the provisions of this section.

42 C.F.R. § 413.65(a)(2).  A facility that does not meet provider-based status requirements is treated as a free-standing facility that is not integrated with another entity and is “not entitled to be treated as provider-based simply because it or the main provider believe it is provider-based.”  42 C.F.R. § 413.65(a)(2), (b).

Although not required to do so, a provider may submit an attestation to CMS in order to obtain a determination of whether it meets the requirements for provider-based status.  42 C.F.R. §§ 413.65(b)(3), 498.3.  “A facility that is not located on the campus of a hospital and that is used as a site where the physician services of the kind ordinarily furnished in physician offices are furnished is presumed as a free-standing facility, unless CMS determines the facility has provider-based status.”  42 C.F.R. § 413.65(b)(4).  If CMS learns that a provider has treated a facility as provider-based, and it has not received a determination through its submission of an attestation, CMS will “recover the difference between the amount of payments that actually was made and the amount of payments that CMS estimates should have been made, in the absence of compliance with provider-based requirements.” A provider that has submitted a complete attestation may “bill and be paid for services of the facility or organization as provider-based from the date it submits the attestation and any required supporting documentation until the date CMS determines that the facility does not meet provider-based rules.”  42 C.F.R. § 413.65(k).   42 C.F.R. § 413.65(j)(1)(ii).  Further, “CMS will adjust

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future payments to the provider or the facility or organization, or both, to estimate the amounts that would be paid for the same series furnished by a freestanding facility.”  42 C.F.R. § 413.65(j)(4).

A hospital outpatient department or hospital-based facility must meet specific requirements in order to qualify for provider-based status, to include the following:

42 C.F.R. § 413.65(g)(2):  Physician services furnished in hospital outpatient departments or hospital-based entities (other than [rural health clinics]) must be billed with the correct site-of-service so that appropriate physician and practitioner payment amounts can be determined under the rules of Part 414 of this chapter.

42 C.F.R. § 413.65(g)(5):  Hospital outpatient departments (other than [rural health clinics]) must treat all Medicare patients, for billing purposes, as hospital outpatients.  The department must not treat some Medicare patients as hospital outpatients and others as physician office patients.

C.  Findings of Fact, Conclusions of Law, and Analysis

1. Pursuant to an OIG audit report, CMS learned that Petitioner had been submitting claims for professional services provided at an off‑campus facility, and that its claims listed the site-of-service code for a freestanding physician office rather than the site-of-service code for a hospital facility. 

2. After CMS informed Petitioner of the OIG audit report, inquired why it was using a site-of-service code for a freestanding office, and requested documentation that it was using a site-of-service-code for a hospital facility, Petitioner confirmed that “[t]he hospital use[s]  service code 11, office” and provided a copy of a Form CMS-1500 listing site-of-service code 11 for a freestanding physician office.

3. Pursuant to an agreement between Petitioner and the contractor that provides specialist services at Woodland, Petitioner bills Medicare and collects for the specialist services provided at Woodland.

4. Petitioner, through Franciscan Physician Network as the billing provider, billed for professional services provided at Woodland. 

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5. Franciscan Physician Network acknowledged that it used “an incorrect place of service code” from November 7, 2012 through April 11, 2017, and that it had been overpaid $184,915.41 as a result of a billing error.

6. Professional services provided at Woodland were billed as if the services had been performed in a physician’s office and not at a hospital outpatient department, and therefore, the services were not  “billed with the correct site of service” for a hospital outpatient department or hospital-based entity, as required by 42 C.F.R. § 413.65(g)(2).

7. Because professional services were billed as having been provided at an office rather than a hospital facility, Petitioner failed to comply with 42 C.F.R. § 413.65(g)(5), which requires that hospital outpatient departments must treat all Medicare patients, for billing purposes, as hospital outpatients. 

8. Because Petitioner did not comply with all of the requirements for provider-based status, CMS had a legitimate basis deny it provider‑based status.

Petitioner argues that “[t]he relevant question under 42 C.F.R. § 413.65(g) is whether ‘a hospital outpatient department’ or ‘hospital-based entity’ complies with the billing requirements under that subsection.”  P. Br. at 20.  Attempting to disassociate itself from the requirements of subsections 413.65(g)(2) and (5), Petitioner argues that “[t]he bills at issue for physicians’ professional services furnished at Woodland were prepared and submitted by an ambulatory billing office that is part of Franciscan Physician Network,” and that “the physician network’s ambulatory billing office inadvertently utilized the incorrect site-of-service code for a physician office (code 11) instead of the code for an outpatient department of a hospital.”  P. Br. at 21 (emphasis in original).  Petitioner essentially argues that it is not responsible for any failure to comply with regulatory requirements because it, as the hospital, is not listed as the billing provider on the Form CMS-1500 claims.  P. Br. at 21. 

Petitioner is mistaken.  The language of the regulation is quite clear; the question is whether the physicians’ services, regardless of the billing provider, were “billed with the correct site-of-service” and whether “all Medicare patients” were treated, “for billing purposes, as hospital outpatients.”  42 C.F.R. § 413.56(g)(2), (5).  Section 413.65(g)(2) plainly requires that “[p]hysician services furnished in hospital outpatient departments or hospital-based entities [must] be billed with the correct site-of-service” code.  There is no

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provision exempting a hospital from the requirements of section 413.65(g)(2) when the claims list a different billing provider in section 33 of the Form CMS-1500.  Simply stated, in order to comply with section 413.65(g)(2), a hospital must ensure that bills for physician services, regardless of the billing provider listed on the Form CMS-1500, list the appropriate site-of-service code.  See 65 Fed. Reg. 18434, 18509 (Apr. 7, 2000) (CMS’s explanation for why a hospital “has a role in ensuring proper billing” for services provided in off-site departments).

Although Petitioner argues that it was not responsible for billing for the services provided at Woodland and should not be held responsible for compliance with 42 C.F.R. § 413.65(g)(2) and (5), evidence submitted by Petitioner shows that it did, in fact, agree that it was responsible for billing the Medicare program for the specialist services provided at Woodland.  CMS Ex. 7 at 267.  Specifically, Petitioner agreed that it “shall separately bill and collect for Specialist Services furnished by the Contractor” at Woodland, and that the contractor “at no time” would charge any Medicare patient or other party for those services.  CMS Ex. 7 at 267.  Further, Petitioner agreed to “bill and collect for services in compliance with all applicable federal and State laws, rules, regulations and interpretations thereof.”  CMS Ex. 7 at 267.  If there was any doubt whether Petitioner was responsible for billing for specialist services provided at Woodland, Mr. Mundell, a director at Franciscan Alliance, Inc., reported that “the hospital use[s] service code 11, office for the site-of[-]service” on the Form CMS-1500.  CMS Ex. 4 at 1 (emphasis added).  Further, to the extent that Petitioner argues that CMS unfairly places the “entire burden on hospitals of ensuring proper billing by others” and “provides no opportunity for hospitals to correct billing errors,” the evidence shows that Petitioner did not correct the erroneous billing for Woodland even after it learned of OIG’s and CMS’s concerns in September 2016; the use of site-of-service code 11 for a freestanding office continued through April 11, 2017.  CMS Exs. 3 at 1; 5 at 1-2; 8 at 21; see P. Br. at 22 (emphasis in original).  Although Petitioner argues that Petitioner had “no opportunity to cure” the billing errors, the evidence indicates otherwise.  P. Br. at 23.

Petitioner creates the impression that Petitioner and the Franciscan Physician Network are wholly separate entities, arguing that “there is simply no reason for the Medicare program’s insistence that the hospital is responsible for errors in the physicians’ billings and has no opportunity to cure the errors.”  P. Br. at 23.  However, the evidence suggests a relationship between Petitioner and Franciscan Physician Network.  Petitioner reported on its enrollment application that it is owned by Franciscan Alliance, Inc., and that it operates under a “doing business as name.”  CMS Ex. 8 at 12, 16.  Petitioner submitted evidence that it is owned and operated by Franciscan Alliance d/b/a Franciscan St. Anthony Health (its former name).  CMS Ex. 7 at 256; see CMS Ex. 8 at 21 (reporting Petitioner’s name change).  With respect to Franciscan Physician Network, CMS pointed out that the public database for the Indiana Secretary of State reports that it is not an independent corporation, but rather, operates as Franciscan Alliance, Inc. d/b/a

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Franciscan Physician Network.  CMS Response at 10, citing https://bsd/sos/in.gov/publicbusinesssearch  (last visited December 21, 2020).  Along those lines, Petitioner has submitted evidence that the Franciscan Physician Network operates as a part of the Franciscan Alliance, Inc., organization.  CMS Ex. 4 at 28; P. Ex. 1 at 23.  

Additional evidence supports that not only was Petitioner actively involved in billing, but that it had a relationship with the Franciscan Physician Network.  Mr. Mundell, who identified himself as both the Director of Business Development for Franciscan Health, Indiana (CMS Ex. 4 at 2) and the Administrative Director of Business Development for Franciscan Alliance, Inc. (CMS Ex. 5 at 2), reported that “the hospital” billed under place-of-service code 11.  CMS Ex. 4 at 1; see CMS Ex. 5 at 1 (stating, “We use the 11 code . . . ,” in response to an inquiry why “the hospital is billing place of service code 11 instead of 22.”). Although Petitioner submitted copies of UB-04/Form CMS-1450 claims in support of its claim that it “correctly billed the outpatient hospital services” (P. Br. at 20-21, citing P. Ex. 5), it has not reconciled its earlier report to CMS that “the hospital” submitted Form CMS-1500 claims listing a site-of-service code of 11.  CMS Exs. 4 at 1; 5 at 1.   Although Mr. Mundell reported that “the hospital” billed under site‑of-service code 11, the sample Form CMS 1500 he provided listed Franciscan Physician Network as the billing provider.  CMS Ex. 4 at 3.  Mr. Mundell also reported that Woodland was “on the same registration, billing and medical record system” as Petitioner.  CMS Ex. 4 at 1; see P. Ex. 1 at 615 (March 2018 report that patient billing is an administrative function that is “integrated between Franciscan Health Michigan City and Woodland Cancer Care Center.”).  Likewise, Mr. Corbin, the General Counsel of both Franciscan Physician Network and Franciscan Alliance, Inc. Corporate Real Estate, acknowledged “an inadvertent overpayment by Franciscan Physician Network . . . related to professional services performed under Part B at the Woodland Cancer Center.”  CMS Ex. 8 at 21.  Notably, Mr. Corbin’s letterhead for Franciscan Physician Network listed the physical address for Franciscan Alliance, Inc.  CMS Ex. 8 at 21; see CMS Ex. 8 at 16.  The evidence supports that Petitioner, as the hospital, reported it was involved in billing, and that it had a relationship with Franciscan Physician Network, the billing provider listed on the Form CMS-1500 claims.  See CMS Exs. 4 at 1; 5 at 1; 7 at 267; P. Ex. 1 at 615.  Petitioner’s argument that “there is simply no reason for the Medicare program’s insistence that the hospital is responsible for errors in the physicians’ billings and has no opportunity to cure those errors” is undermined by the facts.  P. Br. at 23.  

Petitioner also argues that “accidental billing errors should not constitute grounds for the draconian punishment imposed by CMS in this case, the revocation of Woodland’s

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provider-based status.” For the sake of clarity, I note that the issue is whether CMS denied provider-based status; “revocation” is not an issue here.  See CMS Ex. 7 at 4 (Petitioner’s reliance on an irrelevant ALJ decision reversing an enrollment revocation that was based on 42 C.F.R. § 424.535(a)(8)(i)).   P. Br. at 21.  The evidence neither establishes that the billing errors were accidental, nor that a “draconian punishment” was imposed by CMS. 

The evidence does not support that the use of an incorrect site-of-service code for services provided at Woodland was accidental. Regardless of whether a billing error occurred, and if that error was inadvertent, the requirements of 42 C.F.R § 413.65(g)(2), (5) are nonetheless applicable.    When CMS informed Petitioner that it had been a subject of an OIG audit report and inquired about its use of site-of-service code 11 rather than 19 or 22, Mr. Mundell, speaking for “the hospital,” reported that it “use[s] service code 11” for an “office” as the site-of-service.  CMS Ex. 4 at 1.  And even though he contended that Woodland “is a department of the hospital,” Mr. Mundell nonetheless reported that Woodland’s services were billed as if they were provided at an “office” location.  CMS Ex. 4 at 1; see CMS Ex. 5 at 1 (“We use the 11 code . . . .  This is the standard office code paid at the lower non-facility rate.”). Mr. Mundell does not account for the potentially greater reimbursement for services provided at a physician’s office, which can result in an increased 20 percent copayment for the beneficiary.  See, e.g., CMS Ex. 2 (reporting at $68.53 difference in cost for the same service provided in a provider-based facility versus a physician’s office).   And even if Petitioner had previously inadvertently billed under site-of-service code 11, as it claims, it was on notice, as of September 2016, that both OIG and CMS had questioned the use of site‑of‑service code 11 for an office location.  CMS Exs. 2; 3 at 1; 5 at 1-2.  Nonetheless, claims for services provided at Woodland continued to list site-of-service code 11 for nearly another seven months, and it is implausible that the continued use of site‑of‑service code 11 through April 11, 2017, was accidental or inadvertent.  CMS Ex. 8 at 21 (reporting April 11, 2017, as the “date place of service 11 was corrected to place of service 19”). 

Finally, the denial of provider-based status is not punitive; rather, CMS denies provider‑based status when a provider does not meet the regulatory requirements set forth at 42 C.F.R. § 413.65.  See P. Br. at 21.  Notably, Petitioner did not submit a complete attestation when it opened Woodland in November 2012, and therefore, it did not obtain a determination of whether it met the provider-based status requirements.  While it was not required to do so, Petitioner assumed a period of risk for providing and billing for services without the benefit of a provider-based status determination.  See CMS Ex. 8 at 21; see 42 C.F.R. § 413.65(k) (addressing temporary treatment of provider-based status

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when a provider submits a complete attestation, and allowing the provider to bill and be paid for services until such time as CMS determines the organization does not meet provider-based rules).  Because Petitioner did not comply with 42 C.F.R. § 413.65(g)(2), (5), CMS correctly denied provider-based status.

IV.  Conclusion

I affirm CMS’s determination that Petitioner did not meet the requirements for provider‑based status based on its noncompliance with 42 C.F.R. § 413.65(g)(2), (5).