340B and Hospital Systems0

The Department of Health and Human Services (“HHS”) responded to comments published in the Federal Register that a hospital  enrolled in the 340B program as a Covered Entity may treat its off-campus clinics and satellite hospitals as part of the Covered Entity, provided the off-campus clinic or satellite hospital is included on the Covered Entity’s Medicare Cost Report.[1]  HHS also declared that off-campus clinics and satellite hospitals may be properly included on the Covered Entity’s Cost Report where they meet Medicare’s tests for provider based status, as outlined at 42 C.F.R. § 413.65(d-e).[2]

(1)        Criteria For All Facilities

42 C.F.R. § 413.65(d) outlines the criteria for all facilities to receive provider-based status.  The requirements are divided into five main categories, with two categories in particular that typically affect hospital systems: (a) licensure and (b) clinical services.

(a)        Licensure

With respect to licensure, as stated above, “the satellite facility and the main provider are operated under the same license, except in area where the State requires a separate license for the . . . satellite facility.”[3]  One example of a state with this requirement is Nevada as Nevada law requires all hospitals and clinics, among other providers, to be licensed by the Nevada State Health Division[4].

(b)       Clinical Services

With respect to clinical services, the two entities need to be integrated such that (i) the professional staff of the off-campus clinic must have clinical privileges at the Covered Entity’s main campus; (ii) the Covered Entity provides the same monitoring and oversight as it does for any department; (iii) the medical director of the off-campus facility needs to maintain a reporting relationship with the CMO of the Covered Entity and be supervised and accountable to the CMO; (iv) the Covered Entity’s staff committees are responsible for the off-campus clinic’s medical activities, including, quality assurance, utilization review, and coordination and integration of services; (v) the entities have integrated medical records; and (vi) the off-campus clinic and the Covered Entity are integrated such that patients treated off-campus have full access to facilities and services of the covered entity.[6]

(2)       Criteria For Off-Campus Facilities

42 C.F.R. § 413.65(e) outlines the criteria for off-campus facilities to receive provider-based status.  The requirements are divided into three categories: (a) ownership and control, (b) administration and supervision, and (c) location.

(a)        Ownership and Control

With respect to ownership and control, the Covered Entity’s control of the off-campus clinic must be evidenced by: (i) 100% ownership; (ii) accountability to the same governing body; (iii) organization under the same governing documents and bylaws; (iv) and final administrative responsibility laying with the Covered Entity.[7]

(b)       Administration and Supervision

With respect to ownership and control, the Covered Entity must hold the off-campus clinic accountable as evidenced by: (i) direct supervision of the off-campus clinic; (ii) accountability to the Covered Entity’s governing body, and (iii) integrated billing, records, human resources, payroll, employee benefits, salary structure, and purchasing services.[8]

(c)        Location

With respect to location, the Covered Entity and the off-campus clinic must meet one of the following: (i) located within a 35 mile radius of each other; (ii) the Covered Entity is disproportionate share adjustment of greater than 11.75% and is owned either by the state or local government, is a nonprofit corporation granted governmental powers by the state, or is a private hospital with a State contract to provide clinic services to low-income individuals; (iii) the off-campus clinic has at least 75% of its patients from the same zip code as the Covered Entity or 75% of the off-campus clinic’s patients were treated at the Covered Entity; (iv) 75% of patients in the off-campus facility’s zip code receive treatment at Covered Entity; or (v) the off-campus facility is a children’s hospital and meets 6 other criteria.



[1] 59 Fed. Reg. 47884, 47885 (Sep. 19, 1994).

[2] Id.  The response in the Federal Register directs the reader to “Provider Certification, State Operation Manual, section 2024.”  Section 2024 in turn directs that, “all non-hospital providers of service under Medicare that state they are part of a single hospital must meet the criteria for provider-based designation in §2004 in order to be treated as a single hospital for payment purposes.”  Next, Section 2004 directs the reader to 42 C.F.R. § 413.65 for the criteria used to determine provider-based status.  Finally, the Federal Register cited above enumerated several criteria as examples, all of which are found in C.F.R. § 413.65.  Thus, while the Federal government (surprisingly) was less than clear on the test for determining whether an off-campus clinic or satellite hospital may be treated as part of a Covered Entity, I am confident that the provider-based status test is the applicable test to make such a determination.

[3] 42 C.F.R. § 413.65(d)(1) (2012).

[4] See Nevada Revised Statues § 449.030 (2012).

[5] 42 C.F.R. § 413.65(d)(1) (2012).

[6] 42 C.F.R. § 413.65(d)(2) (2012).

[7] 42 C.F.R. § 413.65(e)(1) (2012).

[8] 42 C.F.R. § 413.65(e)(2) (2012).

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