How Provider-Based Conversions Impact Physicians, Practices, Patients

by Steven M. Harris, Esq. •

Impact on the hospital. Although conversions can be extremely costly and time consuming, doing so expands the services provided by the hospital, allowing it to serve a greater percentage of the population. In addition, the higher reimbursement paid to the hospital for billing the technical component of the services provided at the converted facilities increases hospital revenue. The extra money can be used to improve or create new hospital service lines or enhance the hospital’s ability to care for indigent patients. Also, so long as the hospital is properly enrolled, it can purchase pharmaceuticals at a significantly reduced cost for administration in the provider-based facility.

Regulatory Considerations

Tremendous effort goes into converting an independent physician practice to a provider-based department of the hospital. The good news for physicians is that most of the work is performed by the hospital. The bad news is that the process can take months to complete. Physicians often find it frustrating to work with the various hospital departments to get the practice up and running in compliance with the provider-based regulations. The more a physician understands the provider-based criteria, the more he or she can help the hospital streamline the process. There are several key components to compliance:

  1. Location: Unless an exception applies, the new department must be located within a 35-mile radius of the hospital.
  2. Licensure: The physician practice must operate under the hospital’s license and provider number. This means the hospital will need to emend its license to include the new department. This may require the hospital to emend its accreditation with The Joint Commission to prove inclusion under the hospital license.
  3. Ownership: Except for certain on-campus joint ventures, the new department must be completely owned and controlled by the hospital. The ownership change process must be started as early as possible, because this can involve a lengthy negotiation between the selling physician and the hospital.
  4. Clinical integration: The clinical services at the new department must be integrated with the main hospital. This requires the following:
    1. Professional staff have privileges at the main provider;
    2. Hospital maintains oversight over the new department as it would any other department;
    3. Medical records are integrated or cross-referenced to the hospital’s medical records. This can be a significant undertaking, so ensure the hospital’s IT staff is involved as early as possible;
    4. Department staff (other than the physician or physician assistants) must be employed by the hospital and receive the same employee benefits and salary structure as other hospital employees.
  5. Financial integration: the new department must appear as an identifiable cost center on the hospital’s trial balance.
  6. Timing: If eligibility for other federal programs is an incentive for the conversion, it is important to be mindful of the timeframes for implementing those programs.

These factors must be kept in mind when converting a physician practice to a provider-based department of the hospital.