Your Guide to Provider-Based Billing

Here’s what you need to know to stay ahead of the curve and master hospital outpatient billing.

When discussing the provider-based billing model, also known as hospital outpatient billing, a distinction should be made between Medicare’s terminology of what defines a provider and supplier versus the more commonly used definitions.


According to Medicare, a provider is generally defined as a hospital, central access hospital, skilled nursing facility, comprehensive outpatient rehabilitation facility, home health agency, or hospice participating in the Medicare program. Additional facilities that fit the definition of a provider under 42 CFR § 400.202, with certain restrictions, include clinics, rehabilitation agencies, public health agencies, and community mental health centers. Suppliers are defined as the qualifying physicians and practitioners delivering services under Medicare who do not fall under Medicare’s definition of a provider.

There are essentially two types of physician offices: (1) Hospital outpatient clinics, where the physician offices are considered a department of the hospital, which fall under Medicare’s definition of providers, and (2) private physician practices, which are considered suppliers.


In the framework of provider-based billing, which is conducted by main providers, the provider is the hospital. Medicare defines main providers as any provider that creates or takes ownership of another location to provide additional healthcare services. These hospital outpatient clinics are subject to stricter government guidelines and regulations because the patients are essentially being treated by the hospital. This necessitates a knowledgeable billing staff to ensure that not only are providers correctly identified and meet provider-based status but are also correctly reimbursed.

Trends in Provider-Based Billing

In an effort to gain market share, hospitals began buying up private physician practices, and by 2018 collectively owned over 31 percent of physician practices, according to research by The Physicians Advocacy Institute (PAI). Hospital acquisition of private physician practices increased by 128 percent between July 2012 and January 2018. This translates into an increase from roughly 35,700 hospital-owned physician practices in 2012 to approximately 80,000 in 2018. In just a few short years, the number of hospital-owned physician practices more than doubled. During that time, physician employment increased by 70 percent, from 94,700 employed physicians in mid-2012 to 168,800 by early 2018.

That same PAI study assessed the effect of the increasing costs related to service provision, in addition to evaluating hospital acquisition percentages. The study looked at specific specialties — cardiology, gastroenterology, and orthopedics — over a three-year period and revealed that the transition to provider-based billing saw a cost increase of $3.1 billion during that time. Medicare paid $2.7 billion of the increase, and Medicare beneficiaries were responsible for the remaining $411 million. This is a considerable cost that has continued to climb due in part to hospital outpatient services being paid at a higher rate under the Medicare hospital outpatient prospective payment system (OPPS) than they are at the Medicare Physician Fee Schedule (MPFS).

Be prepared for the Centers for Medicare & Medicaid Services (CMS) to continue monitoring funds to ensure appropriate disbursement from the Medicare program as there are concerns that not all hospitals are meeting the requirements necessary to qualify for provider-based status.

Debate Over Pros and Cons

There are strong arguments on both sides of the table regarding provider-based billing, with many pertaining to payment rates and proposed adjustments. Regardless of stance, there are clear benefits and drawbacks to hospital acquisitions and the payments that accompany them. One is the potential financial advantages for providers. However, the premise behind provider-based billing is that both practitioners and patients should have access to advanced technologies that may only be available in the hospital setting.

With the shift to off-campus outpatient clinics that are eligible for increased reimbursement due to the nature of provider-based billing, the question then becomes: Are we paying more because we truly have access to those enhanced benefits of technology or are we simply paying more for the exact same services? Hospital officials would likely argue that more comprehensive services, such as laboratory, X-ray, and pharmacy, cost more to operate and thereby justify the higher OPPS reimbursement.

The argument has also been made that the integration of systems and increased accessibility of advanced technology that is typically only available at a hospital can potentially better manage more complex patients with multiple chronic conditions and result in better health outcomes. With this claim, there are still questions left unanswered regarding the benefits to less complex patient populations and whether the increased financial payments from CMS and out-of-pocket costs to patients are in balance with services from hospitals acquiring freestanding offices. Outside of the debate on service benefits compared to added costs, there are other pros and cons to be aware of:

Provider-payer contracts apply to the acquired facilityIncreased out-of-pocket costs for beneficiaries
OPPS reimbursement, if grandfathered prior to January 2017Increased reimbursement from CMS for comparable services
Eligibility for discounts under the 340B drug programAmbiguous quality improvements from access to advanced technology
Medicare bad debt paymentsCompliance concerns relating to designations and billing

Qualifying for Provider-Based Status

Provider-based attestations are used to establish that a facility has met provider-based status determination requirements. Providers may bill for services furnished in newly created or established facilities, both on and off-campus, prior to qualifying for provider-based status. Should CMS determine that the voluntary self-attestation does not meet the specified rules, then the Medicare Administrative Contractor will recover the payment made to the facility, as appropriate. This amount will depend on the attestation filing date, absence of a provider-based designation, and whether the facility was approved but no longer meets the requirements. As such, a continued review of the Program Memorandum is recommended to avoid substantial recoupments from the main provider.

Criteria and Requirements

Although providers may bill for services prior to receiving a provider-based designation, the main provider must meet all the criteria and requirements to qualify for provider-based billing according to the regulations stated in 42 CFR §413.65. On-campus facilities (within 250 yards) must follow all rules stated under Section (d). Off-campus facilities must adhere to Section (d) requirements as well as additional criteria listed under Section (e).

Summary of Section (d) Requirements for On- and Off-Campus Locations:

  • Licensure
    • Departments operate under the main provider’s license (Exemption: separate license requirement mandated by the state)
  • Clinical Integrated Services
    • Clinical privileges at the main provider for facility professional staff
    • Equivalent monitoring/oversight of facilities designated as the main provider
    • Medical directors must have equivalent reporting and accountability to the chief medical officer overseeing the main provider’s departments.
    • Main provider medical staff/professional committees must also be responsible for medical activities in the clinic (for example, quality assurance, utilization review, and coordination and integration of services).
    • Integrated medical records
    • Integrated inpatient and outpatient services
  • Financial Integration
    • Integrated completely with main provider along with inclusion in the cost report
  • Public Awareness
    • Facilities are displayed to the public and payers as part of the main provider. Patients are aware when entering the facility that it is a part of the main provider and are billed accordingly.

Summary of Section (e) Requirements for Off-Campus Locations:

  • Ownership and Control
    • Under the main provider and 100 percent owned by the main provider
    • Maintains the same governing body
    • Operates under the same organizational documents (for example, bylaws and operating decisions of the governing body)
    • Main provider holds responsibility for administrative decisions, outside contract approvals, personnel actions and policies, and medical staff appointment approvals.
  • Administration and Supervision
    • Under the same supervision and accountability to the main provider as existing departments
    • Under direct supervision of the main provider
    • The director/individual responsible for daily operations is also responsible for reporting to the main provider manager and is accountable to the governing body.
    • Integration of the following administrative functions: billing services, records, human resources, payroll, employee benefits package, salary structure, and purchasing services
  • Location
    • Located within a 35-mile radius (unless certain requirements are met)
  • Not a joint venture
  • Management contracts apply under certain criteria

Additional Obligations for Provider-Based Departments

  • EMTALA antidumping rules (on-campus and off-campus dedicated emergency departments)
  • Medicare hospital conditions of participation
  • Provider agreement
  • Nondiscrimination requirements
  • Billing physician services using correct place of service (place of service [POS] code 22 on-campus hospital outpatient)
  • Three-day payment window
  • Advanced Beneficiary Notice

Place of Service Codes

The following POS codes (as defined in the CPT® code book) are used on professional claims to designate the entity where the services were provided:

11OfficeLocation, other than a hospital, skilled nursing facility (SNF), military treatment facility, community health center, State or local public health clinic, or intermediate care facility (ICF), where the health professional routinely provides health examinations, diagnosis, and treatment of illness or injury on an ambulatory basis.
19Off Campus-Outpatient HospitalA portion of an off-campus hospital provider-based department which provides diagnostic, therapeutic (both surgical and nonsurgical), and rehabilitation services to sick or injured persons who do not require hospitalization or institutionalization. (Effective Jan. 1, 2016)
22On Campus-Outpatient HospitalA portion of a hospital’s main campus which provides diagnostic, therapeutic (both surgical and nonsurgical), and rehabilitation services to sick or injured persons who do not require hospitalization or institutionalization. (Description change effective Jan. 1, 2016)

Appending the wrong POS code could result in erroneous or non-compliant payment, leading to overpayment liability and potential False Claims Act liability. In the case of an overpayment differential, repayment would be equivalent to the difference between the provider-based (OPPS) and non-provider-based payment.

Bipartisan Budget Act of 2015 and Modifiers

Section 603 of the Bipartisan Budget Act of 2015 (Public Law 114-74) mandates off-campus provider-based departments (PBD) are excepted or grandfathered in when they have both furnished and billed for services according to timely filling limits, prior to Nov. 2, 2015, under OPPS. Effective Jan. 1, 2017, those excepted facilities will continue to receive payment through OPPS. These facilities will see higher than average payments than freestanding facilities with reimbursement from both OPPS and MPFS. Non-excepted sites will receive lower payments under the MPFS or the Ambulatory Surgical Center Payment System with an appropriate HCPCS Level II modifier. Facilities that are not affected or do not apply to Section 603 include provider-based entities, on-campus departments, and those facilities not billed under OPPS.

Modifier PO Services, procedures and/or surgeries provided at off-campus provider-based outpatient departments is required to be appended on items and services with a HCPCS Level II code to indicate that the location is an excepted off-campus department. Originally, the PO modifier was created in 2016 to identify all the off-campus departments. However, the definition was modified in 2017 to identify only the excepted off-campus services from PDBs going forward.

Modifier PN Non-excepted service provided at an off-campus, outpatient, provider-based department of a hospital has been required since January 2017 for non-excepted items and services provided at off-campus PBDs and is to be reported for each applicable claim line. Locations reporting this modifier do not qualify as being grandfathered into the Bipartisan Budget Act of 2015. The payment rate falls under the MPFS. The idea is to equalize payment for services that are alike between non-excepted PBDs and free-standing practices to capture costs more accurately. This is considered a site-neutral payment. It is important to note that both the PO and PN modifiers are not reported for on-campus PBDs.

Billing Guidance

Split billing for PBDs through the UB-04 and CMS-1500 claims or electronic equivalents may appear to be equal parts of the whole, but typically the total payment is higher than if it was only billed under MPFS. This is due in part to the UB-04 capturing the facility fee under OPPS, which includes point of care testing. The CMS-1500 reports the professional fee under the MPFS, along with the patient’s additional responsibility to pay for two co-insurance amounts.

For each applicable item or service on the UB-04, excepted off-campus outpatient PBDs report modifier PO for each code billed on the UB-04 with POS 19 for the CMS-1500 claim. Non-excepted off-campus PBDs report modifier PN for each code billed on the UB-04 with POS 19 on the CMS-1500 claim. On-campus outpatient department services must report POS 22 on the CMS-1500 claim.

CMS does not expect off-campus PBDs to report both modifiers on the same claim line, as this would create a conflict by stating the service or item was provided at on- and off-campus PBDs. It is permissible, however, to report both modifiers on a claim, on the appropriate claim lines, when items and services have been furnished by excepted and nonexcepted off-campus PBDs independently.

Audit for Compliance

Avalere Health and PAI found in their 2016 study on risk-adjusted payment differences for cardiac imaging, colonoscopy, and evaluation and management (E/M) that all three services have a higher cost to Medicare from hospital outpatient departments compared to physician-owned offices. For example, in the PAI full report profile, two E/M services for hospital outpatient departments were on average $119 higher than physician office payments, $462 higher for a 22-day colonoscopy episode, $1,423 higher for a three-day cardiac imaging episode, and $2,286 higher for a 22-day cardiac imaging episode. Although it can be challenging for management or other auditors to know which facilities are provider-based in large integrated systems, correctly identifying and billing for providers is imperative.

It is vital to capture potential missed revenue by maintaining a strong focus on auditing for compliance. Whether utilizing an internal team or a third-party vendor to identify areas of non-compliance, it will be particularly beneficial to add time and resources to off-campus practice audits. Locations that are not easily seen could be holding compliance risks, along with the greatest areas of opportunity.

Three categories that expose facilities to the possibility of noncompliance:

  • CMS requirements – Does each facility meet all of CMS’ requirements to qualify as a PBD for on- or off-campus designation?
  • Billing – Are billing processes for items and services accurate by payer, utilizing the appropriate claim form(s) or electronic equivalents?
  • Modifiers and POS codes – Are the required modifiers and POS codes being appended correctly and consistently?

The landscape is shifting, and providers must shift too with new proposals as well as stay up to date with changes to sustain financial viability. Maintaining compliance is an ever-evolving process, and in cases of provider-based billing and designations, a particularly complex one at that. According to a 2016 Office of Inspector General study, “more than threequarters of the 50 hospitals we reviewed that had not voluntarily attested for all of their off-campus provider-based facilities owned off-campus facilities that did not meet at least one requirement.”

Expertise on the task at hand is essential in provider-based billing. Identify risks within your facilities with proven processes and checklists from expert auditors to assist providers in safeguarding future and past revenue.


Jessica Whitney, CPC, CPMA, is an audit services manager with more than 20 years of experience in healthcare. She began her healthcare career at Blue Cross of Idaho, working in both provider relations and claims, and transitioned to practice management. She has provided services in all areas of practice management, including coding, billing, and auditing, with a strong focus on revenue cycle management for both small, privately owned, and large multi-specialty hospital-owned practices. Whitney has extensive experience in provider contracting, credentialing, and reimbursement analysis.

Laura Brink, CRC, RHIT, is a senior auditor who began her career as an outpatient facility coder and auditor, working in this field for many years. Following her work in outpatient services, she moved to specializing in HCC risk adjustment, performing provider and coder auditing, with experience working in multiple models such as HCC, RxHCC, ACO, and QHP. Additionally, she assisted in provider education and training to ensure accurate risk scores utilizing query processes.



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