On November 10, 2014, the Centers for Medicare & Medicaid Services (“CMS”) published the amended final rule regarding the expansion exception process for physician-owned hospitals (“2015 Final Rule”).  The 2015 Final Rule will take effect on January 1, 2015.

Background

Under the Affordable Care Act’s (“ACA’s”) amendments to the 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 the prohibition on expansion 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.  In the 2012 OPPS Final Rule (“2012 Final Rule”), CMS finalized regulations that established requirements for the application process, criteria and documentation for physician-owned hospitals to request an exception to the prohibition on expansion.  In the calendar year 2015 OPPS/ASC Proposed Rule (“Proposed Rule”),1 CMS proposed changes to the requirements set forth in the 2012 Final Rule specific to the process for requesting an exception to the expansion prohibition.  This Proposed Rule was used to solicit comments, which were then discussed in the 2015 Final Rule.  The 2015 Final Rule makes several changes to the requirements established by the 2012 Final Rule.

Regulatory Changes to Allow for Supplemental Data

2012 Final Rule

The 2012 Final Rule required physician-owned hospitals seeking an exception to the expansion prohibition use filed Medicare hospital cost report (“HCRIS”) data to determine whether a physician-owned hospital satisfied all inpatient Medicaid admissions, bed capacity and bed occupancy criteria for “applicable hospitals” and the inpatient Medicaid admissions criteria for “high Medicaid facilities.”

Proposed Rule

Due to certain deficiencies identified in the HCRIS data, including but not limited to, the fact that the HCRIS data does not account for Medicaid Managed Care admissions, CMS solicited and received comments regarding the use of supplemental data in expansion exception requests. CMS proposed that physician-owned hospitals seeking an exception to the expansion prohibition be permitted to use filed hospital cost reports or data from internal or external data sources (collectively, “Supplemental Data Sources”).

2015 Final Rule

In the 2015 Final Rule, CMS noted that all of the commenters supported the use of Supplemental Data Sources.  In the 2015 Final Rule, CMS did not finalize the proposed revisions allowing physician-owned hospitals to use internal data sources to estimate Medicaid inpatient admissions.  Furthermore, the 2015 Final Rule did not finalize the proposal to permit the use of Supplemental Data Sources when calculating average bed capacity and bed occupancy. However, the 2015 Final Rule allows the use of “external data sources,” namely in certain circumstances to determine the:  (i) annual percentage of Medicaid inpatient admissions of the physician-owned hospital; (ii) average percentage of Medicaid inpatient admissions of all hospitals in the county in which the “applicable hospital” requesting expansion is located; and (iii) annual percentage of Medicaid inpatient admissions of any other hospital in the county in which the high Medicaid facility requesting expansion is located. 

In the 2015 Final Rule, CMS noted that CMS had recently revised the information required on hospital cost reports such that Medicaid Managed Care discharges will eventually be included in the HCRIS data.  As such, the 2015 Final Rule states that the use of external data sources will only be permitted until such time that available HCRIS data includes Medicaid Managed Care discharge data.

Regulatory Changes to the Fiscal Year Standard

2012 Final Rule

The 2012 Final Rule stated that physician-owned hospitals requesting an exception must use data from the most recent fiscal year(s) for which HCRIS data was available. In commentary, CMS confirmed that HCRIS must contain data from at least 6,100 hospitals for that fiscal year in order to be deemed complete and thereby used for the exception process. 

Proposed Rule

The Proposed Rule acknowledged the delay in the completion of HCRIS data.  In the Proposed Rule, CMS proposed and solicited comments regarding changing this standard so that the most recent fiscal year is the year from which HCRIS, internal and external data sources contain sufficient data to perform the necessary comparisons with other hospitals in the county. 

2015 Final Rule

In the 2015 Final Rule, CMS opted to bifurcate the fiscal year standard for Medicaid inpatient admissions and bed capacity/occupancy as follows.

Medicaid inpatient admissions. For purposes of Medicaid inpatient admissions data, the 2015 Final Rule interprets the “most recent 12-month period for which data are available” as that 12-month period for which the data source used contains all data from the requesting hospital and each hospital to which the hospital must compare itself. 

Average bed capacity and average bed occupancy. For purposes of average bed capacity and average bed occupancy, the 2015 Final Rule requires a requesting physician-owned hospital to satisfy the requirements during the most recent fiscal year for which HCRIS contains data from a sufficient number of hospitals to determine the state’s average bed capacity and bed occupancy, as well as the national average bed capacity and bed occupancy.  Further, the 2015 Final Rule states that a “sufficient number of hospitals” means enough hospitals have reported data such that the determinations for average bed capacity and occupancy would not “materially change” even if data missing from comparison hospitals were included.

Regulatory Changes to Community Input and Notice Requirements

2012 Final Rule 

The 2012 Final Rule required a physician-owned hospital applying for an expansion exception to disclose the request on the hospital’s website.  The 2012 Final Rule also required CMS to issue notice of the expansion request in the Federal Register.  Individuals and entities within the community then had 30 days to comment on the physician-owned hospital’s exception request.

Proposed Rule

The Proposed Rule discussed including an additional notification obligation.  CMS proposed to require a physician-owned hospital requesting an expansion exception to provide actual notice to any other hospital whose data was used for required comparisons.  This proposed change was a significant additional obligation to the notification process for physician-owned hospitals seeking expansion.

2015 Final Rule

In order to ensure actual notification to hospitals who may wish to comment on a physician-owned hospital’s application for an expansion exception, the 2015 Final Rule now requires a requesting physician-owned hospital to provide actual notification directly to hospitals whose data are part of the comparisons data used in the hospital’s application.

Regulatory Changes to the Timing of CMS’s Review 

2012 Final Rule

The 2012 Final Rule provided that if CMS did not receive written comments from the community, an expansion exception request would be deemed complete at the end of the 30-day comment period.  However, if written comments from the community were received, the requesting hospital had 30 days to submit a rebuttal statement.  In such case, a request was to be deemed complete at the end of the 30 day period regardless of whether the hospital submitted a rebuttal statement.  No later than 60 days after a request was deemed complete, CMS was required to publish its final decision in the Federal Register.

Proposed Rule

In the Proposed Rule, CMS acknowledged that the use of Supplemental Data Sources may require the allocation of additional time for CMS to review exception requests.  CMS proposed that, for expansion requests utilizing Supplement Data Sources, the request would be considered complete 180 days after the end of the 30-day rebuttal period to the notice and comment period set forth in the Federal Register.  For expansion requests utilizing only HCRIS data, the timing set forth in the 2012 Final Rule would remain applicable.

2015 Final Rule

Requests, written comments or rebuttal statements utilizing Supplemental Data Sources will be considered complete no later than 180 days after the end of the 30-day comment period if no comments are received or after the 30-day rebuttal period if comments are received. Furthermore, those requests, written comments or rebuttal statements that include only HCRIS data will be complete no later than the end of the 30-day comment period or 30-day rebuttal period.  At such time that a request is deemed complete, CMS has 60 days to publish its decision in the Federal Register.

Practical Takeaways

The 2015 Final Rule will become effective on January 1, 2015.  Any physician-owned hospitals that may be interested in expansion should review its ability to qualify for expansion based upon HCRIS data and/or external data sources.  Physician-owned hospitals able to qualify with current HCRIS data may wish to file a request for an exception to the expansion prohibition prior to January 1, 2015. By filing for expansion prior to January 1, 2015, eligible physician-owned hospitals may avoid complications that could result from the permitted use of external data sources.

Physician-owned hospitals interested in expanding should note that CMS received comments to the Proposed Rule requesting guidance as to how external data sources and HCRIS data will be characterized under the new regulations.  CMS explained that determinations would be made on a case-by-case basis; therefore, CMS declined to issue guidance that would give the various data sources an order of priority.

Alli Potenza