By David Yucht, J.D.
Emergency and anesthesia services were incorrectly classified as Medicare Part B patient costs rather than Part A provider costs because of a failure to apply an exception to a regulation requiring written allocation reports.
A Medicare contractor improperly classified payments made by a small Florida hospital for emergency and anesthesiologist service agreements as Part B patient costs because the contractor failed to apply an exception to a regulation that generally requires written allocation agreements distinguishing Part A services from Part B services, as per the ruling of the Provider Reimbursement Review Board (PRRB). Accordingly, the PRRB remanded the cost reports for the relevant years back to the Medicare contractor to properly classify the payments made for these services as Part A provider costs (Mariners Hospital v. First Coast Service Options, Inc., PRRB Hearing, Dec. No. 2019-D22, Case Nos. 15-3311, 16-2022, 16-2024, March 28, 2019).
Provider penalized. Mariner Hospital is a 25 bed Critical Access Hospital located in the Florida Keys. Under its agreement with Medicare, Mariners must make emergency services available 24 hours per day, seven days a week, and have physicians available to provide those services. Mariners also performs surgical services, including unscheduled emergency surgeries, and must ensure adequate coverage by anesthesiologists. Because of its remote location, Mariners contracted with outside medical groups to provide anesthesia services and emergency services. These agreements provided that the physician groups separately billed and collected payments for the professional services rendered to Mariners’ patients.
The Medicare contractor disallowed these contracted anesthesia and emergency services because Mariners did not submit allocation agreements that distinguished between Medicare Part A services (which are generally reimbursed at a higher rate than Part B services) furnished by Mariners and Medicare Part B services furnished to individual patients. The Medicare contractor presumed that all the costs incurred under these contracts were for Part B professional services to patients. The dispute in this case involved the application of the Medicare reasonable cost reimbursement rules to Mariners’ physician contracts with its outside medical group providers.
Hearing. The Board remanded the cost reports for the relevant years back to the Medicare contractor to classify the payments made for these services as Part A provider costs. The Contractor relied on a regulation which required that: “In the absence of a written allocation agreement, the intermediary assumes, for purposes of determining reasonable costs of the provider, that 100 percent of the physician compensation cost is allocated to services to beneficiaries as specified in paragraph (b)(2) of this section.” In this instance, because Mariner produced no allocation agreement, the Medicare Contractor relied on this regulation and allocated all the physician service costs related to the outside medical groups to Part B patient costs.
The PRRB found that the Medicare contractor improperly disallowed Mariners’ contracted emergency room and anesthesia costs because the availability and administrative services at issue were not for physicians’ professional services payable under Part B. Rather, these costs related solely to services provided to Mariners and reimbursable under Part A. The outside providers’ contracts were clear that Mariners made no payments to them for Part B services. Rather, these contracts expressly provided for the physicians to bill all patients directly. Because all the services Mariners paid for under these agreements were for Part A services, there was nothing to allocate to Part B. Since there was nothing to allocate, Mariners was not required to enter into an allocation agreement.
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