Legal Update: Surgical Hospitals Stripped of Hospital Status


Medicare targeting facilities that don't keep enough patients overnight.

INPATIENT CARE Surgical hospitals that don't treat enough inpatients could lose their CMS hospital designation.

When is a surgical hospital not a hospital? When it doesn't keep enough patients overnight, according to CMS, which terminated a surgical hospital's Medicare designation as a hospital because it failed to meet Medicare standards for hospital enrollment. In other words, the hospital treated too few inpatients relative to its number of outpatients to qualify as a hospital. While Medicare's Conditions of Participation have always required that a hospital be "primarily engaged" in treating inpatients, it never specified what a hospital had to do to meet this requirement. But now we have a better sense of Medicare's daily census (at least 2 inpatients) and length-of-stay (at least 2 midnights) requirements.

Inpatient-to-outpatient ratio

State health officials conducted an unannounced survey of Blue Valley Hospital (BVH) in Overland Park, Kan., last November and found BVH, which specializes in weight-loss surgery, did not have any inpatients at the time. A subsequent state report cited hospital-provided data showing about 309 outpatient surgeries over a yearlong period, compared with 146 inpatient surgeries. CMS determined that Blue Valley wasn't "primarily engaged" in providing inpatient care and informed the facility that it did not meet the criteria to be certified as a hospital.

Last September, CMS provided new criteria to state survey agencies to measure whether a facility was "primarily engaged" in providing services to inpatients as required for hospitals to participate in Medicare. According to the updated guidance, the most important factors in determining whether a facility is "primarily engaged" in providing inpatient care are whether the facility has, at a minimum, an average daily census (ADC) of at least 2 inpatients (not including patients on "observation" status) and an average length of stay (ALOS) for its inpatients of at least 2 midnights, when measured over the prior 12 months.

CMS advised that, without meeting the minimum ADC and ALOS criteria, a facility will likely not be deemed as primarily engaged in treating inpatients and should be denied enrollment as a hospital or have its enrollment revoked. Moreover, even if a facility meets the ADC and ALOS criteria, CMS advised that surveyors should also consider additional criteria, including:

  • the number of inpatient beds in relation to the size of the facility and the services offered, which may imply the ratio of inpatient versus outpatient services the facility intends to provide;
  • the volume of outpatient surgical procedures to inpatient surgical procedures;
  • the volume of outpatient versus inpatient procedures for a facility that calls itself a "surgical" hospital;
  • patterns and trends in the ADC by day of the week (for example, discharges at a surgical hospital that schedule its inpatient cases for the beginning of the week would occur before the weekend, resulting in a 0 ADC on Saturdays and Sundays);
  • staffing patterns suggesting that the staff could not support 24/7 inpatient care (for example, many fewer staff members on nights and weekends); and
  • how the facility advertises itself to the community, including advertising as a "specialty," "emergency" or "surgical" hospital, and whether the name of the facility includes terms like "clinic" or "center," as opposed to "hospital."

Numbers don't lie

For Blue Valley, CMS surveyors found that the hospital had never had an ADC of 2 or above during any 12-month period since opening, and during the prior 12 months:

  • had an ADC of 0.48 and an ALOS of 1.2;
  • discharged "nearly every patient" before the weekend;
  • performed twice as many outpatient procedures as inpatient procedures; and
  • frequently did not perform any inpatient procedures for several days, at one point performing no inpatient procedures for a 22-day stretch.

On Feb. 2, 2018, CMS informed Blue Valley that its Medicare provider agreement would be terminated, barring significant changes to address the deficiencies. Blue Valley responded with a lengthy letter and plan of correction, arguing that the ADC and ALOS criteria were only 2 factors that a surveyor must consider when determining whether a facility was a hospital. The facility highlighted its excellent patient care, recent build-out of inpatient bed space and community outreach efforts to increase inpatient admissions. Furthermore, it detailed ongoing hiring and staffing changes, expansion of inpatient services, targeting of new patient populations, and marked increases of 3-month ADC and ALOS (to 1.39 and 1.8, respectively) to demonstrate its ability to comply with the CMS requirements going forward.

Despite its detailed plan of correction, CMS determined that the plan was "aspirational only" and terminated the facility's agreement on April 11, 2018. The next day, Blue Valley sued the Department of Health and Human Services and CMS in the United States District Court for the District of Kansas. The lawsuit is ongoing.

Guidance for providers

In light of the Blue Valley enforcement action, surgical hospitals should review their operations to determine whether they are likely to meet the updated CMS criteria when undergoing a survey. Doing so will provide facilities with the insight and time to correct any issues before CMS surveyors arrive. How can surgical hospitals demonstrate their commitment to meeting the CMS requirements?

  • Evenly distribute inpatient cases so that a minimum of 2 inpatients are in the facility at all times because meeting this initial threshold may "head off" additional scrutiny at the outset of a surprise survey by regulators.
  • Actively recruit physician specialists from additional specialties (such as spinal surgery) that require inpatient admissions.
  • Consider increasing the number of licensed inpatient beds. For those surgical hospitals that are physician owned it may be necessary to relinquish operating rooms and procedure rooms as inpatient beds are added because of Obamacare's restrictions on expansion by physician-owned hospitals.
  • Adjust the facility's schedules to provide for weekend use by inpatients and ensure that the facility's staffing patterns include consistent coverage over the weekends, demonstrating the expectation of, and ability to provide, night and weekend care.
  • Consider rebranding the facility, including changing its name, if necessary, so that it includes the designation of simply "hospital" instead of "surgical hospital," "clinic" or "center."

Facilities that are concerned about meeting the requirements should draft a plan of action now, as CMS's random surveys can occur at any time. After all, the best defense against negative survey results is preparation today. OSM

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