Place-of-Service Fraud

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Physicians providing direct hands-on care to Medicare beneficiaries are primarily paid by the Part B Medicare Trust Fund. Medicare’s direct payments to physicians for inpatient and outpatient professional services are about $70 billion annually. Physicians billing Medicare have a critical obligation to accurately report the location of the services they render (referred to as “place-of-service”), since the location determines the party receiving the so-called “site-of-service” or “facility payment,” and location determines the amount of such payment from Medicare, in addition to the physician professional fee for services.

Many hospitals and physician groups have obtained certification to provide outpatient surgery in facilities known as ambulatory surgery centers or “ASC’s.” ASC’s are a type of medical or surgical facility (known generally as ambulatory care organizations) focused on providing same-day surgical care, including diagnostic and preventive procedures not requiring an overnight stay, where typically the service is less complicated than those provided requiring overnight confinement. In recent years, the Office of Inspector General of the Department of Health and Human Services reported significant and inappropriate misreporting of the location of services by physicians submitted claims for payment for Medicare services. Such misreported services actually took place in ASCs but were claimed to have been provided in free-standing offices. This intentional misrepresentation of the place-of-service location may constitute Medicare fraud.

The location of a health care service may result in astonishing differences in charges and payments, although the actual service or procedure is identical in both sites. When a diagnostic test or minor surgical procedure is performed in a free-standing office rather than an ASC or hospital outpatient department, the payment to the provider is higher, recognizing the physician’s overhead cost to maintain the office building.

The Medicare program is investigating possible revisions to its payments to create a single payment scale to physicians for minor surgical procedures, wherever such services may be rendered. Such a revision might reduce the temptation to bill higher site-of-service differentials.

Removing incentives for providing minor surgery in an office setting may result in more appropriate decisions for such surgery with exclusive regard for patient safety. For example, although an outpatient procedure may be deemed safe, a patient with increased risks may receive better and safer care in facilities with equipment and staff training able to address unexpected complications. Typical state regulations (as reported by the Federation of State Medical Boards) emphatically state that:

 …surgery must be performed in the best interests of the patient and under the best circumstances possible for the management of disease and well-being of the patient.