Health Law Daily No primary engagement in inpatient services? No hospital classification
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Tuesday, November 15, 2016

No primary engagement in inpatient services? No hospital classification

By Sarah E. Baumann, J.D.

The oldest continually operating eye-care facility in the United States did not meet the definition of a hospital for Medicare participation purposes because it was not "primarily engaged" in the provision of inpatient services. Wills Eye Hospital, a former ambulatory surgical center (ASC) that added four inpatient beds, did not qualify as a hospital because the bulk of its services were outpatient and it appeared to operate as an ASC. The Departmental Appeals Board (DAB) affirmed summary judgment for CMS, finding that Wills failed to show that it was qualified as a hospital and that CMS lawfully took a case-by-case approach to making a classification and reaching its decision (Wills Eye Hospital, Docket No. A-16-78, Decision No. CR2743, October 25, 2016).

Application. Wills operated as an ASC beginning in 2002. In 2006, it sold its inpatient ophthalmology program to another hospital because developing technologies had "greatly reduced trauma to the eye and lessened recovery times" of its patients. However, it later sought reclassification as a hospital because the other hospital could not support the specialized attention that the complex services required. Wills renovated its facility to meet Life Safety Code requirements, added four inpatient beds, surrendered its state ASC license and obtained a state hospital license, asked CMS to terminate its ASC status, and applied for Medicare enrollment as a hospital.

Denial. Although the state licensing agency determined that Wills met hospital conditions of participation (CoP) requirements and recommended certification, CMS determined that Wills did not meet the statutory definition under section 1861(e)(1) of the Social Security Act (SSA) because it was not "primarily engaged in providing inpatient services." SSA section 1861(e)(1) defines a hospital, in relevant part, as an institution that "is primarily engaged in providing . . . 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." In its decision, CMS noted that Wills provided a greater volume of outpatient than inpatient services, specifically stating that even if each of the facility’s inpatient hospital beds "were filled seven days per week with a different patient, that would constitute 1460 patients, or about 17 percent," of the estimated "8400 out-patient surgeries" that Wills performed annually. Wills appealed to an administrative law judge (ALJ), who entered summary judgment for CMS, and then appealed to the DAB.

Appeal. Wills argued that CMS misinterpreted the statute and utilized a comparative volume test in reaching its decision that was not based in statute or regulations without notice-and-comment rulemaking. It also argued that the agency’s decision was arbitrary and capricious, estimating that the standards it used to evaluate Wills, if applied to other providers, would result in "37 percent to over 80 percent" of Medicare-participating hospitals not being enrolled.

Wills argued that the word "primarily" in the context of 1861(e)(1) meant "originally," rather than referring to a comparative amount, and that it also referred to the type of services provided, rather than their classification as inpatient or outpatient. The DAB disagreed, finding that Wills’ interpretation was "not sustainable," whereas CMS’ interpretation was reasonable, permissible, and entitled to deference.

The DAB held that Medicare hospitals must primarily provide the specified types of services to inpatients, but did not hold that that "primary engagement is conclusively determined by any single numerical test." As required by the Deficit Reduction Act of 2005, CMS studied issues surrounding the definition of ASCs versus certain types of hospitals. In a report, it made Congress aware that it planned to address such classification issues on a case-by-case basis, rather than be setting a numerical standard, and Congress did not object. In the case at hand, the DAB determined that CMS did not apply a numerical test. Instead, it noted that the CMS regional official responsible for the decision began to look closely at Wills’ application when he realized that there was an excessive number of personnel—112.5 full-time equivalent employees, including 45.2 registered nurses—for four inpatient beds in a facility that operated for years as an ASC. In addressing the state agency’s concerns that similar hospitals had been classified as hospitals, the CMS official noted that many of those hospitals had since been reclassified, and that the application raised a question of law independent of other decisions. The DAB was thus satisfied that CMS’ decision was reasonable, appropriate, and not based on a numerical test.

In response to Will’s vehement arguments that the services it provided were so complex as to require reimbursement at a higher level, the DAB echoed the ALJ’s concerns that "[m]edical practices may have outpaced the statute," but that the only avenues for change were via legislation and policy. At present, "the existing law does not . . . distinguish between hospitals and ASCs based on the quality of care they provide." As a result, the DAB affirmed summary judgment for CMS.

Companies: Wills Eye Hospital

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