CMS Issues Proposed Rule Affecting Physician-Owned Hospital Expansion Requests

Background

On July 14, 2014, the Centers for Medicare & Medicaid Services (“CMS”) published a proposed rule that would allow physician-owned hospitals to use additional data sources to support requests for exceptions to the ban on expansion of physician-owned hospitals.¹ Under the Affordable Care Act’s (“ACA’s”) amendments to the Physician Self-Referral Law (“Stark Law”), a physician-owned hospital 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 (“Secretary”) may grant an exception to this limitation to physician-owned hospitals qualifying as either an “applicable hospital” or a “high Medicaid facility.” As part of the exception request process, a hospital must submit data to CMS that validates the hospital’s percentage of total Medicaid inpatient admissions.

Currently, the Medicaid admissions data used for expansion exception requests must come from the Healthcare Cost Report Information System (“HCRIS”). However, since the implementation of the expansion exception process, industry stakeholders have informed CMS about certain limitations of the HCRIS data. According to CMS Commentary accompanying the proposed regulations, these limitations have prevented otherwise eligible physician-owned hospitals from requesting expansion exceptions due to inaccurate or incomplete data, leading CMS to consider the use of other supplemental data sources.

Proposed Changes – Supplemental Data

According to CMS, two limitations of the HCRIS data include:

Hospital cost reports filed with HCRIS do not include Medicaid managed care admissions and discharges, thereby skewing the total number of Medicaid admissions for hospitals; and
A hospital that has not been a participating Medicare provider for the three most recent fiscal years would be ineligible to apply because the facility’s Medicaid admission data would not be contained in HCRIS.

In order to ensure that otherwise qualifying physician-owned hospitals serving large managed care populations that are new participating providers are eligible to request an expansion exception, CMS is proposing that hospitals be permitted to use filed hospital cost reports or data from internal or external sources. These new data sources are collectively known as “supplemental data sources.” CMS is proposing that supplemental data sources be required to meet certain requirements designed to ensure accuracy and transparency.

CMS has suggested the following examples of external and internal data sources that may constitute supplemental data sources: (i) data sources that are generated, maintained or under the control of a state Medicaid agency; (ii) Healthcare Cost and Utilization Project (“HCUP”) data; Medicaid Statistical Information System (“MSIS”) data; and Medicaid Analytic Extract (“MAX”) data. CMS has emphasized that the use of supplemental data sources would be available to all hospitals, regardless of the availability of HCRIS data.

Other Proposed Changes

In addition to the use of supplemental data sources, CMS also proposed several other changes related to physician-owned hospital expansion requests:

Change of “Fiscal Year” Standard: Under current regulations, a hospital must use data from the “most recent fiscal year,” which CMS has defined as “the most recent year for which HCRIS contains data from at least 6,100 hospitals.” CMS is proposing to change this standard so that the most recent fiscal year is the year from which the HCRIS, internal and external data sources contain sufficient data to perform the necessary comparisons with the other hospitals in the county.
Notification: CMS has proposed that hospitals seeking an expansion exception must provide actual notification to other hospitals who are part of the required comparisons. This notification must be provided at the time that the requesting hospital places public notification of the expansion request on its website.
Timeline for Decision: CMS recognized that the use of supplemental data sources may require additional time for outside data to be gathered and analyzed. Therefore, CMS is proposing that for those requests using a supplemental data source, the request will be considered complete 180 days after the end of the 30-day rebuttal period to notice and comment. For those requests using only HCRIS, the current comment and rebuttal period will still apply.

CMS is also seeking specific public comment on the following considerations:

Whether the use of supplemental data would significantly alter the outcomes of any estimates or determinations used in expansion application requests;
Whether the use of supplemental data would materially affect a hospital’s ability to request an exception or the Secretary’s determination of an exception request;
The length of time necessary to obtain or generate data from a supplemental source;
When data will be available and accessible after a fiscal year;
Whether data will be available in an accessible format to hospitals;
How data sources should be prioritized;
What particular data sources may be helpful and whether they require calculations to determine the necessary percentages and rates;
The costs to industry stakeholders and the government in obtaining and generating data; and
Whether quality of care will be affected because of the cost burdens borne by a requesting hospital.

Practical Takeaways

The proposed rule, if finalized by CMS, may be beneficial to some physician-owned hospitals desiring to pursue an expansion exception but may be restrictive to others.

Physician-owned hospitals that would otherwise be ineligible because they have not been a Medicare provider for the three most recent years for which data is available from HCRIS would have additional sources from which to pull Medicaid admissions data.
Physician-owned hospitals that treat a high number of Medicaid managed care patients, which are not reflected in the HCRIS data, may also have the ability to qualify for an expansion exception.
Physician-owned hospital eligibility for an expansion exception may be negatively impacted if additional data sources indicate data contrary to the HCRIS data and unfavorable to the physician-owned hospital.

Those wishing to submit comments on this proposed rule have until 5:00 PM EST on September 2, 2014. If you are interested in submitting comments, or if you have any questions regarding the proposed rule or the physician-owned hospital expansion request process, please contact Andrea Impicciche at 317-977-1578 or andreai@hallrender.com, Alyssa James at 317-429-3640 or ajames@hallrender.com or your regular Hall Render attorney.

Special thanks to Maryn Wilcoxson, law clerk, for her assistance with the preparation of this Health Law News article.

Please visit the Hall Render Blog at hallrender.com/resources/blog for more information on topics related to health care law.

¹ For the full text of the proposed rule, click here.