Recent public comments to the Centers for Medicare & Medicaid Services ("CMS") shed light on the frustrations faced by physician-owned hospitals trying to expand.  On July 14, 2014, CMS issued a proposed rule to make changes to the data sources that may be used for physician-owned hospital expansion requests under the physician self-referral regulations.1 The Affordable Care Act ("ACA") amended the Physician Self-Referral Law ("Stark Law") to prohibit a physician-owned hospital from expanding its facility capacity unless it fell under an "applicable hospital" or "high Medicaid facility" exception. To date, CMS has required that hospitals use the Healthcare Cost Report Information System ("HCRIS") data to verify that expansion exception requirements were met. However, HCRIS data and the expansion exception process have been subject to criticism, as many otherwise eligible hospitals have not qualified for an exception due to the limitations of the data used.

The proposed rule would allow physician-owned hospitals to use supplemental external and internal data sources to verify that the hospital meets expansion exception requirements. Furthermore, CMS has proposed to change the standard used to determine the "most recent fiscal year for which data are available" to be the year in which the data source(s) used in a particular expansion request contain sufficient data to perform the necessary calculations. CMS has also proposed an "actual notification" requirement for hospitals seeking an expansion exception, as well as an additional 180-day timeline for decision if a hospital uses supplemental data sources.

Comments Submitted to CMS

Supplemental Data. All commenters supported the use of supplemental internal and external data to determine the percentage of Medicaid admissions. Commenters stated that supplemental data is necessary because the HCRIS data, which actually measures Medicaid discharges, often does not accurately capture the number of Medicaid admissions.  The HCRIS data also does not take into account Medicaid managed care patients, which can comprise a large number of Medicaid admissions. Commenters also suggested that admission data would be more appropriate than discharge data in estimating the Medicaid admissions, as the language of the ACA in defining "applicable hospital" and "high Medicaid facility" repeatedly refers to admissions, rather than discharges. One commenter also suggested that supplemental data sources enumerated in the proposed rule would still not be helpful to physician-owned hospitals in meeting the exception requirements. That commenter reasoned: the Healthcare Cost and Utilization Project ("HCUP") data is not useful to hospitals in some states because not every state is required to report to HCUP; the Medicaid Statistical Information System  data does not provide sufficient detail at the state or county level to support exception criteria; and Medicaid Analytic Extract contains sensitive data, and all entities that use it must enter into a Data Use Agreement and pay a fee to access the data. Commenters requested other data sources to be considered, including Medicare Disproportionate Share Hospital determinations.

"Most Recent Fiscal Year" Standard. All commenters support revising the "most recent fiscal year" standard to allow physician-owned hospitals to use HCRIS data that would otherwise be considered incomplete. Most commenters requested either revision of the 6,100-hospital threshold (one hospital asked that it be lowered to 6,000) or that the threshold requirement be removed completely.

Notification. Most commenters did not support the "actual notification" requirement. Commenters stated that the intent of the ACA was to provide CMS with community input and that a rule requiring actual notification would go beyond the statutory intent.  Commenters stated that the current method of notification through a public website was sufficient.

Timeline for Decision. Commenters did not support the proposed additional 180-day timeline for supplemental data sources. Those commenters believe that the current time period is sufficient to allow CMS to act on an exception request and that the extension would unnecessarily delay the process. One commenter remarked that the 180-day period was especially unnecessary if the data was obtained from a State Medicaid Agency, which shows the percentage of Medicaid admissions for all hospitals in a county, because that agency would be the single, reliable source in that county.

Other Requests

Several commenters requested clarification on how supplemental data would be prioritized if contrary to HCRIS data. These commenters stated that there could be situations where the supplemental data would contradict the HCRIS data, which could allow a hospital to use a more favorable data set or not receive an exception because of HCRIS data when the supplemental data supports an exception. Commenters requested clarification on how CMS would handle these situations.  Commenters also asked CMS to retroactively apply the proposed expansion exception process to all applications previously filed.

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