On Sept. 6, 2017, the Centers for Medicare and Medicaid Services (CMS) issued an advanced copy of guidance to state survey agency directors that is intended to clarify how to determine whether a hospital seeking Medicare certification, or going through a continuing certification survey, is “primarily engaged in providing inpatient services” under the Social Security Act. The following sets forth a brief history of the inpatient engagement issue and key takeaways from the new guidance, which takes effect immediately.

The term “hospital,” for purposes of the Social Security Act, means an institution which, among other things “is primarily engaged in providing, by or under the supervision of physicians, to inpatients (A) diagnostic services and therapeutic services for medical diagnosis, treatment, and care of injured, disabled, or sick persons, or (B) rehabilitation services for the rehabilitation of injured, disabled, or sick persons.” 42 U.S.C. 1398x(e). Historically, CMS has engaged in a series of de-certification actions as a result of a hospital’s alleged failure to be “primarily engaged” in providing services to inpatients, although the manner in which CMS interprets and enforces this requirement has varied. Prior to this new guidance, the only attempt by CMS of which we are aware to formally and publicly identify how the “primarily engaged” requirement would apply, was in the form of a 2008 memo that states, in part:

In the absence of other clearly persuasive data, CMS renders a determination regarding hospital status based on the proportion of inpatient beds to all other beds. At the request of the applicant CMS may examine other factors in addition to bed ratio. The agency recognizes that the “51%” test may not be dispositive in all cases. However, we consider the burden of proof (to demonstrate that inpatient care is the primary health care service) to reside with the applicant, and consider the burden to increase substantially as the ratio of inpatient to other beds decreases.

The CMS memo specifically targeted provider-based off-campus emergency departments and hospitals specializing in the provision of emergency services, but its application has been applied more broadly. Further, CMS has continued to interpret compliance with the “primarily engaged” definition on a case-by-case basis, and not all CMS survey offices have used the 51 percent bed count as the applicable standard. This has led to significant uncertainty in the industry.

The new guidance, which amends Appendix A of the State Operations Manual that survey agencies are instructed to follow when conducting the hospital survey and certification process, provides new insight into CMS’ thinking on inpatient engagement. It identifies two key factors that surveyors should consider: (1) average length of stay (ALOS), and (2) average daily census (ADC). However, much like the CMS memo, there is still significant room for interpretation.

Initially in the new guidance, CMS explained that “generally, a patient is considered an inpatient if formally admitted as an inpatient with the expectation that he or she will require hospital care that is expected to span at least two midnights.” Thus, CMS instructs surveyors that an ALOS of two midnights will be one of the benchmarks considered for hospital certification. Further, because the Social Security Act refers to the provision of care to “inpatients” (plural), CMS stated that “hospitals must have at least two inpatients at the time of the survey in order for surveyors to conduct the survey.” If a hospital does not have at least two inpatients at the time of a survey, a survey will not be conducted at that time, and an initial review of the hospital’s admission data will be performed to determine if the hospital has had an ADC of at least two and an ALOS of at least two midnights over the last 12 months. If such review shows that the ADC and ALOS are each two or more, a second survey will be attempted at a later date. However, if the hospital does not have a minimum ADC of two inpatients and an ALOS of two over the preceding 12 months, “the facility is most likely not primarily engaged in providing care to inpatients and the CMS Regional Office must look at other factors to determine whether a second survey should be attempted.”

Surveyors are further instructed in the new guidance on other factors they should consider in determining whether to (1) conduct a second survey, or (2) recommend denial of an initial applicant or termination of a current provider agreement. These factors include but are not limited to the following:

  • The number of provider-based off-campus emergency departments (EDs). An unusually large number of off-campus EDs may suggest that a facility is not primarily engaged in inpatient care and instead is primarily engaged in providing outpatient emergency services.
  • The number of inpatient beds in relation to the size of the facility and services offered. For example, a facility with only four inpatient beds, but six to eight operating rooms, 20 emergency department bays and a 10-bed ambulatory surgery outpatient department most likely is not primarily engaged in inpatient care.
  • The volume of outpatient surgical procedures, compared to inpatient surgical procedures.
  • If the facility considers itself to be a “surgical” hospital, are procedures mostly outpatient? Does the information indicate that surgeries are routinely scheduled early in the week, and does it appear this admission pattern results in all or most patients being discharged prior to the weekend (i.e., that the facility routinely operates in a manner where its designated “inpatient beds” are not in use on weekends)?
  • Patterns and trends in the ADC by the day of the week. For example, does the ADC consistently drop to zero on Saturdays and Sundays? This would suggest that the facility is not consistently and primarily engaged in providing care to inpatients.
  • Staffing patterns. A review of staffing schedules should demonstrate that nurses, pharmacists, physicians, etc., are scheduled to support 24/7 inpatient care, versus staffing patterns for the support of outpatient operations.
  • How does the facility advertise itself to the community? Is it advertised as a “specialty” hospital or “emergency” hospital? Does the name of the facility include terms like “clinic” or “center,” as opposed to “hospital”?

CMS instructs its surveyors to consider all of the above factors (and potentially others) to determine whether a facility is truly operating as a hospital for Medicare purposes, rather than making a determination “based on a single factor, such as failing to have two inpatients at the time of a survey.” Accordingly, a hospital’s failure to satisfy the ALOS and ADC tests should not necessarily result in the denial of certification or de-certification. However, a hospital with historical ALOS and ADC below two should carefully review the other considerations outlined above, review internal data to ascertain its level of risk based on those considerations, and consider adjusting its operations accordingly. Further, hospitals should monitor the manner in which the new guidance is implemented by the applicable survey agency, given the amount of latitude CMS has provided to surveyors to examine the totality of circumstances when addressing the inpatient engagement issue.