The More Things Change, The More They Stay the Same – CMS’ Guidance on Co-Located Hospitals and the Removal of Certain Hospital Within Hospital Requirements

With recent changes to the Hospital within Hospital (“HwH”) rules, is it easier to meet the HwH standards? Likely, not. HwHs are hospitals excluded from the inpatient prospective payment system (“IPPS”), such as psychiatric, long-term care, children’s and cancer hospitals, but are located in the same building or on the same campus as another hospital (the “host hospital”). HwHs must still meet Centers for Medicare and Medicaid Services’ (“CMS”) evolving and stringent views on the Conditions of Participation (“COP”) requirements for co-located hospitals. CMS has long been concerned about the financial incentives for hospitals to operate a HwH in form, while in substance, operating it as a department or unit of the host hospital, using the same staff, equipment reporting structure as the host hospital, while receiving the higher reimbursement associated with IPPS-exclusion.

To allay those concerns, unless a facility retained “grandfathered” status, CMS has historically required HwHs to meet several criteria related to the separateness between and control of the HwH and its host hospital in order to be excluded from the IPPS. One of the more strenuous requirements related to showing how the hospital performed certain “basic hospital functions” outlined in 42 C.F.R. § 412.22(e)(1)(v). While CMS eliminated this requirement for long-term care HwHs beginning in 2005, it continued to apply to other types of HwHs between 2005 and today. Effective Oct. 1, 2017, however, all HwHs are exempt from meeting the “basic hospital functions” tests. Before considering this a win, recall that the HwH must still show the same level of separateness and control to meet CMS’ guidance related to COP compliance.

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