Cherilyn G. Murer, JD, CRA

The American health care system is currently undergoing vast and far-reaching changes. The Patient Protection and Affordable Care Act, possibly the most momentous legislation in decades, is under attack and will soon have its constitutional underpinnings reviewed by the Supreme Court. Moreover, providers are increasingly turning away Medicare and Medicaid patients due to low reimbursement. On top of all of this, America is getting older, thus increasing the strain on the system. It should therefore be no surprise that important developments have gone unnoticed.

This is precisely what has happened with provider-based status. Once anathema to CMS, this payment designation has become increasingly mainstream as hospitals and health systems recognize the opportunities that exist. Provider-based status still presents challenges, to be sure, since the rules of engagement have not really changed since 2000. Yet, those rules are now part of a vastly different health care landscape. For this reason, many of the commonly held beliefs about provider-based status no longer correspond with today’s regulatory environment.


At its most basic, provider-based status is a payment designation whereby one provider is considered a subordinated and integrated part of another provider. This allows the subordinate facility to bill as part of the main provider, usually at a higher rate. It also allows the main provider to allocate administrative and overhead costs to the subordinate provider. This results in system-wide changes that positively affect everything from the provider’s culture to its bottom line.


The underlying regulatory restrictions defining provider-based status have not changed significantly since its inception in 2000. In order to achieve the designation, facilities must meet certain requirements.

These include:

  • Common licensure;
  • Integration of services;
  • Financial integration; and
  • Public awareness.

There are other restrictions that apply depending on, among other things, where the subordinate facility is located. However, all of these additional restrictions go to the same purpose of showing that the subordinate facility is truly a part of the main provider.

One can technically bill as provider-based without making an attestation that one has met all the requirements, but this is a course of action fraught with peril, as it leaves the facility highly vulnerable from a financial standpoint. This is because, if a facility bills as provider-based, but later documentation shows that it did not meet the relevant requirements, it will have to reimburse payments to CMS.

Although the attestation process is voluntary, it provides substantive benefit. The process assures the provider that has properly adhered to the regulatory criteria. Most importantly, the approved attestation limits the system’s financial exposure. A provider must reimburse CMS if it does not attest but is subsequently found to not meet the provider-based requirements. Attestations are not allowed for certain facilities, including ASCs, CORFs, HHAs, SNFs, IRFs, and hospices. This is not because these types of providers cannot be considered part of a hospital. Instead, it is because CMS will make determinations of provider-based status only if such a determination would affect the provider’s Medicare payment levels or beneficiary liability.

Before its most recent iteration, the annual OIG Work Plan had consistently listed provider-based status as an area for review. In fact, it was listed in three consecutive Work Plans (2009-2011), where the OIG said it would “review cost reports of hospitals claiming provider-based status for inpatient and outpatient facilities.” The OIG was clearly trying to find providers that had improperly claimed provider-based status and to determine just how much CMS was overpaying. There is no such mention of provider-based status in the 2012 Work Plan, thus supporting the concept that provider-based status has become mainstream. It also suggests that, with more provisions of the recent health care reform law coming into effect, the OIG simply has to prioritize where it would focus its efforts and chose to relent on provider-based status. Likewise, it may be that the government is focusing its efforts on reviewing provider-based attestations in order to vet most facilities, rather than looking for facilities improperly claiming the designation while trying not to draw scrutiny. In any event, the evidence suggests that CMS realizes that provider-based status is here to stay. As such, it seems to have decided to economize its efforts by making sure, very sure, that attestations demonstrate compliance with the regulatory requirements and by ceasing its game of “gotcha” with facilities that claim provider-based status without documented substantiation.


Although slow to start and with some trepidation, the pendulum has clearly swung in the direction of provider-based status. Health care providers seem to keep moving forward on provider-based status without hesitation. A recent Medicare Payment Advisory Commission (MedPAC) study found that physician services are increasingly shifting from freestanding physician offices to hospital-based outpatient departments. The percentage of office visits performed in the latter setting has increased from 5% in 2004 to 7% in 2010. When comparing provider-based services to overall services, this increase may, at first glance, seem insignificant. However, these figures mean that provider-based services have grown roughly 40% from 2004 to 2010, which is significant by any measure. That physicians are increasingly deciding to go from their own, independent practices to becoming part of a hospital is largely due to two motivating factors. The most obvious is the increased reimbursement these facilities receive as a result of provider-based status. However, many physician offices are changing their status not because of the increased reimbursement but rather the protection afforded by becoming part of a hospital or health system.

It is no secret that physicians are under increased pressure regarding reimbursement. This problem is particularly acute in the case of Medicare and Medicaid payment. Combined with the general conditions for health care providers, this is causing many physicians to trade the independence they get from having their own practices for the security of being part of a larger provider. For these reasons, provider-based status is likely to only increase in popularity. This is not to say that provider-based status is without regulatory issues. CMS will continue to closely scrutinize attestations. This is especially true in light of the substantial increase in reimbursement that provider-based status entails. MedPAC has implicitly recognized that the provider-based designation is valid and a valuable part of the health care system by acknowledging that higher rates for provider-based sites are generally well justified. It also recognized the improvements in care coordination and physician quality of life that provider-based status can bring. It is therefore apparent that, although it will continue to be scrutinized, provider-based status is here to stay.

In fact, it seems that provider-based status will become only more popular in the coming years as it may have other benefits not yet recognized. For example, the recent changes to the Three Day Window Rule, the particulars of which need not be discussed here, will require hospitals to make changes to their billing practices for patient tracking purposes. These potentially burdensome requirements will not apply, however, for patients coming from a provider-based facility. Additionally, the requirements relating to integration and coordination between facilities, which are often regarded as mere hurdles to achieving provider-based status, can actually be beneficial in their own right. It is no secret that there is an effort to lower costs through care coordination. When most people think of lowering cost through care coordination, they think of ACOs or payment bundling. They forget provider-based status, despite its obvious potential to increase coordination by unifying financial, administrative, and clinical processes.


Provider-based status is often misunderstood and underappreciated. This is especially true given the evolution in the regulatory and financial imperatives of America’s health care system. Provider-based status can be a powerful catalyst for integration, which is itself an elusive concept. The designation is tangible evidence of alignment between physicians and hospitals in the provision of a unified health care delivery system. For this reason, it is now becoming increasingly mainstream as providers realize its many benefits. There will, of course, continue to be regulatory issues, but it is clear that the benefits of provider-based status far outweigh the costs for most providers. Therefore, both physicians and hospitals would do well to give provider-based status serious consideration.

Cherilyn G. Murer, JD, CRA, is CEO and founder of the Murer Group, a legal-based health care management consulting firm in Joliet, Ill, specializing in strategic analysis and business development. Murer may be reached at (815) 727–3355 or viewed on her Web site: