Provider-based Restructuring: Approach With Caution

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Freestanding imaging has come under fire in recent years, with a series of Medicare Physician Fee Schedule reimbursement cuts decimating revenue. Hospital-based imaging, on the other hand, has not absorbed as much impact, a reflection of the aligned-care model promoted by President Obama during the development and passage of health-reform legislation.

Richard TownleyFreestanding imaging centers (either owned in part or wholly by radiologists) might, therefore, be considering provider-based restructuring as a means of capturing higher Hospital Outpatient Prospective Payment System and commercial payor reimbursement rates, but is this always the best option? Richard Townley, president and CEO of AGI Healthcare Group, San Ramon, California, advises both practices and hospitals to approach these arrangements with caution.

“One size doesn’t fit all,” Townley says. “Provider-based restructuring that might make sense in one market might not make sense in another.” Reimbursement benefits need to be weighed against the administrative and clinical requirements of a hospital-based service, the competitiveness of the local market, and the priorities of the deal’s participants. In general, provider-based restructuring stands the highest chance of succeeding in markets where the imaging center isn’t facing much competition from freestanding centers, Townley says. There are, however, other nuances to be considered, ranging from the location of the imaging center to its preferred governance structure.

“Take into account that these arrangements are incredibly complex,” Townley says. “The pros and cons need to be closely considered before any decision is made. Other big issues which will significantly impact the decision to restructure and the nature of the talks between the radiologists and hospital are whether the radiologists will continue to have an equity position or not, how the site will be managed and the reading relationship with the radiologists.”

Geographical Impact

Medicare’s rules establish specific requirements that a facility must meet in order to be considered provider based and, accordingly, to gain hospital-level reimbursement rates. If the imaging center is located on or within 250 yards of the hospital’s main campus and is already a hospital joint venture, Townley says, it is possible for the center’s existing governance structure to remain essentially intact.

Having helped structure multiple arrangements of this kind, he adds, “The CMS stipulations allow a joint venture arrangement where the radiologists can still employ their own staff, or they can be employed by the joint venture. The JV can bill for their services, and while there is no requirement that the services be split-billed, they are likely to be—just as are the other hospital radiology services, given the nature of the commercial payer contracts. Other than the split-billed services, there’s very little difference from how they operated before. It is an integrated department of the hospital, but if the parties are willing to do so, we can effectively make it essentially the same as an off-campus 50/50 freestanding center JV.”

If, on the other hand, the center is located more than 250 yards from the hospital’s main campus, Medicare’s rules require that the hospital, not the imaging center, employ technologists and any other non-physician staff directly involved in the delivery of patient care—and that the hospital bill for the services.

“A key element to consider here is the strategic implication of any provider based restructuring, whether it is on-campus or off,” Townley says. He adds that a motivated hospital can often be persuaded to agree to an arrangement that both meets the CMS requirements and offers the radiologists control that is generally similar to what they enjoyed under a freestanding center joint venture. “However,” he says, “we do also encounter hospitals whose opinion is that they do need to maintain more control than is required by the provider based regulations.”

Even an off-campus, provider-based joint venture must be located within 35 miles of the hospital’s main campus, and would provide its facilities and equipment to the hospital under fair market value leasing arrangements. The leasing entity would either be compensated on a cost-plus-fixed-fee basis or a per-exam basis. “The services are provided under the hospital’s contracts as provider-based, and the JV leasing company provides the facility and equipment—and perhaps other