CMS quietly “clarifies” rule related to physician supervision of on-campus hospital outpatient department therapeutic services

In the November 18, 2008 Federal Register, the Centers for Medicare & Medicaid Services (CMS) published the final outpatient prospective payment system (OPPS) regulations, which included a “clarification” of its previous position regarding physician supervision of on-campus outpatient therapeutic services. Prior to the November 18, 2008 final rule, CMS’s position was that the direct supervision requirement for services provided incident to a physician’s services in an on-campus hospital outpatient department was assumed to be met “because staff physicians would always be nearby within the hospital.” However, in the recently issued “clarification,” CMS indicated that it was “concerned that some stakeholders may have misunderstood [its] use of the term ‘assume’ in the April 7, 2000 OPPS final rule [ ], believing that [its] statement meant that [it] do[es] not require any supervision in the hospital or in an on-campus provider-based department for therapeutic OPPS services, or that [it] only require[s] general supervision for those services.”

CMS’s Previous Position

In the April 7, 2000 final OPPS rule, CMS explained its position regarding how hospitals could meet the direct supervision requirement in on campus outpatient departments:

Our intention in the proposed rule was to define “direct supervision” of hospital outpatient services incident to physician services when they are furnished at a department of a hospital to mean that a physician must be present on the premises of the entity accorded status as a department of the hospital and, therefore, immediately available to furnish assistance and direction for as long as patients are being treated at the site. By “direct supervision” we do not mean that the physician must physically be in the room where a procedure or service is furnished. Nor does the supervising physician necessarily have to be of the same specialty as the procedure or service that is being performed. We emphasize that our proposed amendment of [42 C.F.R.] § 410.27 to require direct supervision of hospital services furnished incident to a physician service to outpatients applies to services furnished at an entity that is located off the campus of a hospital that we designate as having provider-based status as a department of a hospital in accordance with the provisions of [42 C.F.R.] § 413.65. Our proposed amendment of § 410.27 to require direct supervision of hospital services furnished incident to a physician service to outpatients does not apply to services furnished in a department of a hospital that is located on the campus of that hospital. For hospital services furnished incident to a physician service to outpatients in a department of a hospital that is located on the campus of the hospital, we assume the direct supervision requirement to be met as we explain in section 3112.4(A) of the Intermediary Manual. The requirement at § 410.27 does not affect the definition of physician supervision in section 3112.4(A) of the Intermediary Manual. In response to these comments, we have revised our definition of “direct supervision by a physician” in the final regulation.

65 Fed. Reg. 18434, 18525 (April 7, 2000) (emphasis added).

CMS then went on to state in response to another comment:

…We assume the physician supervision requirement is met on hospital premises because staff physicians would always be nearby within the hospital. The effect of the regulations in this final rule is to extend this assumption to a department of a provider that is located on the campus of a hospital….

CMS’s New Position

CMS’s new position backs away from its previous position that in essence “deemed” hospitals and on-campus outpatient departments to have met the direct supervision requirement for incident-to billing. In explaining the reason for what CMS calls a “clarification,” 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. The expectation that a physician would always be nearby predates the OPPS …. The expectation that a physician would always be nearby also dates back to a time when inpatient hospital services provided in a single hospital building represented the majority of hospital payments by Medicare. Since that time, advances in medical technology, changes in the patterns of healthcare delivery, and changes in the organizational structure of hospitals have led to the development of extensive hospital campuses, sometimes spanning several city blocks, as well as off-campus and satellite provider-based campuses at different locations.

73 Fed. Reg. 68502, 68703 (November 18, 2008).

While not expressly stating that hospital and oncampus outpatient department compliance with the direct supervision requirement would no longer be assumed, this change clearly opens the door for CMS to question whether a Medicare claim for payment for physician services provided in an on-campus outpatient hospital department was provided under the appropriate level of physician supervision. CMS said as much in its November 18, 2008 clarification:

We will continue to emphasize the physician supervision requirement for off-campus provider- based departments. However, we note that if there were problems with outpatient care in a hospital or in an on-campus providerbased department where direct supervision was not in place (that is, the expectation of direct supervision was not met), we would consider that to be a quality concern.

In addition, in a later section of the final OPPS rule dealing with the supervision requirement for diagnostic tests provided in a hospital department that is located on the hospital’s campus, CMS provided further explanation of the phrase “on the premises of the location” which CMS said in the April 7, 2000 OPPS rule meant that the physician must be present on the premises of the entity accorded status as a department of the hospital. In the November 18, 2008 final rule, CMS stated, “This means that the physician must be present in the provider-based department.” While CMS did not make this same statement in the portion of the 2008 final OPPS rule addressing outpatient therapeutic services, it did include similar language in its recent revisions to the Medicare Benefit Policy Manual which were issued December 31, 2008 and effective January 1, 2009:

For services furnished at a department of the hospital which has provider-based status in relation to the hospital under 42 CFR 413.65, “direct supervision” means the physician must be present and on the premises of the location (the provider-based department of the hospital) and immediately available to furnish assistance and direction throughout the performance of the procedure. It does not mean that the physician must be present in the room when the procedure is performed.

Medicare Benefit Policy Manual, Pub. 100-02, chapter 6, § 20.5.1 (underscore added to show the new language).

While CMS characterizes this as a “clarification,” we believe that this represents a significant change in CMS’s interpretation of the physician supervision requirements for outpatient departments and provider-based clinics that hospitals need to be aware of. As a result of this “clarification,” hospitals may need to consider relocating physicians to buildings where on-campus outpatient departments and provider-based clinics are located in order to ensure compliance with CMS’s policy.