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CMS adjusts "under arrangements"

Apr 9, 2020

On April 6, 2020, the Centers for Medicare and Medicaid Services (CMS) published an interim final rule in the Federal Register that, among other initiatives and changes to existing policy, allows certain inpatient hospital services to be provided “under arrangements” outside of the hospital. The “March 2020 IFC” is intended to give healthcare providers increased flexibility to respond to the public health emergency created by COVID-19. This modification to CMS’s under arrangement policy is retroactive to March 1, 2020 and will only last for the duration of the COVID-19 public health emergency. Under the March 2020 IFC, a hospital is allowed to bill Medicare for certain services that another entity provides to the hospital’s inpatients, even if those services are provided outside of the hospital.

Medicare conditions of participation require hospitals to provide certain minimum services. However, a hospital does not have to provide all of those services itself. Instead, the hospital can arrange for required services to be provided “under arrangements” with another entity by entering an agreement with that entity. The hospital must exercise sufficient professional oversight of the services, and the hospital’s receipt of payment must fully discharge the liability of the beneficiary (i.e., the other provider is prohibited from billing Medicare for the services and must receive payment from the hospital).

Under Section 1861 of the Social Security Act, the term “inpatient hospital services” includes: (1) bed and board; (2) nursing services and other related services (including use of hospital facilities, drugs, biologicals, supplies, appliances, and equipment); and (3) other diagnostic or therapeutic items or services. CMS has referred to the first two categories as “routine services,” and, significantly, Section 1861 requires these services (but not the services in the third category) to be provided “by the hospital.” CMS has interpreted the phrase “by the hospital” to mean that routine services must be provided by the hospital itself or, if the hospital is providing the services under arrangements, within the hospital’s buildings.

CMS finalized its current interpretation of the under arrangements requirements in Section 1861 in August 2011. According to this interpretation, routine services may only be furnished under arrangements if they are furnished inside the hospital. Only services in the third category (other diagnostic or therapeutic items or services) may be provided under arrangements outside of the hospital. CMS stated that the phrase “by the hospital” suggests that the hospital must exercise professional responsibility over the services, including quality controls, and that providing routine services inside the hospital generally means that the hospital will exercise the appropriate level of control over the services.

CMS adopted this approach in part because it was concerned about hospitals using routine services to abuse or game different payment systems. For example, in the absence of CMS’s current interpretation, a hospital excluded from the inpatient prospective payment system (IPPS) could enter an arrangement to have an IPPS hospital provide ICU services to the inpatients of the IPPS-excluded hospital. The patients would still be considered inpatients of the IPPS-excluded hospital, so that hospital could request an adjustment to its reimbursement because its ICU costs had increased. CMS believed that requiring routine services to be provided inside the IPPS-excluded hospital would reduce the opportunity for this kind of gaming.

Under the approach described in the March 2020 IFC, routine services provided under arrangements outside a hospital to the hospital’s inpatients are considered to be provided by the hospital. That is, Hospital A could enter an agreement with Hospital B for ICU services, and Hospital A could bill Medicare for ICU services that Hospital B provided to Hospital A’s inpatients under arrangements, even though Hospital B would provide those services outside of Hospital A.

Significantly, the hospital arranging for the services must continue to exercise sufficient control and responsibility over them. According to the commentary in the March 2020 IFC, “[i]f a hospital cannot exercise sufficient control and responsibility over the use of hospital resources in treating patients outside the hospital under arrangements, the hospital should not provide those services outside the hospital under arrangements.”

CMS states that it is willing to take this approach for the duration of the COVID-19 public health emergency because it believes that the concerns about gaming that drove its original interpretation are sufficiently mitigated by the necessities of the public health emergency. CMS notes that during this emergency, hospitals are unlikely to treat patients outside of their buildings for purposes of gaming payment systems. Instead, hospitals will likely be treating patients in locations outside their buildings for a variety of legitimate reasons, including because they have limited access to beds or specialized equipment (like ventilators).

CMS’s new approach to routine services provided under arrangements is consistent with waivers CMS has already granted to providers, including a waiver of certain requirements related to the hospitals without walls initiative. Under this waiver, hospitals may provide routine services at remote locations or sites that are not considered part of the part of a healthcare facility (like hotels or community facilities). Taken together, the hospitals without walls waiver and the March 2020 IFC could allow a hospital to bill Medicare for services that another provider supplies to the hospital’s inpatients at a remote location or a site that is not usually considered to be part of the hospital.

Although CMS is changing its approach to inpatient hospital services provided under arrangements for the duration of the COVID-19 public health emergency, it is unlikely to change its approach after the emergency has ended. The March 2020 IFC specifically notes that CMS continues to believe that its current policy (i.e., prohibiting hospitals from providing routine services to their inpatients under arrangements outside of the hospital building) is consistent with Section 1861 and appropriate given its concerns about gaming of routine services.

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