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Overview and Review

In order to assess just where we are today and where we have been during the past several years, we need to divide time periods into:

2008 and 2009; and
2010 and beyond.

On April 7, 2000, CMS implemented the Ambulatory Payment Classification (APC) payment system and with this process completely revamped and formalized the Provider-Based Rule (PBR) generally found at 42 CFR §413.65. As a part of this newly formalized rule, CMS indicated that direct physician supervision was a special obligation for off-campus clinics. For on-campus, in-hospital, provider-based situations, physician supervision was assumed because there always would be a physician nearby. With this guidance, hospitals did not worry about on-campus operations that were conducted outside the hospital itself. There was no formal definition made to distinguish in-hospital operations from on-campus but out-of-hospital operations. Basically, there was no special burden on hospitals relative to physician supervision for on-campus or in-hospital operations.


Clarifications Not Changes

Suddenly, starting in 2008, CMS started making changes to various definitions. Of course, CMS claims that these were simply clarifications and not changes. CMS started stating that direct physician supervision was required for on-campus but out-of-hospital provider-based operations. This then required hospitals to make certain that a physician was on the premises of provider-based facilities at all times during which care was being rendered. Additionally, the question arose as to whether mid-level practitioners (e.g., physician assistants, nurse practitioners and clinical nurse specialists) could meet the physician supervision requirement.

CMS performed a careful analysis and determined that mid-level staff did NOT meet the physician supervision requirement. This requires some rather convoluted logic to explain, starting with the Social Security Act (SSA) and then integrating incident-to requirements. Thus, hospitals were faced with the need to have direct physician supervision, and that supervision had to be performed by an MD or DO.  For many hospitals, this raised some very serious concerns.

Let us take an example. A number of hospitals have on-campus but out-of-hospital provider-based operations. Consider an infusion center that is in a building next door to a hospital. You can even add a covered walkway between the hospital and the infusion center. A variety of services are provided here, including chemotherapy, infusions, hydrations, blood transfusions and the like. Specially trained nursing staffers perform these services. While a physician and/or mid-level may be in the infusion center from time to time, generally physicians are not present.

Ostensibly, this provider-based infusion center violates the newly clarified requirements for direct physician supervision, particularly the fact that only physicians can meet the supervisory requirement.  Is it possible that this operation technically is inside the hospital? After all, there is a covered walkway. While we can debate this issue, most likely this operation is defined as being on the campus, but outside the hospital itself. To answer this question definitively, however, we really need a definition of what it means to be “inside the hospital.”

The bottom line for this example and many similar instances is that the hospital is out of compliance. Because the supervisory requirement was not met, services rendered here should not have been paid by the Medicare program.
Good news! CMS has addressed all of these issues, but the changes (yes, these are changes) will not take effect until Jan. 1, 2010. This leaves a significant vulnerability for 2008 and 2009. These are two years that are definitely covered by the RACs along with other federal compliance entities. But before we discuss this issue, let us review the changes that CMS is making. While they are certainly welcome, there still will be lingering questions surrounding some issues.


Mid-Level Practitioners Meeting Supervisory Requirements

CMS is proceeding with allowing certain non-physician practitioners to meet the physician supervisory requirement. Clinical Social Workers (CSWs) have been added to the list of appropriate supervisors.

“In summary, for CY 2010, nonphysician practitioners who are specified under §410.27 of the final regulations as clinical psychologists, licensed clinical social workers, physician assistants, nurse practitioners, clinical nurse specialists, and certified nurse midwives, may directly supervise all hospital outpatient therapeutic services that they may perform themselves within their State scope of practice and hospital-granted privileges, provided that they meet all additional requirements, including any collaboration or supervision requirements as specified in §§410.71, 410.73, 410.74, 410.75, 410.76, and 410.77.” (Page 995 of CMS-1414-FC)

In-Hospital Definition

While there were some concerns expressed by commenters, CMS basically is adopting the proposed definition for “in-the-hospital”:

“…to mean areas in the main building(s) of a hospital or CAH that are under the ownership, financial, and administrative control of the hospital or CAH; that are operated as part of the hospital or CAH; and for which the hospital or CAH bills the services furnished under the hospital’s or CAH’s CCN.”  (Page 995 CMS-1414-FC)


Direct Physician Supervision

Now for the big question. From page 982 of CMS-1414-FC, Examination Copy:

“For services furnished on a hospital’s main campus, we are finalizing a modification of our proposed definition of ‘direct supervision’ in new paragraph (a)(1)(iv)(A) of §410.27 that allows for the supervisory physician or nonphysician practitioner to be anywhere on the hospital campus, including a physician’s office, an on-campus SNF, RHC, or other nonhospital space. Therefore, direct supervision means that the supervisory physician or nonphysician practitioner must be present on the same campus and immediately available to furnish assistance and direction throughout the performance of the procedure.”

Thus, we are almost back to where we were in 2000, except that the physician (or mid-level) can be on the campus, but in a non-hospital area. While there are many different scenarios that can be referenced here, this would allow physicians working in a freestanding clinic on the hospital’s campus to meet this requirement. However, we must be careful because there has been a subtle shift in burden. Prior to 2008, CMS presumed physician supervision, but now the hospital clearly must meet the new requirements.

Note that physician supervision means immediately available. This is an area in which hospitals will need to establish very precise policies and procedures in order to meet any compliance metrics that CMS might choose to enforce. The burden for proving the existence of direct physician supervision is now in the hands of hospitals. Questions concerning timed response metrics or distance metrics need to be established.

Note that CMS did give us the following guidance from Page 950:

“This means that the physician or nonphysician practitioner must be prepared to step in and perform the service, not just to respond to an emergency. This includes the ability to take over performance of a procedure and, as appropriate to both the supervisory physician or nonphysician practitioner and the patient, to change a procedure or the course of treatment being provided to a particular patient.”

The compliance issue is where we draw the line between being available for any reason versus being available in case there is a problem or emergency. For instance, most hospitals have emergency physicians on campus, but can these physicians fulfill the “immediately available” criterion? From a compliance perspective, hospitals always should be in position to establish exactly how physicians or non-physician practitioners are being used to meet the direct physician supervision requirement for any given provider-based situation.

Time will tell the degree to which these supervisory physicians’ or practitioners’ availability must be documented. For instance, will this need to involve the creation of a daily log of physicians and practitioners providing the supervisory services? If so, what if the supervisory physician or practitioner is performing an operative procedure or extensive diagnostic test during a certain time of the day? In other words, must a log be maintained showing that a given physician or practitioner was “immediately available?”

All right, where does this leave us at this point in time? Here is a summary.


Time Period 2000 -2007

Given CMS’s directives in the April 7, 2000 Federal Register and the fact that no additional guidance was provided during the duration of this time period, for compliance purposes it is unlikely that CMS will pursue any of these issues for these years.


Time Period 2008 and 2009

This is the critical time period in which all of these discussions, clarifications, changes and associated interpretations were taking place. Significant confusion was caused by all this upheaval, and hospitals found it very hard to react operationally because of it. However, hospitals still should be prepared to address compliance enforcement activities. This may well include the RACs (besides the Medicare contractors), plus OIG and DOJ. Whether CMS will approve RAC examination of these issues in cases occurring during this time frame is not known. If the RACs do address these issues for 2008 and 2009, however, the extrapolation process most likely will be used. For example, if a sampling of cases indicates that proper supervision was not provided, then the lack of supervision will be extended to all cases and significant overpayments will be claimed.


Time Period 2010 and Beyond

Starting Jan. 1, 2010, we have much more extensive and explicit guidance relative to physician supervision requirements. Thus, hospitals will be able to react operationally to meet these changed requirements. However, there are still significant questions yet to be answered, and care must be taken to establish carefully written policies and procedures.


Additional Issues

Most of the discussion above involved physician supervision of therapeutic services. CMS long since has addressed physician supervision of diagnostic services through the Medicare Physician Fee Schedule (MPFS). There are special indicators in the fee schedule itself for certain services, like main radiology, that require one of three levels of supervision:

  • General;
  • Direct; and
  • Personal.

Here is CMS’s statement relative to diagnostic testing supervision for hospitals.

“For CY 2010, we are finalizing the proposal to require that all hospital outpatient diagnostic services provided directly or under arrangement, whether provided in the hospital, in a PBD of a hospital, or at a nonhospital location, follow the physician supervision requirements for individual tests as listed in the MPFS Relative Value File.”  (Page 996 CMS-1414-FC)



Despite being inconsistent with the rest of CMS’s decisions in this area of supervision, mid-levels do NOT meet supervisory requirements for diagnostic testing. A physician must provide supervisory duties, whether general, direct or personal.

Direct physician supervision also is required for cardiac rehabilitation and pulmonary rehabilitation.  Mid-levels do not meet physician supervisory requirements for these services either.

On top of all these discussions, there is still some ambiguity about what operations inside the hospital are considered “provider-based.” CMS now is using the phrase “provider-based departments (PBDs).”  This terminology does not appear in the Provider-Based Rule, as there the fundamental terminology is facility or operation. These two terms are not further defined in the PBR itself.

Consider the simple question, “is the radiology department inside a hospital a provider-based department?”  If the radiology department is a PBD, then how do all of these supervisory requirements apply? Or do they at all?

About the Author

Duane C. Abbey, Ph.D., CFP, is an educator, author and management consultant working in the healthcare area.  He is president of Abbey & Abbey, Consultants, Inc. that specializes in healthcare consulting and related areas.  His firm is based in Ames, Iowa.  Dr. Abbey earned his graduate degrees at the University of Notre Dame and Iowa State University.


Contact the Author


Note:  Portions of this paper were taken from the November 2009 issue of the Medical Reimbursement Newsletter, Volume 21, Number 11, published by Abbey & Abbey Consultants, Inc.

Additional Resources

•    July 18, 2008 Federal Register – Section XII – Page 41518 (73 FR 41518)
•    November 18, 2008 Federal Register – Section XII – Page 48702 (73 FR 48702)
•    July 20, 2009 Federal Register – Section XII – Page 35358 (74 FR 35358)
•    Transmittal 82, February 8, 2008 to CMS Publication 100-02, Medicare Benefit Policy Manual
•    Transmittal 87, May 2, 2008 to CMS Publication 100-02, Medicare Benefit Policy Manual
(This transmittal was withdrawn.  Contact the author if you need a copy.)
•    Transmittal 101, January 16, 2009 to CMS Publication 100-02, Medicare Benefit Policy Manual.

To access most, if not all, of the CMS materials on the Provider-Based Rule, see our Web site:



Duane C. Abbey, PhD, CFP

Duane C. Abbey, PhD, CFP, is an educator, author, and management consultant working in the healthcare field. He is president of Abbey & Abbey Consultants, Inc., which specializes in healthcare consulting and related areas. His firm is based in Ames, Iowa. Dr. Abbey earned his graduate degrees at the University of Notre Dame and Iowa State University. Dr. Abbey is a member of the RACmonitor editorial board and is a frequent guest on Monitor Mondays.

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