OAH 16-1800-20891-2
STATE OF
OFFICE OF ADMINISTRATIVE HEARINGS
FOR THE MINNESOTA DEPARTMENT OF HUMAN SERVICES
|
In the Matter of the Hospital Surcharge Appeal of |
RECOMMENDATION GRANTING THE DEPARTMENT OF HUMAN
SERVICES SUMMARY
DISPOSITION |
The above‑entitled matter came
on for hearing before Administrative Law Judge Manuel J. Cervantes (“ALJ”) on July
13, 2010, on the parties’ cross-motions for summary disposition. Barry R. Greller, Assistant Attorney General,
appeared on behalf of the Minnesota Department of Human Services (“DHS”). Samuel
D. Orbovich, Esq., and Katherine A. Burkhart, Esq., appeared on behalf of
STATEMENT OF ISSUE
Did
DHS correctly determine that OMC’s main clinic and its ten community branch
clinics were licensed under OMC’s hospital license and constitute outpatient
departments of the hospital, the non-professional services revenue of which is
“net patient revenue,” subject to the hospital surcharge imposed by Minn. Stat.
§ 256.9657, subd. 2?
Based upon all of the
files, records, and proceedings herein, and for the reasons specified in the
Memorandum below,
IT IS RESPECTFULLY
RECOMMENDED:
1. That the
motion of DHS for summary disposition be GRANTED;
2. That the
motion of OMC for summary disposition be DENIED; and
3. That the Commissioner of Human Services AFFIRM the order
of DHS assessing the hospital surcharge on the ten community branch clinics that were formerly operated as independent
physician clinics, now licensed as a part of the hospital.
Dated: September 10, 2010
s/Manuel
J. Cervantes
|
MANUEL J. CERVANTES Administrative Law
Judge |
Reported:
Digitally Recorded
This Report is a recommendation, not a final
decision. The Commissioner of Human
Services will make the final decision after a review of the record and may
adopt, reject or modify these Conclusions and Recommendation. Under Minn. Stat. § 14.61, the Commissioner
shall not make a final decision until this Report has been made available to
the parties for at least ten days. The
parties may file exceptions to this Report and the Commissioner must consider
the exceptions in making a final decision.
Parties should contact Cal Ludeman, Commissioner of Human Services,
The record closes upon the filing of exceptions to
the report and the presentation of argument to the Commissioner, or upon the
expiration of the deadline for doing so.
The Commissioner must notify the parties and the Administrative Law
Judge of the date on which the record closes.
Pursuant to
Minn. Stat. § 14.62, subd. 1, the Commissioner is required to serve its final
decision upon each party and the Administrative Law Judge by first class mail.
MEMORANDUM
I. Jurisdiction
The Administrative Law Judge and the Commissioner of
Human Services have jurisdiction pursuant to Minn. Stat. §§ 14.57 and 256.9657,
subd. 6, and
II.
Regulatory Background
(a) Effective October 1,
1992, each
(b) Effective July 1, 1994,
the surcharge under paragraph (a) is increased to 1.56 percent.
(c) Notwithstanding the
Medicare cost finding and allowable cost principles, the hospital surcharge is
not an allowable cost for purposes of rate setting under sections 256.9685 to
256.9695.
The current surcharge on
Minn.
R. 9510.2000 to 9510.2050[2] (surcharge
rules) govern administration of the medical care surcharge under the surcharge statute,[3]
including the hospital surcharge. While
the term “hospital” is not defined in the surcharge statute, the following
rules and statutes are instructive in ascertaining whether particular
components of a hospital are included within the definition of “hospital” for
purposes of the imposition of the surcharge:
a.
Minn. R. 9510.2010,
subp. 8, states: “‘Hospital’ has
the meaning given in part 9505.0175, subpart 16, but does not include
federal Indian Health Service facilities and regional treatment centers.”
b.
Minn. R. 9505.0175,
subp. 16 defines “hospital” as “an acute care institution defined in
Minnesota Statutes, section 144.696, subdivision 3, licensed under
Minnesota Statutes, sections 144.50 to 144.58, and maintained primarily to
treat and care for persons with disorders other than tuberculosis or mental
diseases.”
c.
‘Hospital’
means any acute care institution licensed pursuant to sections 144.50 to
144.58, but does not include any health care institution conducted for those
who rely primarily upon treatment by prayer or spiritual means in accordance
with the creed or tenets of any church or denomination.
d.
Minn. Stat. § 144.50,
subd. 2 states:
Hospital,
sanitarium or other institution for the hospitalization or care of human
beings, within the meaning of sections 144.50 to 144.56 shall mean any
institution, place, building, or agency, in which any accommodation is
maintained, furnished, or offered for five or more persons for: the
hospitalization of the sick or injured; the provision of care in a swing bed
authorized under section 144.562; elective outpatient surgery for preexamined,
prediagnosed low risk patients; emergency medical services offered 24 hours a
day, seven days a week, in an ambulatory or outpatient setting in a facility
not a part of a licensed hospital; or the institutional care of human beings.
Nothing in sections 144.50 to 144.56 shall apply to a clinic, a physician's
office or to hotels or other similar places that furnish only board and room,
or either, to their guests.
e.
Minn. R.
9505.0175, subp. 4 defines “Clinic"
as “an entity enrolled in the medical assistance program to provide
rural health clinic services, public health clinic services, community health
clinic services, or the health services of two or more physicians or dentists.”
f.
Minn. R.
9505.0250, subp. 1 states "Clinic service" means a preventive,
diagnostic, therapeutic, rehabilitative, or palliative service provided by a
facility that is not part of a hospital but provides medical or dental care to
outpatients.
g.
“Physician’s
office” is not defined in the surcharge rules but the hospital licensing
statute makes clear that physician offices need not be licensed.[4]
h.
Minn. R.
9505.0330, subp. 1 states "Outpatient hospital service" means a
health service that is medically necessary and is provided to a recipient by or
under the supervision of a physician, dentist, or other provider having medical
staff privileges in an outpatient hospital facility licensed under Minn. Stat.
§ 144.50.
Under
the foregoing statutes and rules, if a hospital facility is licensed as a
hospital under the provisions of Minn. Stat. §§ 144.50 to 144.58, as
administered by the Commissioner of Health, the facility’s net patient revenues
are subject to the hospital surcharge.
Stated alternatively, if a hospital’s outpatient department is
integrated into hospital operations sufficiently to qualify the facility for
coverage under the hospital’s license, its net patient revenues are subject to
the hospital surcharge.
III.
Procedural Posture and Contention of the Parties
OMC
appealed a final decision of DHS denying its monthly administrative appeals of
an increase in its hospital surcharge issued by Larry Woods, DHS Director of
Health Care Operations.[5] On June 19, 2009, OMC timely requested a
contested case hearing with respect to DHS’ final decision.[6]
DHS
stated its position as follows:
OMC
includes a Level IV trauma hospital, two FastCare retail clinics, and 10
community branch clinics.[7] OMC has obtained Medicare provider based
status for its [ten community branch] clinics.
In order to obtain provider-based status, a clinic must meet, at a
minimum, the five requirements laid out at 42 CFR §413.65. These include, common licensure with the
hospital, integrated clinical services, integrated financial operations, public
awareness, and that the clinic must fulfill the obligations of an outpatient
hospital department as laid out at 42 CFR § 413.65 (d).
In
obtaining provider-based status for its clinics,
Because
the clinics are licensed under the hospital’s license and are defined as
outpatient departments of the hospital, the non-professional services delivered
by the clinics are hospital services and the revenue received for the provision
of those services is hospital revenue subject to the hospital surcharge.
OMC’s position is as follows: OMC acknowledges that
in order to obtain provider-based status for Medicare purposes it must meet, at
a minimum, the five requirements codified in federal regulations[10]
and as enumerated above by DHS, but “[t]he Medicare regulations are clear that
provider-based status is used only ‘for payment purposes.’ This federal regulatory characterization does
not change the fundamental nature of these entities. They [OMC’s community branch clinics] are
physician clinics, not hospitals.”[11] OMC further contends: 1) the surcharge statute’s
definition of “hospital” does not apply to its clinics and therefore, the surcharge
does not extend to its physician clinics; 2) the “community branch clinics are
not ‘licensed under the hospital’s licensure’”; 3) there is no direct
connection between the federal regulations governing provider-based status and the
state surcharge statute. “
No section of the Minnesota Statutes or Rules
relating to the provider surcharge specifically mentions or references the
federal provider-based regulations. The
regulations govern Medicare reimbursement alone; they do not affect, nor were
they intended to affect, hospital licensure by the states or the definition of
what constitutes a “hospital” under state law.”;[12] and
4)
by applying the surcharge statute to OMC’s community branch clinics, it has
applied an unpromulgated rule.[13]
IV.
Undisputed or Uncontroverted Facts
The following findings of fact are based on
undisputed facts established by the affidavits and stipulation submitted by the
parties:
OMC’s facilities in issue in this matter consist of a
Level IV trauma hospital, a main clinic, and ten community branch clinics.[14] OMC also operates two FastCare walk‑in
clinics in retail locations.[15] The parties have stipulated that the revenues
of the two FastCare clinics have not been reported to DHS, have not been
subject to the hospital surcharge, and are not in issue.[16]
At all times relevant to this appeal, OMC applied for
and obtained provider-based status under Medicare for its main clinic and ten
community branch clinics, pursuant to 42 C.F.R. § 413.65.[17] Provider‑based status is financially
advantageous to a hospital with a significant population of Medicare clients,
as it allows the hospital to charge Medicare a “facility charge” and certain
other costs that would otherwise not be billable.[18]
The parties agree that under the federal regulation, to
qualify for provider based status, a remote location of a hospital provider
must meet at least the following five requirements:
1. Be operated under the same license as the
hospital, except in states where separate licenses are required or where “[s]tate
law does not permit licensure of the provider and the prospective department of
the provider, the remote location of a hospital, or the satellite facility
under a single license” 42 C.F.R. § 413.65(d)(1);
2. Have clinical services that are integrated with
the main hospital provider, as evidenced by six separate factors, including:
(i) Professional staff of
the facility or organization have clinical privileges at the main provider.
(ii) The main provider
maintains the same monitoring and oversight of the facility or organization as
it does for any other department of the provider.
(iii) The medical director
of the facility or organization seeking provider-based status maintains a
reporting relationship with the chief medical officer or other similar official
of the main provider that has the same frequency, intensity, and level of
accountability that exists in the relationship between the medical director of
a department of the main provider and the chief medical officer or other
similar official of the main provider, and is under the same type of
supervision and accountability as any other director, medical or otherwise, of
the main provider.
(iv) Medical staff
committees or other professional committees at the main provider are
responsible for medical activities in the facility or organization, including
quality assurance, utilization review, and the coordination and integration of
services, to the extent practicable, between the facility or organization
seeking provider-based status and the main provider.
(v) Medical records for
patients treated in the facility or organization are integrated into a unified
retrieval system (or cross reference) of the main provider.
(vi) Inpatient and
outpatient services of the facility or organization and the main provider are
integrated, and patients treated at the facility or organization who require
further care have full access to all services of the main provider and are
referred where appropriate to the corresponding inpatient or outpatient
department or service of the main provider.
42 C.F.R. § 413.65(d)(2);
3. Have financial operations that are fully
integrated within the financial system of the main hospital provider, as
evidenced by shared income and expenses between the main provider and the
facility. 42 C.F.R. § 413.65(d)(3);
4. Be held out to the public and other payers as
part of the main hospital provider, such that when patients enter the
provider-based facility or organization, they are aware that they are entering
the main provider and will be billed accordingly. 42 C.F.R. § 413.65(d)(4); and
5. In the case of a hospital outpatient
department or a hospital-based entity, the facility or organization must
fulfill the obligations of hospital outpatient departments and hospital-based
entities described in paragraph (g) of 42 C.F.R. § 413.65, including
treating all Medicare patients, for billing purposes, as hospital
outpatients. 42 C.F.R. § 413.65(d)(5)
In order
for a physician clinic to qualify as provider‑based under the foregoing
regulations, it must make significant structural changes in its organization
and operations to realize the payment benefits available to provider-based
facilities. To attain Medicare provider‑based status for its main clinic
and ten community branch clinics, OMC established the clinics as outpatient
departments of its hospital for purposes of its
The
letters noted above were exchanged in 2006. There are no records of MDH indicating that
OMC has ever requested that MDH remove OMC’s provider-based clinics from its
hospital license,[23]
nor does OMC claim that it ever made such a request. Indeed, DHS, MDH, Centers for Medicare and
Medicaid Services (CMS, the Federal Medicare regulatory agency), and OMC itself
believe the provider-based clinics operate under OMC’s hospital license.
Although
MDH does not separately license physician clinics as hospitals, because they do
not meet hospital certification standards, MDH does license clinics under a
hospital’s license.[24] OMC’s 2010 hospital license application includes
a list of its clinics, including the main and ten community branch clinics
at issue in this matter.[25] DHS determined that OMC’s main clinic and its
ten community branch clinics constitute outpatient departments of the hospital
under the surcharge statute based on the following facts which are either undisputed
in the record or are uncontroverted by OMC:
1. The clinics
operate under the same
2. The clinical
services of the clinics are integrated with the hospital provider;
3. The clinics
have financial operations that are fully integrated within the financial system
of the hospital provider;
4. The clinics
are held out to the public and other payers as part of the hospital provider,
such that when patients enter the clinics, they are aware that they are
entering the main provider and will be billed accordingly; [26]
5. As hospital
outpatient departments, the clinics must fulfill the obligations of hospital
outpatient departments and hospital-based entities described in
paragraph (g) of 42 C.F.R. § 413.65, including treating all
Medicare patients, for billing purposes, as hospital outpatients.
V. Analysis
In
2006, OMC established its main clinic and ten community branch clinics as
outpatient departments of the hospital for purposes of benefiting from a Medicare
provider-based status, consistent with federal regulations 42 C.F.R.
413.65. In order to be compliant with
federal regulations, OMC clinics required
OMC
contends that 42 C.F.R. § 413.65 regulations are “for payment
purposes.” The ALJ’s reading of the
regulations does not lead him to that conclusion. In order to obtain the status of
“provider-based,” OMC was required to restructure its clinics and integrate
them into hospital operations to meet the minimum requirements of the federal
regulations. Specifically, OMC was required to operate the clinics under common
licensure with the hospital; integrate clinical services and financial operations,
including billing; fulfill the obligations of an outpatient hospital
department; and make the public aware that the clinic was an extension of the
hospital and if additional care or treatment was necessary, the patient would be
referred to their hospital for care. It
is only after these requirements are met, that OMC is eligible for Medicare
payment.
Next,
OMC contends its community branch clinics are physician clinics, not
hospitals. While “Physician Clinic” is
not defined in the rules, “Clinic” is defined as an entity providing health
services by two or more physicians.[27] Clinic service" means a preventive,
diagnostic, therapeutic, rehabilitative, or palliative service provided by a
facility that is not part of a hospital
but provides medical or dental care to outpatients.[28] (Emphasis added.) "Outpatient hospital
service" means a health service that is medically necessary and is
provided to a recipient by or under the supervision of a physician, dentist, or
other provider having medical staff privileges in an outpatient hospital facility licensed under
Pursuant
to Minnesota Statutes section 144.55, subdivision 3, MDH uses Medicare hospital
certification regulations, as promulgated pursuant to Title XVIII of the Social
Security Act, United States Code, title 42, section 1395, et seq., as minimum
standards for the licensure of Minnesota hospitals. MDH does not separately license freestanding
physician’s offices or clinics as hospitals, because they would be required to
meet all of the hospital conditions of participation to satisfy the standards
for hospital licensure and certification.
The hospital license issued by MDH allows a hospital to operate a
department of the hospital, a remote location of the hospital, or a satellite
facility, including physician’s offices or clinics, as part of the licensed
hospital, if the hospital includes those off-site locations on the license application
and attests that these locations are being operated under the hospital’s
license and that the hospital will bill for services provided at the clinic
locations using the hospital provider number.[30]
The
statement of Mary Henderson[31] and
the above-referenced rules make clear the transformation of OMC’s clinics from
physician offices, independent of the hospital, to outpatient hospital
facilities integrated into hospital operations.
The health services provided by the OMC clinics are an extension of the hospital’s
services which are permitted by qualifying for the requisite state hospital license. The clinics’ state licensure also qualifies
them for provider-based status. While
OMC is technically correct that the surcharge statute does not specifically
reference the federal Medicare regulation, each is constructed to work
hand-in-hand with the other.
VI. Summary
OMC,
in licensing its clinics under its hospital license and in structurally
changing clinic operations to comply with the requirements of 42 C.F.R.
§ 413.65, has rendered the nonprofessional services revenue of its
community branch clinics hospital revenue.
This revenue is subject to the hospital surcharge on net patient
revenues under Minn. Stat. § 256.9657.
In
making the foregoing determination concerning the OMC clinics, DHS relied on
the plain language of the surcharge statute and surcharge rules. DHS has not issued a new “interpretation” of
the surcharge statute, based on federal regulations, nor has it adopted or
applied an unpromulgated interpretative rule.
M. J. C.
[1] Statutes are cited to the 2008
Edition. OMC has requested the ALJ to
consider the status of three specialty clinics located on OMC’s campus in its
appeal. These clinics were not
considered by DHS in denying OMC’s request for relief from the surcharge
statute and were not referenced in OMC’s appeal; therefore, the ALJ declines to
address their status in this contested case.
See Exhibits A and B, attached
to DHS’ Notice and Order for Prehearing Conference (Notice). Independent of this matter, the parties are
free to address the status of any revenues from these clinics that may be
subject to the surcharge.
[2] Rules are cited to the 2009
Edition.
[3]
[4]
[5] Notice, Ex. A.
[6] Notice, Ex. B.
[7]
http://www.olmmed.org/about/index.html
[8] Minn. Stat. § 256.9657, subd.2.
[9] Notice, Ex. A at 1-2.
[10] 42 C.F.R. § 413.65 (d).
[11] Notice, Ex. B at 2-3.
[12] Id,
at 4.
[13] Id,
at 5-7.
[14] Stipulation of Facts (Stip.),
¶¶ 1, 2, and 5.
[15]
[16]
[17]
[18] See
OMC Mem. In Support, at 4, 5, and 7 (“reimbursement as an outpatient
department can be financially advantageous”).
[19] Stip., ¶ 7 &
Ex. B, Higgins to Hirschfield letter.
[20] Id.,
Ex. B.
[21]
[22] Id.,
Ex. B.
[23]
[24]
[25]
[26] OMC has clearly represented to the
public that its clinics are outpatient departments of OMC, as is evidenced on
its webpage. See http://www.olmmed.org/patients/provider_based_billing.html,
last visited September 1, 2010 (The webpage states, in relevant part, “The
Centers for Medicare and Medicaid Services have designated Olmsted Medical
Center (OMC) healthcare providers as ‘Provider‑based.’
[27] Minn. R. 9505.0175, subp. 4.
[28] Minn. R. 9505.0250, subp. 1.
[29] Minn. R. 9505.0330, subp. 1
[30]
[31] Supervisor- Health Facility
Evaluator, Compliance Monitoring Division, MDH