Key Guidance Provided Regarding Application of MMSEA Exceptions to LTACH Development, Relocation and Change of Ownership Transactions

Posted by Jason Greis on September 29, 2009 under Articles | Be the First to Comment |  Print

Section 114 of the Medicare, Medicaid, and SCHIP Extension Act of 2007 (“MMSEA”) established, among other things, a three-year temporary moratorium on the establishment of new LTACHs and LTACH beds, subject to certain limited exceptions.  When rules implementing the moratorium were released by CMS in an Interim Final Rule on May 22, 2008, CMS did not specify which change of ownership and facility relocation activities by existing LTACHs and LTACH satellite would continue to be permissible under the moratorium.  In fact, CMS specifically advised the industr that such questions should be directed to their Medicare Administrative Contractors, and that the CMS Regional Office would address specific situations on a case by case basis. 

Having been bombarded by recurring questions from LTACHs, trade organizations, consultants and attorneys, CMS relented in its Final Rule for rate year (“RY”) 2010 by providing the following key guidance (see 74 FR 43989-43990, Aug. 27, 2009):

1.  Is an existing LTACH or an existing satellite permitted to relocate?  Yes, in accordance with state survey agency policies.

An existing LTACH or satellite may relocate in accordance with state survey agency policies as long as there is no increase in the number of beds at the new site.  For example, if state surveyors would typically allow LTACH A with 100 beds to move to a building 8 miles away and LTACH A maintains the same provider agreement, the moratorium would not preclude the re-opening of the 100 bed LTACH in the new location.  However if an LTACH has a new provider agreement at the new location, it would be a new LTACH and therefore would be subject to the moratorium.

2.  May an LTACH under development that meets an MMSEA moratorium exception undergo a change in ownership?  See answers below.

a.  Qualifying Period Exception.  A new LTACH that meets one or more of the exceptions at sections 114(d)(2)(A), (B) and (C) of MMSEA may undergo a “change of ownership” (see change of ownership guidelines listed in 42 C.F.R. 489.18) and may still qualify for the exception, if certain requirements are met.  Specifically, if meeting the “qualifying period” exception at section 114(d)(2)(A) (i.e., a facility began its qualifying period for payment as an LTACH on or before December 29, 2007), a change of ownership where the new owner takes over the original provider agreement would not affect the hospital’s qualification for an exception. 

b.  Written Development Agreement and Capital Expenditure Requirement.  If the hospital or entity claims to meet the exception set forth at section 114(d)(2)(B) (i.e., that it has a binding written agreement with an outside, unrelated party for the actual construction, renovation, lease, or demolition for an LTACH, and has expended before December 29, 2007, at least 10% of the estimated cost of the project (or, if less, $2,500,000), but the developing entity was sold, eligibility for the exception can be granted to the original owner.  However, a determination would be made by the CMS Regional Office responsible for initially granting the exception regarding whether it is still the same LTACH or entity that would meet the requirements of section 114(c)(2)(B) of MMSEA.

c.  CON Approval.  Finally, if the hospital or entity developing the LTACH is basing its exception on section 114(c)(2)(C) of the MMSEA (i.e., that a CON was obtained in a state where one was required on or before December 29, 2007), a determination would need to be made by the state agency regarding whether the originally-issued CON is transferable to a new owner or whether a new CON would be required in order to proceed.   If a new CON is required, the hospital or entity would not meet the statutory December 29, 2007 deadline and therefore, would not qualify for an exception to the moratorium.

3.  May an existing LTACH merge with another LTACH?  Yes.

CMS would apply its longstanding policy regarding hospital mergers so that the merger of two LTACHs would result in one LTACH’s provider number being voluntarily terminated and the other serving as the provider number for the new entity.  The moratorium on the increase in hospital beds would apply to the sum of the beds that existed in both LTACHs as of December 29, 2007.

4.  Are two satellites of the same LTACH permitted to consolidate?  No.

Two satellites of the same LTACH are not permitted to consolidate during the moratorium.  The reason for this is that the result of the satellites consolidating would be an increase in the number of beds in one satellite, which is precluded by section 114(d)(1)(B) of the MMSEA.

5.  How does the moratorium affect a remote location of a LTACH?  Remote locations are not subject to the moratorium.

Section 114(d) of the MMSEA does not subject remote locations of an LTACH to the moratorium, but it is still essential to determine if the facility in question is actually a “remote location—and not a satellite of a LTACH.  If the “remote location” is located on the campus of another hospital, it is defined as a satellite under 42 C.F.R. 412.22(h), and is subject to the moratorium.  A remote location of an LTACH that is not a satellite, because it is provider-based and not co-located with another hospital, however, would operate under the provider number of its main LTACH.  Therefore, where establishing a remote location adds beds under that provider number, in the aggregate, it is subject to the moratorium.

6.  Is an LTACH permitted to reduce its bed numbers and open a remote location (not a satellite) with those beds so that there is no increase in bed numbers under the LTACH’s provider number?  Yes.

If an LTACH adds a provider-based location that does not increase the aggregate number of beds at the LTACH, because it has decreased the number of beds at the main campus by at least an equivalent number of beds, the LTACH would not have violated the moratorium.  A reduction in the number of beds at an LTACH and an equivalent increase in the number of beds at its satellite, however, would be prohibited by section 114(d)(1)(B) of the MMSEA.

7.  Does the moratorium have any impact on the ability of a new Inpatient Rehabilitation Facility (IRF) or Inpatient Psychiatric Facility (IPF) to co-locate with an existing LTACH without affecting its Medicare certification?  No, but the parties would still be subject to separateness and control regulations.

The moratorium provisions have no impact on whether an IRF or an IPF may co-locate with an existing LTACH.  All providers that would be affected by the co-location, however, would be required to comply with “separateness and control” regulations at 42 CFR 412.22(e) and the existing LTACH would be required to meet the notification requirements at § 412.22(e)(3) (i.e., the LTACH would be required to notify CMS in writing of its co-location and provide the name, address, and Medicare provider number of those hospital(s) with which it is co-located).

8.  May a new owner of an LTACH obtain a new Medicare provider agreement as part of a change of ownership without being required to satisfy an MMSEA exception.  No.

CMS noted that in the sale of an LTACH (generally its assets) to a new owner, there is a significant difference between a situation where a new owner assumes the old owner’s provider agreement versus a situation where a new provider agreement is sought by a new owner.  Obtaining a new provider agreement is considered to be tantamount to developing a new LTACH—an activity that is precluded by the MMSEA unless one of the above statutory exceptions is met.  This is consistent with CMS’s longstanding policy intended to encourage successor parties (even those purchasing assets) in a transaction to assume the seller party’s Medicare provider agreement.  Therefore, where an asset sale and purchase is contemplated, a potential purchaser would be prudent to perform extensive due diligence regarding seller’s Medicare billing and coding practices, known reimbursement errors and  outstanding WPS, RAC and RAC-type audits.

Jason S. Greis, Esq.
McGuireWoods LLP
312.849.8217