CMS Terminates Medicare Provider Agreement For Failing to be “Primarily Engaged” in Providing Services to Inpatients

As mentioned in a previous article Recent CMS Guidance Could Jeopardize Medicare Provider Agreement, the Centers for Medicare & Medicaid Services (“CMS”) recently issued Survey and Certification Memo: 17-44-Hospitals (“S&C 17-44”) which requires hospitals to have a minimum of two inpatients at the time of survey, as well as an average length of stay (“ALOS”) and average daily census (“ADC”) of two over the past twelve months. At the time of that article (February 2018), CMS had not yet issued any public notices of intent to terminate a hospital’s Medicare Provider Agreement for failing to be “primarily engaged” in providing services to inpatients.  That has since changed.

On March 27, 2018, CMS initially issued a Public Notice of its intent to voluntarily terminate Blue Valley Hospital’s (“BVH”) Medicare Provider Agreement. The effective date of the initial termination was set for April 11, 2018.  BVH filed a Motion for Temporary Restraining Order and Injunctive Relief in the US District Court for the District of Kansas seeking to enjoin CMS from terminating its Medicare Provider Agreement as well as a request for an expedited hearing with the Department of Health and Human Services Departmental Appeals Board.  Since the filing of those suits by BVH, CMS has rescinded and reissued multiple terminationnotices for Blue Valley Hospital.  The most recent CMS Notice for BVH (published May 15, 2018) retracts the termination.  The ultimate decision by CMS on whether to terminate the BVH Medicare Provider Agreement will likely hinge on the outcome of the TRO hearing and administrative appeal.   The TRO hearing is now set for June 11, 2018.

The “Primarily Engaged” Requirement

S&C 17-44 revises the State Operations Manual (“SOM”) Hospital Appendix A. Those revisions were designed to ensure that facilities seeking a Medicare provider agreement as a “hospital,” meet the statutory requirements of a hospital as provided in Section 1861(e) of the Social Security Act (the “Act”). Critical Access Hospitals and psychiatric hospitals are expressly excluded from these requirements.

The Act defines the term “hospital” as an institution which, among other requirements:

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 (Emphasis added).

S&C 17-44 focuses mainly on the requirement that, in order to be a hospital, the facility must be primarily engaged in providing certain services to inpatients (plural). Having the capacity or potential capacity to provide inpatient care is not the equivalent of providing care to inpatients, according to the guidance. Rather, in order for the surveyors to determine whether or not an entity meets the “primarily engaged” requirement, hospitals must have two inpatients at the time of the survey. If the hospital does have two inpatients at the time of survey, the surveyors will review the admissions data to determine whether the ADC and the ALOS are two or more over the past 12 months.

If a hospital does not have at least two inpatients at the time of the survey, a survey will not be conducted at that time. Instead, the surveyors will conduct an initial review of the facility’s admission data to determine whether the ADC and the ALOS is two or more over the past 12 months. If the ADC and ALOS is two or more, the State Survey Agency (“SA”) or Accrediting Organization (“AO”) makes the determination that a second survey will be attempted at a later date.

If the facility does not have a minimum ADC of two inpatients and an ALOS of two over the last 12 months, the guidance to surveyors is that the facility is most likely not primarily engaged in providing care to inpatients. The SA or AO must immediately contact the CMS Regional Office (“RO”) to inform them that a survey could not be completed.   The RO will consider certain enumerated additional factors in determining whether to conduct a second survey.

After considering those factors, the RO will determine whether a second survey should be conducted. If the CMS RO determines a second survey should be conducted but the facility does not have two inpatients, the survey will not be conducted. Instead, the facility will be cited for non-compliance with 42 CFR § 482.1. For initial applicants, the RO will then deny the applicant’s certification in the Medicare program. For hospitals currently participating in Medicare, the RO will proceed with termination of the provider agreement, after considering all of the circumstances, including access to care concerns.

The Survey at Blue Valley Hospital

On November 13-14, an unannounced survey was conducted at BVH. At the time of the survey, BVH had no inpatients. The surveyors reviewed the ADC and ALOS data for BVH from November 1, 2016 to October 31, 2017. The Hospital Database Worksheet reviewed by the surveyors showed an ADC of .48. BVH reported an ALOS of 1.2. The survey report also found that nearly every patient was discharged prior to the weekend; BVH performed 309 outpatient surgical procedures for the prior year compared to 146 inpatient surgical procedures; BVH advertised that it performed laparoscopic procedures where most patients are able to return to their home the day after surgery; and BVH recently added 5 off-campus locations to its Medicare provider number, none of which provided inpatient services. Based on that information, the surveyors concluded BVH was not “primarily engaged” in providing services to inpatients. The CMS RO subsequently issued the termination notice referenced above.

The BVH Appeal and Lawsuit for Injunctive Relief

Following the CMS termination notice, BVH filed suit to restrain and enjoin the United States Department of Health and Human Services (“HHS”) and CMS from terminating its Medicare certification and provider contracts. In the TRO, BVH did not seek a decision from the court on the merits of the termination. Instead, BVH seeks an injunction in order to continue operating and treating patients while pursuing an administrative appeal through the HHS Departmental Appeal Board and judicial review of that decision if needed.

One of BVH’s primary allegations is that the ADC and ALOS requirements are contrary to and directly conflict with CMS’ own definition of “inpatient.” Specifically, 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.” However, the ADC and ALOS requirements mandate an ADC of two inpatients and ALOS of two midnights. BVH argues that many of its inpatients do have an expected stay of two midnights, but because of the high quality of care received, are able to go home earlier than expected. This new CMS criteria, argues BVH, encourages hospitals to keep patients in the hospital longer than the patient needs to be just to meet CMS’ arbitrary requirement. In addition, BVH has argued CMS violated the rule-making requirements by failing to provide a notice and comment period for the new ADC, ALOS and two inpatient minimum requirements.

In summary, BVH has argued that if the TRO and injunction are not granted, BVH will lose nearly all of its revenue while the administrative appeal is pending (and any subsequent judicial review) and would force BVH to close, resulting in irreparable harm. The court has set the hearing date on the motion for preliminary injunction for June 11, 2018.    The outcome of the BVH administrative appeal and lawsuit will likely have far-reaching impact on the viability of the “primarily engaged” requirements outlined in S&C 17-44 and the effect on hospitals trying to meet those new requirements.  We will continue to monitor the BVH case and keep you informed of the court’s decision.

Written by: Jacob Simpson

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