Examples of Strategic Plannig in Healthcare

On November 2, 2015, after Congressional and White House budget negotiations, President Obama signed into law the Bipartisan Budget Act of 2015 (“the Act”). Section 603 of the Act mandates that new off-campus Hospital Outpatient Departments (“HOPDs”) established on or after the date of enactment (November 2, 2015) will not be eligible for reimbursement under Medicare’s Outpatient Perspective Payment System after January 1, 2017. For many hospitals, this requires a significant retooling of their strategy.

Under Medicare regulations, “campus” is defined as “the physical area immediately adjacent to the provider’s main buildings and other areas and structures that are not strictly contiguous to the main buildings, but are located within 250 yards of the main buildings (42 C.F.R. § 489.24(b)).” As far as off-campus outpatient services are concerned, only emergency department services, designated by CPT codes 99281 – 99285, are unaffected by passage of Section 603 of the Act.

Up to this point, such “off-campus” outpatient facilities and physician clinics could bill a reduced professional fee for professional services (MPFS/Part B) in conjunction with a much higher facility fee (OPPS/Part A). This “provider-based” billing, as it is known, has been a financially attractive model for hospitals and health systems to realize profits on professional services that traditionally yield a loss under the Medicare Physician Fee Schedule.

Off-campus facilities that did not meet the November 2 deadline will have to bill for services under MPFS/Part B or the Ambulatory Surgery Center (“ASC”) payment system. It is important to note that the OPPS exclusion brought about by the Act does not apply to Critical Access Hospitals (“CAHs”) or Rural Health Clinics (“RHCs”).

The Act does affect hospital participation in the 340B Drug Pricing Program. The 340B Program is the Health Resources and Services Administration’s (“HRSA”) program that allows certain safety net hospitals to acquire outpatient prescription drugs for dispensing to eligible patients at a significant discount. Because provider-based status and inclusion on the hospital’s cost report as outpatient locations are requirements of participation in the 340B Program, an off-campus location’s eligibility for the Program could come into question. As such, outpatient drugs dispensed or prescribed at off-campus locations may not be eligible for discounts provided by the 340B Program.

What is clear under the Act is that off-campus facilities billing as provider-based before November 2, 2015 will be “grandfathered,” allowed to continue billing under provider-based status. What is uncertain at this point in time is the scope of the grandfathering. It is unclear whether or not grandfathered facilities will be allowed to move locations and retain their provider-base status. The course of action is also blurred as it pertains to the addition of new services and specialties to existing outpatient “provider-based” locations. Clarity is also lacking in the Act as it pertains to hospitals expanding provider-based departments and operations within the campus definition (250 yards). In the coming months, the Centers for Medicare and Medicaid Services (“CMS”) will need to clarify its position on these areas and possible scenarios. Until that happens, hospitals and health systems with plans to upgrade their facilities with new locations and/or to grow existing locations with the addition of new specialties and services must exist in a state of suspended animation—uncertain if their ambulatory facility and expansion plans include provider-based billing or traditional MPFS/ASC billing.

For hospitals and health systems with facilities that draw a high commercial patient volume, it’s probably business as usual. For them, provider-based reimbursement was a luxury, not a critical element. The decision to move forward with facility and physician practice expansion plans is less certain for those located in a high Medicare and Medicaid market. The impact of not having provider-based reimbursement for these hospitals and health systems could be significant—the difference between sustainable success and financial disaster. Unless CAH and RHC exemptions apply, provider-based reimbursement is no longer a part of the equation for many hospitals and health systems. A key component to implementing their strategies has been significantly altered.

Because of the Act and section 603, many of Healthcare Strategy Group’s (“HSG”) clients are reevaluating their outpatient ambulatory strategies. Called into question are plans for new ambulatory facilities and consolidation of existing locations. Likewise on hold are plans for expansion of services at existing off-campus locations through employment of new providers and addition of new technical services. Regardless of CMS’s immediate position on the scope of grandfathering, the long-term future of provider-based billing for most hospitals has to be considered questionable at best.

What should hospital and health systems do next if their strategies and plans have been unequivocally altered by the Act? First and foremost, management must keep its eyes and ears open for further guidance from CMS regarding the scope of the Act’s grandfathering. Next, evaluate whether or not RHC enrollment and certification is a possibility—it is very unlikely that an organization is eligible for one of these and not already taking advantage, but worth mentioning just in case. Third, reevaluate existing strategies and assumptions without provider-based reimbursement as a part of the equation. Perhaps, with adjustments, prioritization, and compromise, the heart of the strategy can still be salvaged. Fourth, eliminate the waste and acceptance of mediocrity. We’ve seen many hospitals utilize provider-based billing reimbursement to offset an inefficient revenue cycle function, non-productive providers, and excessive overhead. Finally, revisit your strategic and tactical alternatives. Perhaps, strategies or tactics that were quickly dismissed previously look better when not compared to alternatives with the benefit of provider-based reimbursement.

Regardless of your situation, HSG has the strategy development, hospital-physician alignment, physician practice operations, and revenue cycle (provider-based and not provider-based) experience and expertise to help you adjust, refocus your efforts, and set a new course for success in these dynamic times.


Neal D. Barker

Partner and Managing Director, Compensation and Compliance