U:~~TEDSTATES GENERAL AC~‘JU~~TING OFFICE WASHINGTON,‘D C 2X% CIVIL DIVISION JIRM 28, 1971 Dear Mr. Ball: mrtig a recent snrvey of I%dEcas?epayments 3.lwol.ving hospS.tsX-based ghysi.e%a~~ in ZlXU.nois, we noted a situation where cme hospsital mce%w!d, zmd tm others may hmm received, excess5~ part B PehbnPs@ments Ql! '~dfas" which were not acl;jpastedbythe %nte~mtimy~ IB are bre.&nmg this matter to ymr attention so that appWprfate adjustmnts may be made for the three hosp3.taIls. Althou&R wa believe that the situ&Ion be2ng questionad by us is covered undw2 scMi.ng Eedicam rebmbursement remIs= tims, we are also bring& this mattir to your attention so that this t;sas of situat5on may be considered in conmct~on with the iwtmmtions--which we understand the Social Secwity Adm5.n%splration is dev&.opamag--to pzotide fog the retioaetive ad$wstment of armounts incorrectly mMmrsed to hospitals and other grotidsrs for tie charge s of provider-based phys%chm undflsr the supp1enl0ntary me&Cal z.ixEm?ance(part El) portCi.on of MB&care. The excesskm re%mbursements kwol.ved a situation where 42~ hospftti-bmed physfcian, using the hoslpitsl as Us b332&ng agent, bzlCL;bedthe par%%B eamler for his sertices to &~&are pat%ents at the hosp%tal and had a kmsa agzwmmt tith the email@example.com.L w&mby t-!! hosp2ta.l retamed a fkxed pement~ of the total chsrge?s to cwmr certain i.lwkimct cqfmdag costs; the portion of the physicfan*s chas(ges retaimd by the hospital exceeded the hosp&izCl.~s rslatid costs. 'I% 5ntemetiary did not take such retslanues md costs Vito accomt when makkg final. settlmmmts with the hospitKL fez' the cost of services under the hospftal irasartance (part A) portion of the Idsdicme pmgram, 5OTH ANNIVERSARY 1921- 1971 The Medicare reimbursement principle dealing with payments for tie services of hospital-based physicians under these c3mxmstames (20 (3% hO~.&%b) provides in part that: ’ W+Where th.e physician biLls tne patient d%mctly, costa of opeleating the hospital depaptmnt which am borr,e by the physician wU1 be reElected 3.n h5.s reason,able ehargos which a38 e~mable under the supplementary mediccil insurance program; the hospdtti will receive reimbursment though the hospital insurance program for those costs, if any, tieh it inCUPS @ Where, howemr , a hospital. in%ti&ly pays %an8 or all of the opePatS.ng e es of a hospW&L department (hg, pays the salarie norxprofessiQna1 psrsonw01 and purchases supplies and equ%pmnt), emn though subsecfhlently those items and servLees fop which it pays the opepatirg expenses ax% fmtished for the use of the physician la return fop m agzeed upon payment by the physician to the hosp-ktal, such opemt%ng coats 8pe re2mburaabl.e underr the hospital 3.nsurance program as hospita Costs, apadlare not to be reflected 3n In our opinion, the E&S.xm? Blue Cuss intermediary forLmoLs, Hospital Sertice Corpomtion, did not follow th3.s pd.ne%p~,e %n rm.ktig 3pecent FinaIL sett%ments vith the DeKLLb P&&&C f%osp%td. in DeKalb, XU%nois. As a ~esu?.t, the hospft$l. reaES%ed wind.fas (xmmmes %n excess of related costs), of about $9,800 and $&IL,100 fmm pax% I3 HedlSeare payments fo?? the years ended Apr5.l 30, 1969, ad April 30, 1970, rsspect2vely. The basis for our estximates of the wind.faUs fs showrt 5n Appendix I, In May 1960, the Bond of Directors of DeKalb Public Hospital entered i&o a f;-yea2 agreement with a pathologist to direct its Pabmato~y. The weement, tick included an awtmat%c $year renewd. dame, provitid that the hospital was to furr&sh the gstho%ogist tith faboslatoley space, utiXi.tles, housekeeping semices, and the use of existing equipment. The pathologist was to protide any necessary technica persomel and any new equipment and supplies. -2- The business manager of the hospital was designated as the pathologist's agent for the collection of laboratory fees which were to be distributed monthly on the basis of (1) 65 percent to the pathologx3t and (2) 35 percent to the hospital as its compensation for provzd%ng laboratory space, heat, utilities, maintenance and housekeeping sxvices, and the use of hospital equipment; and for the billing aad collection expenses. Under this arrangement the hospital billed the Medicare part B carrier and the Medicare patients for (1) laboratory services from July 1, 1966, through October 31, 1970 and (2) the blood bank servx.ces from July 1, 1966 through September 30, 1969, and Feta%ned 35 percent of such billfngs. In, making final settlements mith th%s hospital for the yeam ended April 30, 1969 and 1970, the Intermediary did not take Lnto account the amounts retained frown the pathologistts bfllfngs and the related ind%reet costs and, as a result, the hospital resJ%iaed substantial profits or windfalls. Two other Illinois hospitals (See Appendix II) may also have adsalizsd windfalls under similar lease agreements with the same pathologist. We provided the Illfnois Blue Cross intermediary with details of our findzings and requested comments on the final settlements made wfth DeXalb Fublfc Hospital. Officials of the fntirmediary advised that, under theti interpretatnon of the Medxare regulations 3 it was proper to disregard the amounts retained from the pathologist~s balltigs and the related costs km making f‘fnal sBttlements . The Pgtermedbary officials apparently took this positton because (1) the Medicare payments retained by the hospital for pathologistrs services were made by the part B carrfar on the baszs of reasonable charges for physicians* services which were not the respons%bility of the %mtermed$ary and (2) the regulation, as quoted above, @.ves e Pes of d&e& operating costs whereas the De&lb Hospftal costs related to the pathologist*s charges wem considered indxreet costs. In contrast, we noted that t.ne Blue Cross 3.ntermediary for Indxana, in making final settlements with an Indiana hospital served by the same patholomst under a sz.mPlar lease and compensation agreement, xnterprefxd section 405.486b to require that the amounts retaxned by the hospital from the pathologistts billings be deducted from the allowable costs re%mbursable under the hospital msuxwxe program. !Fhfs hospital and four additional fi?diana hospitals served by this pathologkt are also identified in Appendix II. hJe recognize that there can be various lnterpretatlons of the language of the Kedicare reunburserrent regulations pertaining to hospital-based physicians. We belleve, however, that the Illinois intermediaryts posit~~on is inconsistent with the overriding principle established by the law and the regulations that hospitals till be rezmbursed by Hedz.care for the reasonable costs incurred 5~1providing sernces to MedzLcare patients. COHCLUSIONS AND RECOmBND-4TI In view of the differing interpretations of section 405.486b of the Redfcare reimbursement regulations by two Dlue Cross intermediaries under similar circumstances, I+* recommend that SSA consider whether its proposed instruczi.ons to its intermediaries providing for the retroactive adjustment of amounts incorrectfy reimbursed to hospftals for the professional fees of provider- based physicians should include reference to the type of situst%on discussed in this report. We recommend also that SSA review the settlements made with the three Illinois hospitals identified in Appendixes I and II and require appropriate adjustments for any excessive EIedlcare reimbursements to the hospitals for pathologists1 billings. Copfes of this report may be made available to the Blue Cross Associataon for its information and use., We would appreciate your comments on the matters discussed herein and advice as to any action taken. Copies of thfs report are being sent today to the Assistant Secretary, Comptroller, and the Dfrector of the HEW Audit Agency, Sincerely yours, Assistant Dnrector Mr. Robert M. Ball Commfssioner of Social Security Department of Health, Education, and Welfare APPFJDIXI Page 1 DE KALB PUBLIC HOSPITAL, DE K&B, ILLINOIS ESTINAIED MEDICAREWINDFALL FOR HOSPITAL YEAR ENDED APRIL 30, 1969 Medicare Pathology charges patients Laboratory - inpatient $.m, 881 - outpatient - extended care facility 128 Blood bank - inpatient 3,105 - extended care facility Total- $!%1114 $-h53,016 windfall corq3utation Total charges $l63,016 Less, payments to pathologists (note a> 107,002 Hospital rewnue 56,ozlr Less, inhrect expenses deducted from hospital costs allowed under part A 15,402 Ret hospital income not tmated as a reduction of allowable costs $40,612 Estimated windfall to hospital for Medicare patients @ 24% (nob b) $9,747 aIdmMfied as direct expenses in the hospital’s cost report; note that this amount slightly exceeds 65 percent of the total charges ($105,960) as the agreed percentage payment. bThis represents the percentage of ancillary costs apportioned to Medicare under the combination method of apportionment which the hospital had elected to use. APPENDIX1 Page 2 DE KALB PUBLIC HOSPIML, DE KALB, ILLINOIS EsTDJ~A~DMEDICAREWINDFAX& FOR KOSPlTALYEAR EXDEDAPBIL 30, 1970 Medicam All Pathology charges patients patients Laboratory - inpatient $!a,951 $n83,482 - outpatient 2,802 Blood bank (note a) 2,563 5,737 Total $54,514 $l92,021 W3.Mfal.l ccanputation (note b) Total charges $192,021 Less, payments to pathologists (note c> 123,202 Hospital revenue 68,819 Less, indirect expenses deducted from hospital costs allowed under part A 17,757 Net hospital income not treated as a reduction of allowable costs $51,062 Estimated windfall to hospital for Me&care patumts 8 238 (note d) $11,744 Less, underpayment to the hospital from exclusion of blood bank for 7-month period 10/l/69-~/30/70 in the hospital cost report and settlement 613 Estimated Medicare windfall to hospital $ll,131 aPortion applicable to the !Gmonth period S/l/69 through 9/30/69 when direct billing applied. bFor laboratory full year and blood bank for 5 months. CIdentified as direct expenses in the cost report; note that this amount is slightly less than 65 percent of the total charges ($124,814) as the agreed percentage payment. 4rhis represents the percentage of anctilary costs apportioned to Medicare under the cabinatzon method of apportionment which the hospital had elec"ted to use. -6- APPJXDIXII Page 1 ADDl3!IONALHOSPITALSIN ILLINOIS AND 'JIFHDIANA WEX.8 DlE?XT BPLI;IN% APPLIED FORTHE SAME PATHOLOGISTTHAT SmvED TKE DE KAL3 PUBLIC HOSPITAL DilWCti billing Illinois Ho,qitals through SJWUYIOP~ mnfcipal Hospital (lb-0142) Continues Sandwich cmtity Hospital (14-0203) 12/31/7o Indiana Hospitals Garrett Community Hospital (1!%3$) (note a) Marshall County Parkview Hospital (ls-0076) Murphy Medical Center (150080) Pulaski Meraoruil Hospital (ls-0095) Starke Meraorial Hospital (15-0102) aFop th%s hospital., the in-k%mEary, Blue Cross Hospital Sem%ce, treated net immne for the labos!atory as rental income and deducted it fmn other allovable hospital. costs in the hosp-ital costs Peports and fmal settlements for the two yeaps ended September 30, 1967. -7-
Medicare Payments Involving Hospital Based Physicians in Illinois
Published by the Government Accountability Office on 1971-06-28.
Below is a raw (and likely hideous) rendition of the original report. (PDF)