David Taylor

Hospitals often look to physician clinics as opportunities to expand services, grow market share and protect referral sources. For several reasons, it is often difficult to integrate physician clinics and successfully operate them. To potentially improve operations, hospitals should analyze the structure of physician clinics to verify they are receiving all eligible Medicare reimbursement.

Each arrangement for a clinic operation has its advantages and disadvantages, different requirements and varying degrees of effort to transition (training, operational changes, etc). Some arrangements are:

• Provider-based status—Operations with a large population of Medicare beneficiaries should be considering provider-based status. Provider-based arrangements allow two Medicare payments, a professional fee and ambulatory payment classification (APC) payment, which is usually greater than the global professional fee payment under a freestanding clinic arrangement. Additional advantages may include reduced operational costs because of more access to hospital resources.

A change to provider-based status requires adjustments to existing operations. Two bills (CMS1500 and UB04) will be submitted. The clinic will need to function as a department of the hospital. The clinic manager will need to report to hospital management; benefit structures must generally be the same as for other hospital employees and the clinic must present itself to the public as a part of the hospital. Recognize that Medicaid and payers other than Medicare may not provide additional reimbursement for provider-based clinics compared to freestanding clinics.

• Rural Health Clinic (RHC) status —To become an RHC, you must be located in a federally designated Health Professional Shortage Area (HPSA) or medically underserved area, or in an area designated as underserved by the governor and approved by the Department of Health and Human Services (HHS). HHS determines HPSAs through the Health Resources and Services Administration; click here to determine if you qualify. Hospitals with RHCs are entitled to full cost reimbursement if they have fewer than 50 beds or, if they have more than 50 beds, their cost reimbursement is subject to a $77.76 cap for 2010 (updated annually).

Other requirements of an RHC are that a mid-level provider must practice at least 50 percent of the time the clinic is open and seeing patients, and the RHC must perform basic lab procedures and meet certain productivity standards. To meet the requirements, consider analyzing the impact of aggregating all RHCs for cost-report purposes. As state Medicaid plans have unique reimbursement rules, consider your state’s Medicaid RHC reimbursement plan when evaluating RHC status.

• Federally Qualified Health Center (FQHC) status—FQHCs can receive a significant amount of funding through federal grants to assist in providing indigent care. Providers agree to provide discounts based on the patient’s ability to pay. Reduced professional liability coverage is provided through the Federal Tort Claims Act and 340B pricing is available for drug purchases.

FQHCs are required to have a board with community members and patients; therefore, hospitals operating clinics that convert to FQHC status will lose some control over operations in return for FQHC benefits.

• Freestanding and/or separate legal structure—This is the default model for new clinics and usually results in poor operating performance. A separate legal structure allows for more accountability and a different benefit structure since separate from hospital operations. Only clinics that can truly operate independently and do not have a significant amount of Medicare business should consider a freestanding setup if provider-based or RHC status is not an option.

The above arrangements highlight some differences to Medicare reimbursement; therefore, efforts to analyze clinic operations should focus on areas of high Medicare use. Hospitals should also understand any reimbursement impact from other payers if changes to operations are made.

For more information on this issue or related matters, please consult your BKD advisor.