On December 2, 2020, CMS released final regulations ("Final Rule") that permit increased expansion opportunities for certain physician-owned hospitals ("POHs"). CMS's goal with these modifications was to remove unnecessary regulatory restrictions on high Medicaid physician-owned facilities.
Background
Under the Affordable Care Act's amendments to the Stark Law, a POH cannot expand the aggregate number of operating rooms, procedure rooms or licensed beds beyond the number for which the hospital was licensed on March 23, 2010. The Secretary of Health and Human Services may grant an exception to the prohibition on expansion to POHs qualifying as either an "applicable hospital" or a "high Medicaid facility" (as those terms are defined in the regulations).
Previously, if a POH qualified for expansion as an "applicable hospital" or a "high Medicaid facility" it could only apply for expansion once every two (2) years. In addition, the POH could only apply to expand its aggregate number of beds, operating rooms and procedure rooms to be no more than 200% of the baseline that existed as of March 23, 2010.
The relaxation of expansion restrictions under the Final Rule applies only to "high Medicaid facilities" and not to "applicable hospitals." This is due to the differing statutory language enacted by Congress that does not impose the same limitations on high Medicaid facilities as it does applicable hospitals.
How to Qualify as a "High Medicaid Facility"
The regulations define a "high Medicaid facility" POH as one that:
- Is not the sole hospital in a county;
- For the three (3) most recent 12-month periods for which data is available, has an annual percentage of total Medicaid inpatient admissions that is estimated to be greater than the percent of such admissions for any other hospital located in the same county in which the POH is located (as determined by the data sources approved by CMS); and
- Does not discriminate, nor does it permit physicians practicing at the POH to discriminate, against beneficiaries of federal health care programs.
Summary of Changes
In the Final Rule, CMS removed the requirements limiting the number of times a high Medicaid facility can request an expansion so long as the POH only has one request under review at any given time.
CMS also removed the 200% capacity limitation that previously existed for high Medicaid facilities seeking expansion. As such, there is no longer any limitation on the capacity expansion that a POH can request, so long as the other requirements for expansion are satisfied.
In addition, high Medicaid facility POHs can now expand off of their main campus; however, the expansion must continue to comply with Medicare rules and regulations regarding distance limitations relative to off-campus facilities and provider-based departments.
CMS considered removing the requirement for community input prior to granting the exception request for high Medicaid facilities; however, it did not finalize this proposal. Accordingly, community input is still required before expansion.
Other Modifications for POHs
In the Final Rule, CMS also clarified its intent to include beds in the baseline calculation of POHs' aggregate number of beds, operating rooms and procedure rooms, as the determination of the number of beds is consistent with state law. CMS stated that it defers to state law with respect to the determination of whether or not a bed was licensed as of March 23, 2010. CMS referred back to its March 2020 Frequently Asked Questions publication and CMS Advisory Opinion 2020-01 to address various nuances in hospital bed licensure matters.
Practical Takeaways
POHs that believe they may qualify as a high Medicaid facility may want to take this opportunity to review the CMS data and confirm this analysis. With the removal of certain expansion restrictions, POHs that qualify as a high Medicaid facility can now evaluate different expansion avenues, including expansion off campus.
In addition, all POHs may want to review the information related to the number of licensed beds, operating rooms and procedure rooms to ensure that the POH has an accurate understanding of its baseline number of beds, operating rooms and procedure rooms. This number is critical for POHs due to the inability to expand beyond the baseline absent a granted exception from CMS.
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