Critical Access Hospital ER Availability Cost

Per 42 CFR §413.70(b)(4)(i), Effective for cost reporting periods beginning on or after October 1, 2001, the reasonable costs of outpatient CAH services under paragraph (b) of this section may include amounts for reasonable compensation and related costs for an emergency room physician who is on call but who is not present on the premises of the CAH involved, is not otherwise furnishing physicians' services, and is not on call at any other provider or facility.

While 42 CFR §413.70 states that the reasonable compensation is allowable, it also states in (4)(ii)(A) that the cost is allowable "to the extent that the cost are found to be reasonable under the rules specified in paragraph (b)(2) of this section an applicable section of Part 413." Paragraph (b)(2) states that cost is reasonable "as determined in accordance with section 1861(v)(1)(A) of the Act and the applicable principles of cost reimbursement in this part and in Part 415 of this chapter." There has been much confusion regarding the "reasonable compensation" clause of the above citation. Per 42 CFR §413.70(a)(1)(iii), Reasonable Compensation Equivalent (RCE) limits are not applicable to CAHs. So, the confusion was how to determine what are "reasonable" ER availability costs. CMS guidance has clarified that PRM 15-1, Section 2109 is still applicable (with noted exceptions) when reviewing ER availability costs.


Therefore, to provide the auditors guidance in reviewing ER availability costs, the documentation requirements in PRM 15-1, Section 2109.3.C. are listed below along with Noridian comments. The following requirements must be met in order for the ER availability cost to be allowable:

  1. A signed written contract between the hospital and the physician(s). This applies to all practitioners – physicians and mid-level practitioners (both employed and contracted). The contract must require the provider to come to the CAH when the physician's presence is medically required. The physician must be a doctor of medicine or osteopathy, physician assistant, nurse practitioner, or clinic nurse specialist who is immediately available by telephone or radio contact, and available on site, on a 24-hour a day basis, within 30 minutes or 60 minutes in areas described in 42 CFR 1395(g)(5). If there isn't a contract, Noridian will include the fees in professional component and they will be offset. The contract should be signed and dated before the effective date and submitted with the cost report submission. However, CMS guidance has indicated that Noridian can accept a contract after the cost report has been submitted. The contract must still be signed and dated before the effective date.
  2. A written copy of the allocation agreement and supporting data depicting the distribution of the physician's time between services to the provider, services to the individual patients and services not reimbursable under Medicare. The allocation agreement is Exhibit 2 of the CMS 339. This should be signed, dated, and submitted with the cost report. However, CMS guidance has indicated that Noridian can accept an allocation agreement that is generated and submitted after the close of the cost reporting period. If the allocation agreement is generated after the close of the cost reporting period, it must be supported by actual data accumulated by the provider during the cost reporting period and maintained in an auditable format. The supporting documentation would be the time studies. Currently, Noridian will accept two 2-week time studies per year for the physician(s) and one week time studies each month (see Periodic Time Studies requirements in PRM 15-1, 2313.2.E) for mid-level practitioners. All time studies must be representative and concurrent with the period under review. Time studies should account for the entire 24-hour period for each day in the time study. Noridian has also accepted documentation using ER logs. If using ER logs, the logs must clearly identify the patients and indicate actual time spent with the patients (actual start and stop times for physician(s) seeing patients). If the logs do not clearly indicate actual time spent with the patients, Noridian reserves the right to use admit time and discharge time to determine patient-related time. The ER logs should also clearly indicate the time the physician spends on charting (Part B time). If charting time is not included, Noridian reserves the right to use admit time and discharge time to determine patient-related time. Individual hospital policy will also be considered when using ER logs as support for the physician(s) time. For example, if it is hospital policy that while a patient is in the ER, they are under the care of the physician, then the entire time from the admit to the discharge time would be considered patient-care time. Because a physician(s) cannot be on call while furnishing physician services or on call at any other provider or facility, the provider will be responsible to provide the auditors with a copy of the physician(s) work/on-call schedule. If there is evidence that the physician(s) are on call while furnishing physician services or on call at any other provider or facility, the physician(s) on call cost will be disallowed as they would be in direct violation of 42 CFR 413.70.
  3. A permanent record of payments made to the physician(s) under agreement.
  4. A record of the time the Physician(s) was physically present on the hospital premises. The on-premises requirement does not apply to CAH's. However, as mentioned in #1 above, the contract must state that the provider will be available within a specified time period. If evidence is apparent that the physician(s) are not responding timely, the availability time will be disallowed.
  5. A permanent record of all patients (Medicare and non-Medicare) treated by the physician, copies of all physician bills generated for such services and a record of imputed charges for services for which no billing was made by the hospital or physician. This information exists through the hospital billing records and the medical records for each patient.
  6. A schedule of physician charges.This information exists through the charge master.
  7. Evidence that the provider explored alternative methods for obtaining emergency physician coverage before agreeing to physician compensation for availability services. Exploring alternative methods of ER coverage does not have to be done on a national level. The provider must demonstrate/attest in some form that they attempted to obtain ER coverage before agreeing to physician compensation for availability services. CMS has indicated that if this criterion was the only requirement not met, the contractor should not disallow the availability cost.

Minimum Guarantee Arrangements

There are many types of ER availability contracts. Some have minimum guarantees and others do not. Per PRM 15-1, Section 2109.2.E. a minimum guarantee arrangement is a financial arrangement between the physician(s) and a provider where the physician(s) are guaranteed a minimum level of compensation for availability services. The physicians may receive more than the minimum guarantee if they generate enough charges. If the charges generated fall short of the minimum guarantee, the provider is obligated to pay the physician(s) the difference to make up the guaranteed amount.

The contracts may actually state that there is a minimum guarantee through a contractual clause. However, the contract may not actually have a minimum guarantee clause but may still have a provision that creates a "shortfall" that the provider is obligated to pay. If the contract creates this shortfall that the provider is obligated to pay, the contract will be construed to be a minimum guarantee contract. However, the contract may also contain verbiage that allows for the physician(s) to make more than a specified amount if they generate enough charges. These arrangements are similar to a bonus situation and should not be construed as a minimum guarantee because they do not create a shortfall that the provider is obligated to pay.

There is another situation where a minimum guarantee is implied. Per 15-1, Section 2109.4.A. if the required allocation agreement (requirement #2 above) does not specify the availability hours for which the provider compensates the physician, availability services costs will not be allowable unless the condition of §2109.4.C. are met with respect to minimum guarantee arrangements.

If the contracts are minimum guarantee contracts, there is a limitation applied as described in PRM 15-1, Section 2109.4.C. The limit calculation compares the fees paid for ER coverage to the gross charges generated for the practitioners (physicians and mid-levels) for the ER professional services. Noridian has modified this calculation to compare the availability cost to the gross reimbursement received, noting that providers are seldom paid on the basis of charges under today's reimbursement mechanisms. Noridian has had this methodology reviewed by the CMS Regional Office and the Blue Cross Blue Shield Association and they have agreed that this methodology is acceptable. If the physician generates gross reimbursement greater than the compensation paid to the physician for ER availability, there is no allowable ER availability costs. If the physician generates gross reimbursement less than the compensation paid to the physician, the difference between the gross reimbursement and the compensation paid is the allowable ER availability costs. For example, if the provider pays a physician $50,000 for ER availability and the physician generates $80,000 of charges which in turn generates $40,000 of gross reimbursement, the provider would have $10,000 as ER availability costs to claim ($50,000-$40,000). However if the $80,000 of charges generated $60,000 of gross reimbursement, there would be $0 ER availability cost because the gross reimbursement is greater than the amount paid for the ER coverage.

If the contracts are not minimum guarantee contracts, this limitation should not be applied. In the absence of a minimum guarantee arrangement as described above, the amount of allowable ER availability costs is the amount paid to the physician(s) to the extent that the provider meets the requirements stated above.

These guidelines are not intended to create CMS policy. These guidelines are intended to provide general guidance for Noridian auditors only while reviewing the applicable topic. CMS has indicated that they are reviewing this issue and may issue new PRM instructions in the future. If the new PRM instructions, or if CMS provides any future clarification that differ from the above guidelines, Noridian is obligated to follow the newly issued instructions or clarification without advance notice to the providers.


Last Updated Dec 12 , 2022