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Leased Outreach Clinic Arrangements Disfavored by CMS

on Wednesday, 4 October 2017 in Health Law Alert: Erin E. Busch, Editor

After the well-publicized CMS enforcement action against St. Peter’s Hospital in Helena, Montana, in October, 2015, there was substantial confusion within the hospital industry about the effect of leasing licensed hospital space to private physicians for the purpose of periodic outreach clinics.

In the case of St. Peter’s, the hospital sought provider-based status for two clinic locations (one in the same building as the main hospital and another across the street).  The two clinics had been used for dual purposes for some time.  Part of the time, the clinics were staffed by hospital-employed physicians, with the hospital billing a technical fee for the hospital service.  At other times, the space was leased to visiting physicians, who were billing only a professional fee, but showing the site of service as a physician office.  CMS not only refused to recognize these spaces as provider-based, it demanded repayment of approximately $1.5M of Medicare reimbursement for services provided in this space.  CMS’s rejection of the request was based on the lack of separation of hospital space from non-hospital space.

In 2000, CMS indicated that its Regional Offices would entertain any specific questions concerning shared space and its effect on provider-based status.  One such opinion was issued in July, 2011 by the Chicago RO, in response to an inquiry by an Indiana hospital that established an off-campus location purporting to house the hospital’s radiology department and a free-standing imaging center.  CMS denied provider-based status to the hospital radiology department in that location based on the shared space arrangement.  CMS sought repayment dating back to the submission of the provider-based attestation in 2002.  The rationale in this letter explains CMS’s enforcement position in the St. Peter’s case to some extent:

  • Provider-based space was not clearly held out to the public as distinct and separate from the freestanding space.  
  • Since the radiology department was also held out to the public as a freestanding imaging center it was not held out to the public as a component of the main hospital.  
  • Co-mingling hospital and freestanding space through shared entrances, registration and waiting areas, hallways and co-mingled staff may have led to confusion and did not comply with the public awareness requirement in the regulations governing provider-based status.

Since the Chicago RO’s letter in 2011 related to an off-campus location, it was not immediately clear that CMS would apply the same rationale to on-campus/main hospital locations.  However, in May, 2015, prior to the St. Peter’s enforcement action, CMS provided informal guidance in a webinar sponsored by the American Health Lawyers Association indicating that certified hospital space, departments, services and/or locations must be under the hospital’s control at all times (24 hours per day, 7 days per week).  Hospital space cannot be part of the hospital on a part-time basis, while serving also as another hospital, ASC, physician office or any other provider space.

At seminars on provider-based status since 2015, it has been widely discussed that the American Hospital Association was to ask CMS for more definitive guidance on the issue of shared hospital space.  No CMS response has been published, however.

David Eddinger, of the CMS Central Office, and responsible for policy on provider-based status, explained in a recent phone call, that CMS had concluded that there was no need for formal explanation of its position on shared hospital space.  Mr. Eddinger suggested that the enforcement action against St. Peter’s Hospital in Helena, Montana spoke for itself.  He advised that in order for a lease of hospital space to not interfere with a hospital’s provider-based status, it would have to be full-time, there would have to be an entrance that did not pass through hospital space (an exterior door or an entrance from an atrium that was not a waiting room), and the leased space would have to have signage indicating that it was not hospital space.

Barbara E. Person


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