Ambiguities in CMS' final co-location guidance will create 'frustration and confusion' for hospitals, lawyers warn

The American Hospital Association (AHA) applauded a revised final guidance (PDF) issued last week by the Biden administration for its removal of requirements that would have limited the flexibility of hospitals’ co-location arrangements,

But the hospital group was mixed on whether the agency offered enough clarity to organizations hoping to stay in compliance.

However, while the industry group commended the agency for addressing comments on the preceding 2019 draft guidance (PDF), lawyers warned that the Centers for Medicare & Medicaid Services (CMS) has introduced ambiguity regarding compliance and how surveyors may apply the requirements.

“The final guidance will come as a relief to many hospitals, while simultaneously creating frustration and confusion,” Emily Cook, Sandra DiVarco and Caroline Reigart, healthcare lawyers with McDermott Will & Emery, wrote in an analysis.

CMS’ guidance outlines the conditions of participation (CoPs) for Medicare-certified hospitals that are co-located on a shared site with another provider entity. Hospitals have increasingly chosen to go this route in recent years to enable new care delivery systems and greater efficiencies, the agency and the AHA wrote.

The new policy, effective immediately, instructs all co-located hospitals to independently demonstrate compliance with all Medicare and Medicaid program CoPs. It outlines how certain shared spaces, services, personnel and emergency services should be organized to demonstrate compliance and revises co-location guidance for hospital surveyors to follow during their assessment.

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“When hospitals choose to co-locate, they should consider the risk to compliance through any shared space or shared service arrangements,” CMS wrote in the guidance.

The instructions were warmly received by the AHA, which has been petitioning the agency to roll out co-location guidance since 2017.

“Clarity in application of the Conditions of Participation (CoPs) in co-located hospital arrangements is vital to hospitals, health care systems and health care entities interested in entering such arrangements,” said Mark Howell, senior associate director of policy at the AHA, in a statement. “In its final guidance, CMS has made important revisions that will allow hospitals and health systems the flexibility to utilize co-location agreements to improve services and efficiency ultimately benefitting the patients and communities they serve.

“The AHA applauds CMS’ careful consideration of its comments in the revised final guidance and looks forward to the important value these arrangements will add to our health care delivery infrastructure,” he said.

In their analysis, Cook, DiVarco and Reigart agreed that the final guidance “appears to remove many of the most controversial aspects of the draft guidance, including the restrictions on co-mingling of hospital space with space used by other health care providers, ‘floating’ nursing staffing arrangements between a hospital and another health care provider and use of staff from a co-located hospital to provide rarely needed services (e.g., ‘code teams’).”

However, the lawyers said that the final guidance’s instructions for surveyors and accreditation organizations do not “significantly clarify” compliance requirements for co-located hospitals, which “could lead to inconsistent results where co-location concerns are identified as part of a survey.”

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“The final guidance also appears to place the burden on hospitals to demonstrate how their co-location arrangements meet the applicable CoPs, which would include those CoPs related to nursing services and emergency services,” they wrote. “The final guidance also removes necessary insight into how CMS may interpret the CoPs with respect to co-location arrangements and does not provide guidance on how surveyors may apply the CoPs.”

Notably, while CMS clarified that its guidance doesn’t apply to Critical Access Hospitals or private physician offices, the agency didn’t specify how surveyors should evaluate a Medicare-certified hospital co-located with one of these entities.

“The final guidance suggests, but does not confirm, that CMS is more concerned with arrangements where two separately-enrolled facilities, such as two separately-enrolled hospitals, or a hospital and another facility such as an ambulatory surgery center or rural health clinic, are co-located or share services,” they wrote.

Hospitals should also keep in mind the other statutes, regulations and guidance beyond CMS’ CoPs that could impact their co-location arrangements, the lawyers warned.

Although the finalized guidance removed certain specific examples included in the draft, many of those same arrangements “may remain prohibited by state licensure laws or other Medicare program rules, such as the Medicare provider-based rules,” they wrote.

With the final guidance now in hand, the lawyers advised hospitals to promptly update their documentation of all co-location arrangements as well as their legal support for how any co-location arrangements comply with the CoPs.