Centers for Medicare & Medicaid Services (CMS) will publish the 2011 Final Rule for the Hospital Outpatient Prospective Payment System on Nov. 24. For the third year in a row, CMS has devoted a substantial portion of the preamble to defending the rationale that prompted it to require direct physician supervision as a condition of payment for most hospital outpatient therapeutic services. Also for the third year in a row, CMS concedes points at the margin, but insists its view of how to achieve quality is correct.

To restate the earlier chapters in the story, one of the benefit categories in Medicare is “hospital services provided incident to a physician’s service.” In conjunction with the implementation of the hospital outpatient prospective payment rule in 2000, CMS imposed special rules on provider-based departments of a hospital to have physicians provide direct supervision of therapies that the department provides. Direct supervision, in CMS’s view, includes the ability to respond “immediately” and to take over or change the therapy that the hospital is providing.

In late 2008, CMS extended the rule to on-campus departments and imposed a requirement that the supervising physician be credentialed under the hospital’s Medical Staff Bylaws to perform the therapy being supervised. Over the course of the last three years, CMS has stated that the physician must not be doing anything that cannot be interrupted when he or she is supervising. Taken to its limits, the rule anticipates physicians that literally do nothing but “supervise.” Given the wide range of therapies that some hospitals offer, it may take several physicians to supervise.

The 2011 Final Rule contains both good news and bad news for the hospital industry.

The good news

The most important positive development in the regulations is that CMS will continue “nonenforcement” of the rules against Critical Access Hospitals (CAHs) and will also extend this reprieve to include rural hospitals with less than 100 beds. While insisting that CAHs and rural hospitals ultimately must find a way to supervise, they are off the hook for another year. Nonetheless, such hospitals now have another year to lobby CMS and seek practical solutions to avoid the possibility of closing down chemotherapy programs and similar services that lack the level of supervision that CMS demands.

Another action that suggests the prospect of future reform is CMS's decision to create a committee that will look at outpatient therapies to determine whether a lower (or higher) level of supervision is appropriate. CMS had earlier followed that route to define the levels of supervision for diagnostic tests, which are included in the Physician Fee Schedule that is updated quarterly. CMS leans toward assigning the task to an existing commission that works with the Ambulatory Payment Classification (APC) payment system. The process for the committee to make its way through all the outpatient therapies, however, is expected to take years.

CMS also changed the conditions required to achieve direct supervision. Gone is the definition of “in the hospital,” replaced by a single requirement of “immediate availability.” CMS described its motive for the change as

We wish to give CAHs and other hospitals more flexibility to meet the direct supervision requirement by allowing physicians or other practitioners in locations that are close to the hospital but not in actual hospital space to directly supervise services that are within their State scope of practice and hospital granted privileges, so long as these individuals remain immediately available.  

One sentence later, however, CMS added

[W]e are not relaxing the requirement that, for direct supervision, the supervisory physician or nonphysician practitioner must be immediately available, meaning that the supervisory practitioner must be physically present and interruptible. We wish to emphasize that once we remove reference to “in the hospital” or “in the provider based department,” we continue to expect the supervisory practitioner to be physically present for the services he or she is supervising. As in the past, we are not defining immediate availability in terms of time or distance. We believe that removing specific boundaries provides reasonable flexibility but also holds the practitioner accountable for determining, in individual circumstances, how to be physically and immediately available when supervising services provided “incident to” a physician’s service in the outpatient setting.  

The bad news

This set of regulations is troubling for a variety of reasons. If forced to prioritize the top three would include:

First. CMS continues to reject the industry’s best arguments. For example

Many commenters asserted that there is no evidence of compromised quality of care or patient safety that justifies the new and burdensome change in supervision rules, and that commenters know of no adverse events that have necessitated a change in CMS’ supervision policies from general supervision to direct supervision.  

Simply stated, that is the strongest argument that hospitals and physicians can make. There is no evidence that substandard care was delivered prior to the new policy CMS imposed in November of 2008. The physician supervision rules in the hospital outpatient therapy context are the solution to a problem that never existed.

Second. CMS continues to hold fast to its view of the role that a hospital’s medical staff bylaws should play in physician supervision. In order to supervise, a physician must have both a state license and “hospital privileges to perform [the] procedure” being supervised. CMS is confident that hospitals can “adjust their bylaws and privileging standards sufficiently to cover practitioners whom they wish to act in a supervisory capacity.”

Third. CMS is taking an unnecessarily rigid stance with respect to the use of Advance Beneficiary Notices (ABNs). A hospital is instructed to provide a patient with an ABN if the hospital suspects that Medicare may not cover or pay for the procedure. The patient is asked to confirm that he or she will pay for the treatment if Medicare does not. It would seem that the conditions for obtaining an ABN would be met in the case of a service being provided without the level of supervision that CMS now requires.

CMS disagreed strongly with that approach, saying that a denial of payment would occur because the therapy was transformed into a type of “custodial care.” CMS stated that issuing an ABN was not appropriate, and “hospitals are not permitted to do so.”


The latest chapter in the physician supervision saga will keep hospital administrators turning the pages of the Federal Register, hoping for a plot twist to avoid what looks for now to be a tragic ending.