Health Care Alert. Proposed Rules Seek to Offer Hospitals Clarity and Flexibility. Physician Supervision of Outpatient Services.

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1 July 23, 2009 Authors: Mary Beth F. Johnston Kelly D. Furr Katharine L. Schaeffer K&L Gates is a global law firm with lawyers in 33 offices located in North America, Europe, Asia and the Middle East, and represents numerous GLOBAL 500, FORTUNE 100, and FTSE 100 corporations, in addition to growth and middle market companies, entrepreneurs, capital market participants and public sector entities. For more information, visit Proposed Rules Seek to Offer Hospitals Clarity and Flexibility On July 1, 2009, the Centers for Medicare and Medicaid Services ( CMS ) issued proposed revisions to policies and payments to be made to hospital outpatient departments under the Outpatient Prospective Payment System (the 2010 Proposed Rule ). 1 These proposals, if finalized, would take effect on January 1, Of particular note to hospitals are changes that CMS is proposing in response to industry claims that guidance is currently unclear with regard to the location of physicians providing direct supervision required for payment of certain outpatient services performed in hospital on-campus departments. The revised regulations as proposed by CMS expand (i) the locations where physicians may provide supervision of outpatient services and (ii) the category of professionals that may provide supervision under certain circumstances. Both changes would offer hospitals additional flexibility in meeting supervision requirements. Hospitals will also find instructive CMS discussion of billing requirements in Type A and Type B emergency departments ( EDs ) in the 2010 Proposed Rule. CMS did not propose any significant policy changes with regard to the ED categorizations which went into effect January 1, 2009, but CMS does propose the creation of a new level 5 payment specific to Type B EDs. This modification in the 2010 Proposed Rule, however, serves as a reminder with the introduction of this new payment scheme that ED billing may be subject to stricter scrutiny. Physician Supervision of Outpatient Services Background The Medicare program requires that hospitals providing therapeutic or diagnostic outpatient department services to program beneficiaries meet supervision requirements as a condition of payment. Currently, the direct supervision requirement for hospital outpatient services provides that a physician must be present on the premises and immediately available to assist in and direct the procedure, though the physician is not required to be physically present in the room where the procedure is performed. 2 For a hospital comprised of a single building, meeting this requirement has been straightforward, but determining where a physician may adequately provide supervision of outpatient services provided at a hospital spanning a large campus and consisting of several buildings and provider-based departments has been more difficult. Historically, CMS had suggested that it assumed that the supervision requirement for services furnished in an on-campus department would be met because physicians would be nearby within the hospital. 3 1 The 2010 Proposed Rule was published in the Federal Register on July 20, Fed. Reg. 35,232 (July 20, 2009) C.F.R Fed. Reg. 18,434, 18,525 (Apr. 7, 2000).

2 In 2008, however, CMS expressed concern that the industry may have misconstrued this guidance to mean either that supervision in a hospital or in an on-campus provider-based department was not required, or that only general supervision was necessary. 4 CMS stated, it has been our expectation that hospital outpatient therapeutic services are provided under the direct supervision of physicians in the hospital and in all provider-based departments of the hospital, specifically both oncampus and off-campus departments of the hospital, and required that the physician must be present in the provider-based department. 5 Many providers saw this commentary as a change in position by CMS with which they could not readily comply. For example, could a physician in one department no longer supervise an outpatient service provided in another department within the same physical hospital facility? 2010 Proposed Rule In the 2010 Proposed Rule, CMS responds to questions and concerns raised by the 2008 guidance by proposing to change the direct physician supervision required for outpatient therapeutic services furnished in a hospital 6 or in an on-campus provider-based department. If finalized as proposed, the direct supervision requirement for outpatient therapeutic services that are billed under the hospital s CMS certification number and provided on the hospital s main campus, whether in the hospital or an on-campus provider-based department, could be met by a physician who is present either in the hospital or in an on-campus provider-based department of the hospital, provided that such physician is immediately available to furnish assistance and direction throughout the procedure. CMS proposes to define in the hospital as locations in the main hospital building(s) (i) that are under the ownership, financial, and administrative control of the hospital, (ii) that are operated as part of the hospital, and (iii) for which the services furnished are billed under the hospital s CMS certification number. In commentary, CMS clarifies that an individual providing direct 4 73 Fed. Reg. 68,502, 68, (Nov. 18, 2008). 5 See id. at 68, CMS clarified that these rules also apply to critical access hospitals. supervision may not be located in co-located, nonhospital space, such as, for example, a physician s office, independent diagnostic testing facility or skilled nursing facility. Thus, a supervising physician could not meet the requirement by being present in a separately certified facility (i.e., with a different Medicare number), even if that facility is owned by the hospital and located on the hospital s campus. With regard to off-campus provider-based departments, consistent with its position in 2008, CMS reiterates that physicians must be present in the off-campus provider-based department to comply with the direct supervision requirements. In commentary, CMS also notes that immediately available generally means without interval of time. Accordingly, a supervising physician could not be engaged in another procedure that could not be interrupted, and should be available right away to provide direction or even perform the procedure if necessary. Further, CMS notes that the physician must have the adequate privileges and scope of practice to be able to furnish appropriate assistance. In other words, while the physician does not have to be a member of the same department as the physician ordering the services, he or she should be privileged by the hospital to provide assistance in the specialty that he or she is supervising. In another step to offer hospitals more flexibility in meeting supervision requirements for outpatient therapeutic services, CMS proposes that nonphysician practitioners may directly supervise all such services that they can perform under state law and in accordance with their hospital privileges. CMS proposes to define a non-physician practitioner as a physician assistant, nurse practitioner, clinical nurse specialist, certified nurse midwife, and clinical psychologist. This extension of the scope of professionals that may provide supervision would not apply to cardiac, intensive cardiac and pulmonary rehabilitation programs or outpatient diagnostic services. Furthermore, this proposed change does not alter general Medicare requirements related to physician collaboration with or supervision of non-physician practitioners. With regard to outpatient diagnostic services, CMS proposes that the required level of physician supervision for all such services, whether furnished directly or under arrangements in a provider-based July 23,

3 department, the main buildings of a hospital, or a non-hospital location, would be governed by (i) the Medicare Physician Fee Schedule Relative Value File, or (ii) if such services are not listed in the file, the supervision requirements set forth by Medicare contractors. Previously, the regulatory text had only addressed diagnostic services performed in providerbased departments of hospitals. Where direct supervision is required for services provided (a) in the hospital or an on-campus provider-based department or (b) in an off-campus provider-based department, CMS is proposing conforming changes to the applicable regulatory text, so that the same definitions of direct supervision as apply to outpatient therapeutic services would apply to all such outpatient diagnostic services. If finalized in their current form, the physician supervision provisions would give hospitals more clarity and flexibility in complying with supervision requirements for on-campus outpatient services. Nonetheless, limitations on this flexibility remain-- physicians supervising outpatient services performed on-campus must be immediately available and located in the hospital or an on-campus providerbased department of the hospital under the hospital s ownership, administrative and financial control, and billed under the hospital s CMS certification number. This requirement would preclude a physician from providing direct supervision when in a co-located facility on the hospital s campus, such as a home health agency, skilled nursing facility, or independent diagnostic testing facility. Emergency Department Billing The 2010 Proposed Rule also includes a discussion of appropriate billing for services provided in EDs. In its Hospital Outpatient Prospective Payment System final rule ( 2009 OPPS Final Rule ) 7 which became effective January 1, 2009, CMS indicates that it will carefully monitor billing practices to ensure that hospitals properly distinguish between Type A and Type B EDs and that failure to do so could result in further compliance review. Background Prior to 2007, hospitals reported three different types of visits for reimbursement: clinic visits, ED visits, and critical care services. Reimbursement for ED visits was only available for services provided in an ED, which the Current Procedural Terminology ( CPT ) defined as an organized hospital-based facility for the provision of unscheduled episodic services to patients who present for immediate medical attention. The facility must be available 24 hours a day. If a facility provided emergency services, but was open for less than twenty-four hours a day, providers could not use the ED codes and were required to bill the services as clinic visits, resulting in lower reimbursement rates. Regardless of the hours of operation, however, all Medicare-participating hospitals with EDs must comply with the Emergency Medical Treatment and Labor Act ( EMTALA ), and provide certain services to any individual that comes to a dedicated emergency department. The definition of a dedicated emergency department under EMTALA is broader than the CPT definition for an ED set forth above and includes facilities that are not open twenty-four hours a day, seven days a week. The practical result was that a subset of hospital EDs was required to comply with EMTALA, but could only be reimbursed at the lower clinic visit rates because the facility was not open twenty-four hours per day, seven days per week. In response to these concerns, CMS distinguished between Type A and Type B EDs in the 2007 Outpatient Prospective Payment System final rule (the 2007 OPPS Final Rule ). 8 Type A EDs were defined as those that: (i) are available to provide services twenty-four hours per day, seven days per week; and (ii) are either licensed by the state in which they are located as an emergency room or ED or held out to the public as a location providing care for emergency medical conditions on an urgent basis without requiring an appointment. The 2007 OPPS Final Rule defined Type B EDs as those dedicated emergency departments that incurred EMTALA obligations but did not meet the Type A definition Fed. Reg. at 68, Fed. Reg. 68,124, 68,145 (Nov. 24, 2006). July 23,

4 Subsequently, CMS has fielded a number of questions regarding how to distinguish between Type A and Type B EDs in commentary and on the Frequently Asked Questions ( FAQs ) section of the CMS website. 9 In this guidance, CMS has clarified that the distinction between Type A and Type B EDs applies to: (1) off-site provider-based satellite EDs; (2) on-campus provider-based EDs; and (3) Fast Track 10 areas in a hospital. Each must be evaluated individually and a specific decision regarding each area of the hospital, on or off-site, must be made to determine whether Type A or Type B codes are appropriate for services provided at that particular location. CMS has emphasized that the main distinguishing feature between Type A and B EDs is the full-time versus part-time availability of staffed areas for emergency medical care, not the process of care or the site of care (on the hospital s main campus or offsite). 11 Specifically, CMS stated that an area of a hospital that provides emergency outpatient visits and closes at 10 P.M. each evening is a Type B ED and should be carved out from the rest of the ED and bill Type B ED codes. The other parts of the ED that are available twenty-four hours per day should continue to bill Type A ED codes. A Fast Track area that typically closes at 10 P.M., but remains available for use after hours when occasional overcrowding occurs in the larger ED, is also considered a Type B ED. However, CMS distinguished the situation in which a Fast Track area is closed at 10 P.M., but is available, fully staffed and integrated into the 9 See CMS s Frequently Asked Questions, FAQ IDs 8310, 8304, 8305, 8306, 8308, 8309, 8302, 8303, available at 10 Fast Track areas are usually designed to reduce the volume at the main ED by caring for less severe patients that could have been treated in an urgent-care or physician-office setting. They are typically separate areas of an ED that are only available during specific times of the day. 11 One commentator specifically requested that CMS consider a fast track area of an emergency department located within the same building as a Type A emergency department, [as] Type A, regardless of its hours of operation, if it provides unscheduled emergency services and shares a common patient registration system with the Type A emergency department. 73 Fed. Reg. at 68,683. CMS declined to do so. Since the facility was not regularly and customarily fully staffed 24/7, CMS considered it a Type B ED. larger ED after 10 P.M. In this case, CMS would classify the area as a Type A ED because it is fully integrated into the larger ED and continues to remain available and fully staffed twenty-four hours per day, seven days per week. Thus, as of January 1, 2007, hospitals were authorized to report four different types of visits for reimbursement: clinic visits, Type A ED visits, Type B ED visits, and critical care services. Payments to hospitals for Type B visits continued to be based on the clinic payment rates, but CMS created a reporting mechanism to gather data on the costs associated with Type B visits for future modification to the outpatient prospective payment system for these services. In response, the 2009 OPPS Final Rule created a new payment methodology to account for the differences in costs associated with Type A and B ED visits. Visits to a Type B ED are now assigned their own Health Care Procedure Coding System G Code and Ambulatory Payment Classifications ( APC ), as well as five visit levels (1 through 5) based on the severity and intensity of the services provided. Level five visits to a Type B ED are assigned the same APC as a level five Type A visit, because CMS determined that Level 5 visits should be reimbursed at essentially the same rate regardless of whether the services were provided at a Type A or Type B ED Proposed Rule In the 2010 Proposed Rule, CMS offers one notable change to the current ED payment mechanism. CMS proposes a new level 5 payment specific to Type B EDs, which, as noted above, is currently assigned the same APC as the level 5 Type A ED service. CMS suggests that further data has identified lower costs associated with these level 5 Type B ED services; therefore, CMS is proposing to use a new APC for level 5 Type B ED visits, which will significantly reduce reimbursement for these services. In the end, this continued focus by CMS on ED visit billing should remind hospitals to ensure that they appropriately identify whether existing services are provided in a Type A ED or Type B ED and properly classify by type their services as they expand into new locations. July 23,

5 Conclusion Interested parties may submit comments with regard to CMS proposals in the 2010 Proposed Rule by August 31, Providers should stay tuned for more guidance later this year, as CMS expects to release the final regulations by November 1, Anchorage Austin Beijing Berlin Boston Charlotte Chicago Dallas Dubai Fort Worth Frankfurt Harrisburg Hong Kong London Los Angeles Miami Newark New York Orange County Palo Alto Paris Pittsburgh Portland Raleigh Research Triangle Park San Diego San Francisco Seattle Shanghai Singapore Spokane/Coeur d Alene Taipei Washington, D.C. K&L Gates is a global law firm with lawyers in 33 offices located in North America, Europe, Asia and the Middle East, and represents numerous GLOBAL 500, FORTUNE 100, and FTSE 100 corporations, in addition to growth and middle market companies, entrepreneurs, capital market participants and public sector entities. For more information, visit K&L Gates comprises multiple affiliated partnerships: a limited liability partnership with the full name K&L Gates LLP qualified in Delaware and maintaining offices throughout the United States, in Berlin and Frankfurt, Germany, in Beijing (K&L Gates LLP Beijing Representative Office), in Dubai, U.A.E., in Shanghai (K&L Gates LLP Shanghai Representative Office), and in Singapore; a limited liability partnership (also named K&L Gates LLP) incorporated in England and maintaining offices in London and Paris; a Taiwan general partnership (K&L Gates) maintaining an office in Taipei; and a Hong Kong general partnership (K&L Gates, Solicitors) maintaining an office in Hong Kong. K&L Gates maintains appropriate registrations in the jurisdictions in which its offices are located. A list of the partners in each entity is available for inspection at any K&L Gates office. This publication is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer K&L Gates LLP. All Rights Reserved. July 23,