CMS Releases Long-Awaited Final Guidance on Hospital Co-Location and Space-Sharing Arrangements

On November 12, 2021, the Centers for Medicare and Medicaid Services (“CMS”) released final guidance confirming that hospitals can be co-located with other hospitals or healthcare providers.

CMS’ aim for the guidance is to balance flexibility in service provision for providers with ensuring patient confidence in CMS’ quality of care oversight functions.

The final guidance provides direction to state surveyors in the evaluation of a hospital’s compliance with the Medicare Conditions of Participation (“CoPs”) when it is sharing space or contracted staff through service arrangements with another co-located hospital or healthcare provider.  CMS also reiterated a key tenet of co-location arrangements: that each provider must independently meet its applicable CoPs, but, overall, the final guidance is less prescriptive than the draft guidance CMS released in May 2019, and in its wake raises new questions for providers.

The final guidance directs providers to evaluate any co-location arrangement based on its impact to the totality of the CoPs, and directs surveyors to use compliance with the CoPs as the basis for their surveying.  CMS may have intended this lack of specificity to provide more flexibility to hospitals in how they ensure compliance with the CoPs in co-location situations.  However, the elimination of most of the specific bright-line examples regarding the sharing of space, contracted services, staffing, and emergency services has increased uncertainty and lowered predictability among providers as to whether specific co-located practices are generally allowed or not.

With few specific examples to rely on in the final guidance, the onus will be on hospitals to document and demonstrate to surveyors their compliance with the CoPs when they are co-located with other hospitals or healthcare facilities.  Of note, the guidance states that references to other “healthcare providers” excludes critical access hospitals and private physician offices.  The latter exclusion raises questions as to how hospitals co-located with physician offices in multi-tenant buildings will be surveyed.  The allowableness of shared-space arrangements in such circumstances may hinge on compliance with the provider-based regulation, 42 C.F.R. 413.65.  Hospitals, including provider-based locations of hospitals, are required to meet the definition of a hospital at all times and should note CMS’s longstanding position that hospital space must be under the hospital’s control and be considered hospital space 24/7. Such space cannot be part-time hospital space and part-time used as a physician office or for other non-hospital activities.

Additional observations about the final guidance on co-location and shared space:

• Does not expressly distinguish between distinct and shared spaces or public spaces/paths of travel and clinical care spaces as the draft guidance did, nor does the final guidance explicitly prohibit the sharing of space where patients receive care.
• Clarifies that co-located hospitals are permitted to provide services either directly or under contract or arrangement and cites as examples the following services: laboratory, dietary, pharmacy, maintenance, housekeeping, security, food preparation, delivery services and utilities such as fire detection and suppression, medical gases, suction, compressed air, and alarm systems including oxygen alarms.
• Omits nearly all of the detail from the draft guidance in the instructions to surveyors regarding evaluating contracted services. Instead, CMS simply directs that: “The procedures for surveying contracted services would be the same for co-located hospitals as it would be for surveying any other hospital that has contracted services, see [42 CFR] §482.12(e).”
• Omits the discussion of clinical services contracts and medical staff being shared or “floating” between co-located hospitals and instead just references the responsibility of each hospital to comply with the medical staff requirements of 42 CFR § 482.22.
• Clarifies that hospitals can meet the CoP staffing requirements either directly or under arrangement or contract with another entity, including a co-located entity.
• Clarifies that while hospitals are not required to have an emergency department, they must still provide care to patients in an emergency and “must have appropriate policies and procedures in place for addressing individuals’ emergency care needs at all times.”
• Omits the proposed guidance discussion related to the hospital contracting with another hospital or entity for the appraisal and initial treatment of its patients experiencing an emergency.
• Omits the proposed guidance discussion prohibiting hospitals without emergency departments that are co-located with another hospital from arranging for that other hospital to respond to its emergencies to appraise patients and provide initial treatment.
• Omits much of the language that was in the proposed guidance instructing surveyors on what deficiencies should be cited in particular situations. Surveyors are directed to cite all operational CoP deficiencies “in the same manner as in other hospital surveys.”
• In addition to a direction to cite the governing-body CoP, directs surveyors to assess the impact of a deficiency at one hospital on the co-located provider. If the deficient practice extends to the co-located provider, CMS may initiate a complaint investigation of the co-located provider.

We will provide more insight and clarity on the final guidance as it becomes available from CMS.