Reed Smith Client Alerts

On May 3, 2019, the Centers for Medicare & Medicaid Services (CMS) released draft guidance for state survey agencies that would impact hospitals that share space, staff and/or services with another co-located hospital or health care entity. The draft guidance generally reaffirms the principles informally annunciated by various CMS employees in the past1  –inconsistently applied by accrediting organizations and state surveyors – which emphasized that certain payment rules, such as those for hospitals-within-hospitals, should not supersede the requirement that each co-located hospital must independently satisfy Medicare hospital conditions of participation.

The release, when finalized, will provide more authoritative guidance concerning hospital co-location arrangements, and presumably result in greater consistency. However, if finalized in its current form, it will also limit the flexibility of hospitals to structure arrangements for shared space, staff and services. CMS is seeking comments on the draft guidance until July 2, 2019. Hospitals and their co-located health care entities that are concerned about the restrictive guidance may wish to provide comments by that date.

Summary of Draft Guidance

As an initial matter, CMS notes that co-location of hospitals with other health care entities has been prohibited by subregulatory guidance, and that CMS now seeks to clarify through the draft guidance how state surveyors should evaluate such arrangements for compliance with the Medicare hospital conditions of participation (COPs) “without being overly prescriptive.” CMS clarifies in the draft guidance that the co-location of all or part of a hospital is permitted, while still noting that each hospital must demonstrate separate and independent compliance with the Medicare hospital COPs as described further below.