Tiny hospitals face new requirement: two inpatients a day and two midnights

Tiny hospitals springing up around Indiana and the nation could soon face yet another hurdle in meeting new federal requirements for big reimbursements.

The so-called "micro hospitals" will be required to have at least two patients in overnight beds on average, and the patients must have an average length of stay that includes at least two midnights.

The Centers for Medicare and Medicaid Services laid out "clarifying guidance” Sept. 6 on what constitutes a hospital.

Some legal experts say it could be a challenge for the so-called “micro hospitals” to meet the new requirement. Even though the number requirement might seem small, it's unclear whether micro hospitals are consistently treating injuries and illnesses on an inpatient basis, or operating more as an outpatient clinic and fast-turnaround emergency room.

The issue could loom large in central Indiana, where two Catholic health systems, St. Vincent and Franciscan Health, have jumped into the micro-hospital trend.

The tiny hospitals, which operate with just a few overnight beds and a skeleton medical staff, are cheaper to build than full-service hospitals, and have less overhead.

That means they stand to rake in big profits if they can charge full hospital rates, rather than at lower rates charged by clinics. Medicare often pays two or three times as much to hospital as to outpatient clinics and surgery centers for similar procedures.

Under the new CMS guidelines, it’s no longer good enough just to hold a state hospital license.

“While a facility may have a license from a state to operate as a hospital, or may have been approved by a state as a hospital under state or local standards and authorities, that facility may still not meet the Medicare definition of a hospital,” according to a Sept. 6 memo from CMS.

The reasoning behind the two inpatients: the statutory and regulatory definition of a hospital includes the term “patients” (plural), which means at least two patients. So in order to qualify as a hospital, a facility must have at least two inpatients when federal health surveyors show up for an inspection, so the surveyors can directly observe the provision of care to patients, CMS said.

Indianapolis law firm Hall Render Killian Heath & Lyman, which specializes in health law, sent a note to clients on Sept. 7, alerting them to the new CMS memo.

“The guidance appears to be a response to the rise in ‘micro hospitals,’ which are generally viewed as acute care facilities with a very small number of inpatient beds treating low-acuity patients,” the Hall Render advisory said.

It continued: “It will likely be challenging for micro hospitals to continuously have an ADC (average daily census) of two, or two inpatients at the time of every certification survey. Micro hospitals and other hospitals with few inpatient beds should pay particularly close attention to the list of factors CMS will consider and scrutinize during any survey.”

If the hospital does not meet the new guidelines for the minimum number of inpatients or average length of stay, CMS will look at other factors when determining whether to grant or terminate a provider agreement.

Those factors include the number of inpatient beds in relation to the size of the facility; staffing patterns to determine whether physicians, nurses and pharmacists are on duty 24/7; and how the facility advertises itself to the community.

Franciscan Health broke ground in June for a 20,000-square-foot hospital with eight inpatient rooms and an emergency room near State Route 135 and Stones Crossing Road in Greenwood.

A spokesman for Franciscan Health declined to say how many overnight patients the new, small hospital expects to serve, or whether the new guidelines will be a problem.

“Franciscan Health is aware of the CMS bulletin and it is assessing the best options with which to proceed at Stones Crossing,” the organization said in a statement. “We remain committed to provide the highest quality and value care to our patients at that location.”

Franciscan also has a small, six-bed hospital in Carmel that offers overnight care for non-acute services but does not offer emergency or critical care. It also has a small health and emergency center in Chesterton, which does not have inpatient beds.

St. Vincent is in the midst of plans to build eight “neighborhood hospitals," each with an emergency room, X-ray room, pharmacy and eight overnight beds. The first one opened in Noblesville in July.

Officials from St. Vincent did not reply to the IBJ to discuss whether the Noblesville hospital had treated enough inpatients to meet the new CMS guidelines. Earlier, St. Vincent officials had said the goal of the hospital was to get patients in and out quickly.

The new requirements do not apply to critical access hospitals, which are rural hospitals located at least 35 miles away from the next nearest hospital.

As recently as last year, Medicare had defined a hospital only as a medical facility that dedicates the bulk of its services to inpatient care. It did not say how many inpatients the hospital had to treat, or long how they must remain admitted. But that also raised questions about whether micro hospitals would qualify for Medicare certification.

Now, while the new guidelines might be a challenge for micro-hospitals, they could also put to rest concerns that most traditional, full-service Indiana hospitals might not be able to meet the Medicare definition of dedicating “the bulk” of their services to inpatient care. That’s because most hospitals, under pressure from payers to reduce costs, now do most procedures on an outpatient basis.

But now, Medicare’s new requirement spelling out the numbers for average daily census and average length of stay will be no problem for traditional hospitals, said Ed Abel, director of health care practice at Indianapolis-based Blue & Co., an accounting and consulting firm.

“In general, I do not believe this will result in much disruption for the ‘traditional’ hospitals in Indiana,” Abel said in an email to IBJ, “but may impact some of the newer entrants into the classification.”