Q&A: CMS Penalties for Provider-Based Departments

Q: What are the penalties for failure to meet the provider-based rules?

A: If CMS determines that a hospital-based department fails to meet the provider-based requirements, CMS is required to first issue a notice to the hospital, indicating which cost-reporting periods are at risk in its determination.

Under 42 CFR §413.65(j) (2011), the hospital has two potential pathways to take at this point:

• Hospital responds within 30 days. The hospital must then submit the appropriate application within 90 days. If the application is denied, CMS will recoup the higher If the hospital fails to submit the application within 90 days after the hospital’s initial response, then CMS will stop all payments for services furnished in the unit.
• Hospital fails to respond within 30 days. If the hospital fails to respond within 30 days, CMS will stop all payments for the unit at issue after 30 days and recoup all payments for the unit as discussed in the notice.
   

Regardless of the actions taken by the hospital, CMS will recoup any payments made at the higher provider-based rate for all prior cost-reporting periods as described in the notice. Notably, if the entity had grandfathered status, recoupment will be limited to periods beginning after the grandfathering period—the start of the hospital’s first cost-reporting period beginning on or after July 1, 2003 (42 CFR §413.65[b][2], 2011). In addition, recoupment is limited when a hospital has submitted an attestation regarding the provider-based department (Transmittal A-03-030, Section B.3, 2003). In that case, the recoupment starts only after the date the attestation was submitted, even if that is the same attestation that was denied, causing the recoupment to be incurred.

There is one other exception to this recoupment process, where the hospital has demonstrated a good faith effort to comply with the provider-based requirements but failed to meet every one of these requirements.

For more information, see the book Provider-Based Entities: A Guide to Regulatory and Billing Compliance.

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