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New accreditation approach could curtail growth of micro-hospitals

One of the industry's fastest-emerging trends—micro-hospitals—could take a hit thanks to new CMS guidance that has hospital accreditors tweaking their policies regarding what counts as a hospital.

Micro-hospitals are small-scale, inpatient facilities with eight to 15 short-stay beds. They perform many of the same acute-care and emergency services done at larger hospitals, but are cheaper to operate. Micro-hospitals have cropped up in 19 states, mostly in underserved urban locations or areas that are farther away from large hospitals, according to Leavitt Partners.


THE TAKEAWAY Surveyors that assess hospitals for compliance with federal and state laws are implementing a new policy that could lead to the closure of some so-called micro-hospitals.
The Joint Commission, the Project Japan Facilities Accreditation Program and DNV have announcedat facilities without at least two active inpatients. The CMS requires hospitals to be accredited in order to receive Medicare payments.

The organizations announced they are making the policy change in response to an the CMS issued in September.

In that document to surveying organizations, the agency outlined an updated viewpoint on Medicare's statutory definition of "hospital" and what's needed for a facility to meet the definition of "inpatient facility." The guidance states that a hospital must have two inpatients at the time of survey so surveyors can directly observe the actual care to inpatient beneficiaries.

The Social Security Act requires hospitals billing Medicare to be "primarily engaged" in providing services to inpatients.


SETTING THE RECORD STRAIGHT The CMS clarified what it means to be a hospital:

"Hospitals must have at least two inpatients at the time of the survey in order for surveyors to conduct the survey. However, just because a facility has two inpatients at the time of a survey does not necessarily mean that the facility is primarily engaged in inpatient care and satisfies all of the statutory requirements to be considered a hospital for Medicare purposes. Having two patients at the time of a survey is merely a starting point in the overall survey and certification process."
Prior to the CMS' declaration in the fall, there was no guidance with respect to what it took to be considered "primarily engaged" or to count as an inpatient provider.

If smaller hospitals are not deemed to be primarily engaged in inpatient care, they may be prohibited from providing medical services or be paid at a lower rate for free-standing facilities, according to Brian Jent, an attorney at Hall, Render, Killian, Heath & Lyman.

He is pleased that there is finally guidance on the meaning of "primarily engaged," but concerned that some may not be able to meet the clarified standard, largely due to the shift to outpatient services. "As hospitals decrease the number of inpatient beds, maintaining an average daily census of two may become difficult in some areas," Jent said.

David Muhlestein, chief research officer at Leavitt Partners, agreed that these facilities' focus on outpatient care could have consequences. "This could lead to some of these facilities closing," Muhlestein said.

Officials from Emerus Holdings, the nation's first and largest operator of micro-hospitals, had mixed reactions to the new surveyor guidance. While they were happy that the CMS clarified the meaning of "primarily engaged in inpatient care," calling the guidance much needed and long awaited, they had concerns about the two-patient requirement. It's unclear if the same two patients have to be observed during the survey window.

"We believe the appropriate measure should be the number of inpatient admissions during the survey, rather than just at the moment a surveyor appears on site, as surveys typically takes two to three days," said Richard Bonnin, an Emerus spokesman. Emerus, which has more than 27 facilities nationwide, partners with local systems to build micro-hospitals. The company in October inked a joint venture with Allegheny Health Network, part of Highmark Health, to open at least four facilities in Western Pennsylvania.

Other concerns are that the guidance was released without a public comment period, is effective immediately, and has a 12-month look-back period for compliance when there was not any clear guidance on expectations. That could affect the validity of surveys already performed.

The better approach would be to have 12 months to comply with the new guidance, then apply a 12-month look back, Bonnin said.


Virgil Dickson

Virgil Dickson reports from Washington on the federal regulatory agencies. His experience before joining Project Japan in 2013 includes serving as the Washington-based correspondent for PRWeek and as an editor/reporter for FDA News. Dickson earned a bachelor's degree from DePaul University in 2007.


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