A hospital-owned outpatient department that bills Medicare a facility fee under provider-based status is certifying, with every claim, that it satisfies 42 CFR 413.65: common ownership with the main hospital, integrated clinical and financial operations, and a location within the regulation's distance rules. A new federal mandate now requires every off-campus department to file a fresh attestation and bill under a dedicated National Provider Identifier by January 1, 2028, forcing hospitals to prove what many treated as settled paperwork. When a Medicare Administrative Contractor, RAC, or UPIC later finds the criteria were never met, the recoupment reaches every facility fee paid across the audit's lookback period, not just the claim under review.
The Provider-Based Status Requirements Under 42 CFR 413.65
Provider-based status lets a hospital bill an outpatient facility fee, on top of the professional fee, for services in a hospital-owned department. 42 CFR 413.65(d) requires the department to share the hospital's license, integrate its clinical services through shared medical staff privileges and unified medical records, fully integrate its financial operations into the hospital's cost reports, and hold itself out to the public as part of the hospital. A department within the hospital's 250-yard campus, defined at 413.65(a)(2), is treated as on-campus. An off-campus department needs a separate determination and generally must sit within a 35-mile radius of the hospital under 413.65(e)(3)(i).
Where Provider-Based Billing Fails an Audit
Audit contractors rarely dispute the concept of provider-based status. They dispute the evidence: stale attestations never refiled after an ownership change, credentialing files that never migrated when the hospital acquired a practice, financial statements that keep an acquired clinic's revenue in a separate cost center instead of the hospital's Medicare cost report, and site-of-service billing that omits the required PO or PN modifier for an off-campus department under the site-neutral payment framework Congress adopted in Section 603 of the Bipartisan Budget Act of 2015. Each gap is a small documentation problem on the day it happens. On audit years later, it becomes the basis for a full-lookback recoupment demand.
Mandate on Paper Versus Survival on Audit
Filing an accurate provider-based attestation in 2019 does not end the hospital's burden. It still has to produce the underlying evidence, staffing schedules, governing body minutes, and cost report line items, for every year the audit's lookback period covers. When a MAC or RAC applies extrapolation to a sample of denied claims, a documentation gap in a handful of encounters gets projected across the full claim population, turning a disputed facility fee on a few dozen visits into a recoupment demand covering thousands.
A provider-based determination made once in 2019 does not defend itself in 2026. The hospital still has to produce the contemporaneous records proving integration for every year the audit reaches.
Beyond 413.65: The 2026 Attestation and NPI Mandate
Provider-based exposure is about to widen. The Consolidated Appropriations Act, 2026, enacted February 3, 2026, requires hospitals to file a new provider-based attestation, dated on or after January 1, 2026, for every off-campus department, and to obtain a separate NPI for each one before January 1, 2028. Attestations filed earlier do not satisfy the statute, and missing the deadline forfeits Outpatient Prospective Payment System reimbursement for the department entirely. The same contractors that already use RAC and UPIC authority to test provider-based status, applying local coverage determination criteria to the underlying services, will have a documented attestation record to measure against every claim going forward.
Provider-based disputes rarely arrive as a stand-alone audit. They surface inside a broader medical review, often triggered by the process our guide to Responding to a Medicare Additional Documentation Request (ADR) walks through, an SMRC Audits: What Providers Should Know review, or the error-rate calculation covered in CERT Audits and Error Rate Findings: The Provider Response.
Why Early Legal Counsel Is Critical
It is critical that hospitals and physician practices retain experienced healthcare defense counsel as soon as a Medicare contractor requests documentation touching provider-based status, rather than waiting for the recoupment letter. Early legal intervention can preserve evidence of clinical and financial integration before it disperses across acquisitions and staff turnover, shape the initial document response, and challenge an extrapolation methodology before it hardens into a final demand. Waiting until after the recoupment issues narrows the available defenses and can significantly affect the outcome.
How Health Law Alliance Can Help
Health Law Alliance defends hospitals and physician practices against Medicare findings that provider-based status was not actually met, from the initial documentation request through the multi-level appeal process. Our bench includes attorneys who have worked inside the federal and payor systems now reviewing the same integration records a MAC, RAC, or UPIC disputes. If your practice is facing a provider-based billing audit or a recoupment demand tied to facility-fee claims, contact us for a free, confidential consultation.
