On May 2, 2018, Georgia Governor Nathan Deal signed into law a bill allowing failed rural hospitals to be converted into “micro-hospitals.” The law comes as a response to a recent string of rural hospital closures and a focus on improving access to rural health care. The new law expands the definition of a “hospital” to include micro-hospitals and relaxes the certificate of need rules for other hospitals to purchase a failed facility to convert it to a micro-hospital. While the new Georgia law promotes micro-hospitals, a key element of CMS’s definition of a “hospital” – that a provider be “primarily engaged” in providing inpatient services – could create a barrier to Medicare participation for these new micro-hospitals.
Georgia’s HB 769
The Georgia Code defines “hospital” as “an institution which is primarily engaged in providing to inpatients, by or under the supervision of physicians, diagnostic services and therapeutic services for medical diagnosis, treatment, and care of injured, disabled, or sick persons or rehabilitation services for the rehabilitation of injured, disabled, or sick persons.” HB 769 expressly added “micro-hospitals” to the list of provider types covered by this definition. The new law defines a micro-hospital as “a hospital in a rural county which has at least two and not more than seven inpatient beds and which provides emergency services seven days per week and 24 hours per day.”
The new law also carves out an exception related to state certificate of need requirements. As in many states, Georgia law requires any new hospital construction or expansion to undergo a state certificate of need review to certify whether the hospital is needed in that particular geographic area. For newly purchased micro-hospitals, the new law exempts the purchasing hospital from the state’s certificate of need requirements when the two facilities are in the same county.
CMS’s “Primarily Engaged” Standard
Micro-hospitals established under Georgia’s new law could have challenges complying with CMS’s newly clarified definition of a “hospital” that is eligible for enrollment in the Medicare program. Section 1861(e) of the Social Security Act sets forth the definitional requirements of what it means to be a hospital under the Medicare and Medicaid programs. Like Georgia’s definition, Medicare requires, among other things, that a hospital be “primarily engaged” in providing inpatient care.
In September 2017, CMS issued guidance to surveyors that detailed how CMS intends to enforce the “primarily engaged” in providing inpatient care standard. Under the revised guidance, facilities that do not have at least two inpatients at the time of the unannounced site must demonstrate that they have an average daily census (ADC) of at least two inpatients and an average length of stay (ALOS) of at least two midnights, or else those facilities risk termination of their provider agreement with CMS.
If the facility does have at least two inpatients at the time of the site-visit, surveyors will then determine whether or not a facility is “primarily engaged” in providing inpatient care by examining several factors, including ADC, ALOS, the number of off-campus outpatient locations, the number of provider-based emergency departments, the number of inpatient beds related to the size of the facility and scope of services offered, the volume of outpatient surgical procedures compared to inpatient surgical procedures, and staffing patterns that indicate full-time inpatient care. CMS has threatened to terminate the provider agreement of any facility that fails to satisfy these inpatient-focused benchmarks.
Although Georgia law now includes “micro-hospitals” in the state statutory definition of a “hospital,” that definition could be at odds with CMS’s interpretation of “hospital” under the Medicare statute. The Georgia law definition, for example, makes no reference to inpatient census or average length of stay, setting up the possibility that Georgia would license a hospital that does not meet the ADC and ALOS standards articulated in CMS’s recent state surveyor guidance. Because of low-inpatient volume, micro-hospitals are particularly vulnerable to not satisfying CMS’s “primarily engaged” standard. Although state licensure and accreditation is necessary for a hospital to participate in the Medicare program, the Medicare statute carries its own definition of a “hospital.” In other words, while a micro-hospital may be considered a “hospital” under Georgia law, it still may not meet the CMS’s standard for participation in Medicare.
