SUBJECT:

Baylor University Medical Center at Richardson,

Petitioner,

Health Care Financing Administration

The two cases that I decide here arise from separate hearing requests. I am electing to issue consolidated decisions inasmuch as the two cases involve common legal issues and very similar facts.

In Docket No. C-00-038, I find that Petitioner, Baylor University Medical Center, proved that certain of its senior health centers qualified under Medicare participation requirements to be certified as provider based facilities as of the dates that these facilities opened. I find that these senior health centers should be certified to participate in Medicare effective the following dates:

In Docket No. C-00-075, I find that Petitioner, Baylor Medical Center at Richardson, proved that Baylor Richardson Senior Health Center qualified under Medicare participation requirements to be certified as a provider based facility effective April 21, 1995, the date that the facility opened and during the period which ran from April 21, 1995 through December 18, 1995. I find that the Baylor Richardson Senior Health Center should be certified to participate in Medicare effective April 21, 1995 and thereafter.

I. Background

Both Petitioners are affiliates of the Baylor Health Care System. Petitioner in Docket No. C-00-038, Baylor University Medical Center, is certified to participate in the Medicare program as a hospital. It operates approximately 21 outpatient departments at which it furnishes outpatient services to hospital patients. In the early 1990's it began to receive requests to furnish specialized, geriatric, primary health care outpatient services to elderly patients. In response to these requests, beginning in 1993, it opened and operated senior health centers in and around Dallas, Texas. These senior health centers include the Casa Linda, Pleasant Grove, Preston/Sherry, Hillside, C. C. Young, and Fair Park facilities.

Petitioner in Docket No. C-00-075, Baylor Medical Center at Richardson, also is a hospital that is certified to participate in the Medicare program. This Petitioner operates several outpatient departments. On April 21, 1995, it opened and operated the Baylor Richardson Senior Health Center in Richardson, Texas. This senior health center was opened, and is operated, to provide primary health care services to local elderly patients.

Petitioners requested the Health Care Financing Administration (HCFA) to certify their senior health centers, including the senior health centers that I have identified by name in these decisions, as provider based facilities. Petitioners requested that these senior health centers be certified as provider based facilities beginning with their opening dates. On February 11, 1999, HCFA notified Petitioners that it had determined to certify these facilities as provider based. However, in the instances of the named facilities, HCFA determined to certify each of them as being provider based on a date that is later than the facility's opening date. HCFA determined that senior health centers that are operated by Petitioner, Baylor University Medical Center, should be certified to participate as provider based facilities effective the following dates:

HCFA determined that Baylor Richardson Senior Center, which is operated by Petitioner, Baylor Medical Center at Richardson, should be certified to participate as a provider based facility effective December 19, 1995. HCFA advised Petitioners that the dates that HCFA chose as certification dates for these senior health centers were the dates that the Joint Commission on Accreditation of Healthcare Organizations (JCAHO) extended accreditation to the facilities or, in instances where JCAHO did not specifically extend accreditation, the date on which JCAHO wrote to Petitioner, Baylor University Medical Center, acknowledging that it had received notification from Petitioner of the addition of senior health centers to this Petitioner's operations.

Petitioners requested reconsideration of these determinations. HCFA affirmed its initial determinations. Petitioners then requested hearings. The case docketed as C-00-038 was assigned to me. The case docketed as C-00-075 was initially assigned to another judge, but then it was reassigned to me.

The hearing request in C-00-038 was accompanied by 12 documents. The hearing request in C-00-075 was accompanied by eight documents. While Petitioners referred to these accompanying documents as "exhibits," I identify them as attachments rather than exhibits because they were submitted prior to the imposition of briefing schedules inviting the parties to file exhibits.

The parties agreed that these cases could be heard and decided without an in-person hearing and based on their written submissions. Pursuant to a briefing schedule established by the judge initially assigned to the case docketed under C-00-075, the parties submitted preliminary briefs. The preliminary brief submitted by Petitioner in C-00-075, Baylor Medical Center at Richardson, was accompanied by three proposed exhibits which I identify as P.-00-075 Exs. 1 - 3.

Pursuant to a different briefing schedule that I established after the case docketed as C-00-075 was assigned to me, the parties submitted proposed exhibits and briefs in both cases. Petitioner in C-00-075, Baylor Medical Center at Richardson, submitted 13 proposed exhibits with its initial brief which I identify as P.-00-075 Exs. 4 - 16. Petitioner subsequently withdrew one exhibit initially submitted by it and replaced this document with a different exhibit under the same number. (Although Petitioner identifies this document with the number 12, I have identified it as P.-00-075 Ex. 15). Petitioner also submitted a reply brief in C-00-075 accompanied by two additional documents. I identify these as P.-00-075 Ex. 17 - 18. HCFA offered six proposed exhibits with its initial brief in C-00-075 which I identify as HCFA-00-075 Exs. 1 - 6. HCFA declined to file a reply brief.

Petitioner in C-00-038, Baylor University Medical Center, submitted 22 proposed exhibits with its initial brief which I identify as P.-00-038 Exs. 1 - 22. Petitioner in C-00-038 subsequently withdrew four exhibits initially submitted by it and replaced these documents with four different exhibits under the same numbers (P.-00-038 Exs. 8, 9, 10, and 16). Petitioner also submitted a reply brief in C-00-038 accompanied by two additional documents. I identify these documents as P.-00-038 Exs. 23 - 24. HCFA offered seven proposed exhibits with its initial brief in C-00-038 which I identify as HCFA-00-038 Exs. 1 - 7. HCFA declined to file a reply brief.

Neither party objected to the exhibits offered by the opposing party. I receive into evidence P.-00-038 Exs. 1 - 24 and P.-00-075 Exs. 1 - 18. I also receive into evidence HCFA-00-038 Exs. 1 - 7 and HCFA-00-075 Exs. 1 - 6.

II. Issue, findings of fact and conclusions of law

A. Issue

The issue in these cases is the dates on which the senior health centers met HCFA's criteria for inclusion of the centers into Petitioners as provider based facilities.

In this decision I do not address another issue which I identified during the prehearing stage of these cases. At the inception of these cases I expressed skepticism that I had authority to hear and decide them. At first glance, these cases did not appear to me to involve an issue that I had the authority to hear and decide, that being whether HCFA incorrectly determined when to certify providers to participate in Medicare. Rather, the cases appeared to involve an issue that I did not have the authority to hear and decide, consisting of whether HCFA incorrectly classified the status of the senior health centers for Medicare reimbursement purposes. However, both parties urged me to hear and decide these cases. I have decided not to consider the issue of whether I have the authority to hear and decide them in light of HCFA's insistence that I do have that authority.

B. Findings of fact and conclusions of law

I make findings of fact and conclusions of law (Findings) to support my decision in these cases. I set forth each Finding below, as a separate heading. I discuss each Finding in detail.

1. At issue in these cases is the dates on which the senior health centers met HCFA's criteria for inclusion of the centers into Petitioners as provider based facilities. These cases do not involve the issue of dates on which the senior health centers should have been certified to participate in Medicare as providers or suppliers of services.

It is necessary at the outset of these decisions to clarify what is at issue. Petitioners assert that what is at issue is the dates on which the senior health centers qualified to participate in Medicare as provider based facilities. Petitioners argue that the question that I must decide is the dates on which the senior health centers should be found to be integrated into Petitioners so that Petitioners could claim reimbursement for the services that the senior health centers provided as operating divisions of Petitioners.

HCFA asserts that what is at issue is the dates on which the senior health centers should be certified to participate in Medicare as providers of services. HCFA asserts, in effect, that what is at issue here is the dates on when the senior health centers qualified in their own rights as providers of care. It argues that, when Petitioners opened the senior health centers, they opened new providers of care. It contends that, in order to participate in Medicare, each of these senior health centers had to be certified as satisfying all participation requirements. HCFA contends that its determinations in these cases were determinations that the senior health centers met participation requirements as of specified dates. HCFA seems to argue that its conclusions as to the provider based status of the senior health centers were made as an aspect of its determinations that these facilities should be certified to participate in Medicare.

Finally, HCFA asserts that it deemed the senior health centers to meet participation requirements on the dates that Petitioners' accreditations by JCAHO were amended to include the senior centers. HCFA argues that it could not have certified the senior centers to participate at any earlier date inasmuch as HCFA relied on the JCAHO accreditations as evidence that the senior health care centers met provider participation requirements in lieu of conducting surveys of the senior centers to ascertain compliance with participation requirements. See 42 C.F.R. §§ 488.4; 488.5; 489.13.

Below, at Finding 2, I discuss the significance of JCAHO accreditation as a factor in determining whether a facility is provider based. But, as a preliminary matter, I conclude that HCFA's characterization of its determinations in these cases is incorrect.

Contrary to HCFA's assertions, HCFA did not evaluate, nor did it certify, the senior health care centers to participate in Medicare as freestanding providers of care. The health care centers never were separate facilities and could not be certified to participate as freestanding providers of care. The senior health centers were created and operated as aspects of Petitioners. It would be no more logical to characterize the senior health centers as separately certified providers than it would be to characterize the various departments of a hospital as separately certified providers.

HCFA would not have been able to certify the senior health centers as Medicare participants if they had applied for certification as freestanding providers or suppliers of care. And, consequently, HCFA would not have been able to deem the senior health centers to be providers based on their JCAHO accreditation. The Social Security Act (Act) and regulations which govern participation in Medicare do not recognize an entity known as a "senior health center"which is eligible for certification as a provider. There are no certification criteria in the regulations for an entity known as a "senior health center." A "senior health center"is neither a "provider"nor a "supplier"of services that HCFA may certify to participate in Medicare. See 42 C.F.R. § 488.1.

Medicare may reimburse for the services that are provided by senior health centers if HCFA determines that those services are being provided as an aspect of reimbursable hospital services. As Petitioners observe, senior health centers may be characterized as departments of hospitals to the extent that they provide services that are reimbursable services and to the extent that they are determined to be parts of hospitals. Petitioners point out also that a new regulation to be codified at 42 C.F.R. § 413.65 defines "department of a provider" as:

a facility or organization or a physician office that is either created by, or acquired by, a main provider for the purpose of furnishing health care services of the same type as those furnished by the main provider under the name, ownership, and financial and administrative control of the main provider . . . . A department of a provider may not be licensed to provide health care services in its own right, may not by itself be qualified to participate in Medicare as a provider under § 489.2 of this chapter, and Medicare conditions of participation do not apply to a department as an independent entity.

65 Fed. Reg. 18,434, 18,538 (2000) (to be codified at 42 C.F.R. § 413.65) (emphasis added). While this regulation is new and has not gone into effect yet, it appears to embody previous HCFA policy which is not new.

Thus, HCFA's determinations in these cases were determinations to classify the senior health centers as operating divisions of Petitioners for purposes of establishing the Medicare reimbursement status of the items or services that were provided by the senior health centers. HCFA never determined that any of the senior health centers met certification requirements as freestanding providers of care. The issue in this case, therefore, is not whether the senior health centers in question met Medicare participation requirements as freestanding providers. Nor is it whether the senior health centers should have been deemed to have met participation criteria for hospitals or for other providers based on their JCAHO accreditation. Rather, the issue is the dates on which these centers met HCFA's criteria for inclusion of centers into Petitioners as provider based facilities.

2. As of the dates when Petitioners opened the senior health centers, it was not necessary for a facility to satisfy each and every one of the criteria used by HCFA to determine provider based status in order to qualify as being provider based.

HCFA recognizes that a provider may own and operate a facility that is part of the provider even though that facility is not physically located at the same site as is the provider's principal facility. 63 Fed. Reg. 47,552, 47,587 (1998). Classification of an outpatient facility as being provider based may be an important concern for the provider which operates the facility because the classification may affect the manner in which Medicare reimbursement is paid for the outpatient facility's services. At times, classification of an outpatient facility as a provider based facility may mean that the Medicare program will pay more for the services that are provided by the facility than if the facility is treated as a freestanding provider. Johns Hopkins Health Systems, DAB CR598 at 4 (1999).

The Act does not contain criteria for determining when a facility may be classified as a provider based facility. At various times over the years HCFA has published criteria to be used in determining whether a facility may be classified as a provider based facility. Prior to August 1, 1996, these criteria were stated in two provisions of the Medicare Regional Office Manual (ROM) at ROM §§ 6855 and 6860 and in the HCFA State Operations Manual (SOM) at SOM § 2024. Effective August, 1, 1996, HCFA restated its criteria in a Program Memorandum for Intermediaries, PM A-96-7.

PM A-96-7 contains a sentence which states that: "[t]his PM may be discarded after JULY 31, 1997." (Emphasis in original). This language suggests that the criteria contained in PM A-96-7 might not be operative after July 31, 1997. However, on September 8, 1998, HCFA published proposed regulations in the Federal Register which set forth proposed regulatory criteria for determining when a facility may be classified as provider based. In that document, HCFA stated that it would continue to apply the principles stated in PM A-96-7 until 30 days after a final regulation is published. 63 Fed. Reg. 47,552, 47,588 - 47,589.

On April 7, 2000, the Secretary published a final regulation establishing criteria for determining whether a facility is provider based. 65 Fed. Reg. 18,434, 18,538 - 18,541. The new regulation is to be codified at 42 C.F.R. § 413.65 and will become effective on October 10, 2000. I conclude that, at this time, the applicable criteria which govern when a facility will be considered to be part of a provider for Medicare reimbursement purposes are those stated in PM A-96-7.

The criteria stated in PM A-96-7 and in other policy statements operate as rules of evidence to be utilized in determining whether a facility is integrated into the operations of a provider so that the items or services that are provided by that facility may be treated as having been provided by the provider itself. In all cases, the deciding factor in determining provider based status is the degree of integration of the allegedly provider based facility into the provider which is claiming provider based status for the facility.

The principal criteria for determining provider based status of an entity set forth in PM A-96-7 include the following:

1. The entity is physically located in close proximity of the provider where it is based, and both facilities serve the same patient population (e.g. from the same service, or catchment, area);

2. The entity is an integral and subordinate part of the provider where it is based, and as such, is operated with other departments of that provider under common licensure (except in situations where the State separately licenses the provider-based entity);

3. The entity is included under the accreditation of the provider where it is based (if the provider is accredited by a national accrediting body), and the accrediting body recognizes the entity as part of the provider;

4. The entity is operated under common ownership and control (i.e., common governance) by the provider where it is based, . . .

5. The entity director is under the direct day-to-day supervision of the provider where it is located, . . .

6. Clinical services of the entity and the provider where it is located are integrated . . .

7. The entity is held out to the public as part of the provider where it is based (e.g., patients know they are entering the provider and will be billed accordingly);

8. The entity and the provider where it is based are financially integrated . . .

P.-00-038 Ex. 6 at 2 - 3 ( I have deleted citing subordinate evidentiary criteria listed under the main criteria 4 - 6 and 8).

As a matter of policy, HCFA has not required that a facility meet each one of these criteria in order to establish provider based status. In Johns Hopkins Health Systems, DAB No. 1712 (1999), an appellate panel of the Departmental Appeals Board stated:

the criteria are best viewed as evidentiary factors to be considered as a whole in making a determination about whether common ownership and operational integration in fact exist.

Id. at 5. The Board's appellate panel concluded that HCFA had never required that a facility meet each and every criterion in order to satisfy the overall test for provider based status.

PM A-96-7 and earlier policy statements require that the weight of the evidence proves that a facility is closely integrated into the operations of a provider. Essentially, HCFA's policies have required that a facility be operated as a department of, or a wholly integrated aspect of, a provider in order for that facility to be found to be provider based.

The new regulation to be codified at 42 C.F.R. § 413.65 in some respects constitutes a change in HCFA's policy. Under the new regulation, at 42 C.F.R. § 413.65(d), a facility will have to meet all of the regulation's criteria for provider based status in order to qualify as a provider based facility. However, the regulation does not contain all of the criteria for determining provider based status as are stated in PM A-96-7. For example, the regulation no longer defines accreditation by JCAHO or by another accrediting body to be relevant evidence of integration.

In any event, the proposed regulation may not be used as a basis for determining the provider based status of the senior health centers. The regulation does not go into effect until October 10, 2000.

3. HCFA incorrectly based its determinations not to certify the senior health centers as provider based effective with their opening dates on its conclusion that JCAHO accreditation was a prerequisite for establishing provider based status.

HCFA hinged its determinations of provider based status in these cases on the single criterion of JCAHO accreditation, notwithstanding that HCFA's policy did not require a facility to meet each and every criterion for provider based status in order to qualify as provider based. Thus, HCFA determined incorrectly not to certify the senior health centers as provider based effective with their opening dates solely because it concluded that these facilities were not JCAHO accredited as of their opening dates.

HCFA's reliance on JCAHO accreditation as a prerequisite for establishing provider based status is made apparent from the letter it sent to Petitioners notifying them of its initial determinations as to the provider based status of the senior health centers. In the initial determination letter HCFA stated that:

[o]ur decision . . . was based in part on our consideration of the dates that . . . [Petitioner, Baylor University Medical Center] notified the Joint Commission on Accreditation of Healthcare Organizations (JCAHO) of the addition of the site; the date that JCAHO extended accreditation to the off-site; or, in instances where accreditation was not specifically extended, the date of JCAHO's letter to . . . [Petitioner, Baylor University Medical Center] acknowledging notification . . . The dates we have accepted are the dates that JCAHO confirmed as being the accreditation date.

P.-00-038 Ex. 1 at 1; P.-00-075 Ex. 4 at 1 (emphasis added).

HCFA erred in relying on JCHAO accreditation as a necessary prerequisite for establishing provider based status. Its reliance on JCAHO accreditation as a necessary prerequisite for establishing provider based status finds no support in the policies that HCFA published as criteria for determining provider based status.

As I discuss above, at Finding 2, JCAHO accreditation is only one of several criteria that HCFA may consider in determining whether a facility should be accorded provider based status. JCAHO accreditation of a facility as part of another provider was, under the policy that HCFA has utilized up until now, an indicator that the facility is integrated into the operations of that provider. But, it is not the only criterion on which a determination of integration may be made. Nor is JCAHO accreditation a necessary prerequisite for establishing provider based status. Indeed, the regulation to be codified at 42 C.F.R. § 413.65 does not provide that accreditation is a relevant factor in determining provider based status.

Moreover, PM A-96-7 plainly did not require that a facility be accredited as a prerequisite to being determined to be provider based. PM A-96-7 only considered accreditation to be relevant to the extent that the parent provider was an accredited facility. Under PM A-96-7, if a provider were not accredited to begin with, then extension of accreditation to the subordinate facility would not be a factor in determining whether the facility is provider based.

4. The undisputed facts of these cases establish that the senior health centers met the criteria for provider based status as of their opening dates.

In their initial applications for provider based status for the senior health centers, Petitioners submitted to HCFA letters in which they explained in detail why these centers should be determined to be provider based. HCFA-00-038 Ex. 3; HCFA-00-075 Ex. 6. The information that Petitioners included in their letters establishes that, with the possible exception of JCAHO accreditation, the senior health facilities met each and every one of HCFA's criteria, as were stated in PM A-96-7 and in other HCFA policy statements as of their opening dates. Ids.

HCFA has not disputed the truth of the contents of the letters. Nor has HCFA argued that the conclusions stated in the letters that the facilities met each and every one of HCFA's criteria for establishing provider based status as of their opening dates - except for JCAHO accreditation - are untrue or are inaccurately stated. In the absence of any disagreement from HCFA, I conclude that the senior health centers met all of HCFA's criteria for provider based status, except for JCAHO accreditation, as of the dates that the senior health centers were opened. The unchallenged conclusion that all of the criteria, except for JCAHO accreditation, were met provides sufficient support for finding that the senior health centers were provider based as of their opening dates. The absence of JCAHO accreditation alone is not sufficient to derogate from my conclusion that HCFA ought to have certified the senior health centers as provider based facilities as of their opening dates.

Steven T. Kessel

Administrative Law Judge