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On April 11, 2018, the Centers for Medicare & Medicaid Services (CMS) issued a notice of revocation of Medicare enrollment to Blue Valley Hospital in Overland Park, Kansas (Blue Valley) for failing to meet Medicare standards for hospital enrollment. The revocation follows CMS’ recent adoption of new criteria to measure compliance with its Medicare Conditions of Participation for hospitals. The enforcement action under these new criteria presents an instructive example of how CMS will implement the new standards, highlighting potential Medicare-enrollment risks for surgical hospitals.

New Medicare Census and Length of Stay Requirements

On September 6, 2017, CMS provided new criteria to State Survey agencies to measure whether a facility was “primarily engaged” in providing services to inpatients as required for hospitals to participate in Medicare. According to the updated guidance, the most important factors in determining whether a facility is “primarily engaged” in providing inpatient care are whether the facility has, at a minimum, an average daily census (ADC) of at least two inpatients (not including patients on “observation” status) and an average length of stay (ALOS) for its inpatients of at least two midnights, when measured over the prior 12 months.1 CMS advised that, without meeting the minimum ADC and ALOS criteria, a facility will likely not be deemed as primarily engaged in treating inpatients and should be denied enrollment as a hospital or have its enrollment revoked. Moreover, even if a facility meets the ADC and ALOS criteria, CMS advised that surveyors should also consider additional criteria, including:

  • The number of off-campus provider-based emergency departments, with larger numbers of EDs suggesting that the facility primarily provides outpatient emergency services as opposed to inpatient services;
  • The number of inpatient beds in relation to the size of the facility and the services offered, which may imply the ratio of inpatient versus outpatient services the facility intends to provide;
  • The volume of outpatient surgical procedures to inpatient surgical procedures;
  • The volume of outpatient procedures for a facility that calls itself a “surgical” hospital, with surgeries performed at the beginning of the week and a substantial number, if not all, discharges typically occurring before the weekend;
  • Patterns and trends in the ADC by day of the week, for example a ADC of zero on Saturdays and Sundays;
  • Staffing patterns suggesting that the staff members could not support 24/7 inpatient care (i.e., many fewer staff on nights and weekends);
  • How the facility advertises itself to the community, including advertising as a “specialty” hospital or “emergency” hospital and whether the name of the facility includes terms like “clinic” or “center,” as opposed to “hospital.”

Termination of Medicare Provider Agreement

For Blue Valley, CMS surveyors found that the hospital had never had an ADC of 2 or above during any 12 month period since opening, and during the prior 12 months: (1) had an ADC of 0.48 and an ALOS of 1.2; (2) discharged “nearly every patient” prior to the weekend; (3) performed twice as many outpatient procedures as inpatient procedures; and (4) frequently did not perform any inpatient procedures for several days, at one point performing no inpatient procedures for a 22-day stretch.

On February 2, 2018, CMS informed Blue Valley that its Medicare provider agreement would be terminated, barring significant changes to address the deficiencies. Blue Valley responded with a lengthy letter and plan of correction, arguing that the ADC and ALOS criteria were only two factors that a surveyor must consider when determining whether a facility was a hospital. The facility highlighted its excellent patient care, recent build-out of inpatient bed space, and community outreach efforts to increase inpatient admissions. Furthermore, it detailed ongoing hiring and staffing changes, expansion of inpatient services, targeting of new patient populations, and marked increases of three-month ADC and ALOS (to 1.39 and 1.8, respectively) to demonstrate its ability to comply with the CMS requirements going forward.

Despite its detailed plan of correction, CMS determined that the plan was “aspirational only” and terminated the facility’s agreement on April 11, 2018. On April 12, Blue Valley sued the Department of Health and Human Services and CMS in the United States District Court for the District of Kansas. The lawsuit is ongoing.

Guidance for Providers

In light of the Blue Valley enforcement action, surgical hospitals should review their operations to determine whether they are likely to meet the updated CMS criteria when undergoing a survey. Doing so will provide facilities with the insight and time to correct any issues before CMS surveyors arrive. As demonstrated by the Blue Valley case, a facility’s Medicare provider agreement may depend on such efforts.


1 While CMS indicated review of ADC and ALOS may not be necessary if two inpatients are admitted at the facility at the time of an unannounced survey, the ADC and ALOS may be reviewed during the duration of the survey. Thus admission of two inpatients at the time of survey should not be relied upon by facilities to demonstrate status as a hospital, if ADC and ALOS do not meet CMS’ minimums.