CMS Finalizes Payment Policies But Pauses Stark Law - McDermott

Clarity for Rural Emergency Hospitals and Changes for Critical Access Hospitals: CMS Finalizes Conditions of Participation and Payment and Enrollment Policies But Pauses Stark Law Flexibilities


Rural emergency hospitals (REHs) are a new provider type that will allow Medicare to pay for emergency department and other outpatient hospital services in rural areas beginning on January 1, 2023, without requiring the facility to meet the current Medicare definition of a “hospital.”

Effective January 1, 2023, a REH is eligible for increased reimbursement under Medicare. On November 1, 2022, the Centers for Medicare & Medicaid Services (CMS) finalized the REH conditions of participation (CoPs) and payment rates that will apply to emergency department and outpatient hospital services furnished by REHs in connection with the 2023 Hospital Outpatient Prospective Payment System (OPPS) final rule.

In Depth


Under current Medicare program rules, Medicare does not recognize “freestanding emergency departments” or other non-hospital providers of emergency department services. Medicare will only pay for these services at facilities that meet the Medicare definition of a “hospital,” which requires the provision of inpatient services, among other requirements that are often difficult for low-volume facilities to meet. This limitation has presented particular challenges for rural communities, where there may be insufficient patient volume or resources to support inpatient services, but where access to emergency services and higher-level outpatient services is still necessary and may otherwise require travel to distant communities.

General acute care hospitals with no more than 50 beds located in a rural area and critical access hospitals (CAHs) that meet statutory and regulatory criteria are eligible to convert to REHs.

REH Services Eligible for Increased Reimbursement

“Rural emergency hospital services” (REH Services) are now a category of services eligible for reimbursement by Medicare. By statute, REH Services include emergency services and other medical and health services. REH Services must be paid by Medicare at the OPPS rate plus 5%.

The statute provides considerable flexibility for CMS to define the “other medical and health services” that may be reimbursed as REH Services. CMS finalized its proposal to broadly define REH Services to include all services that are eligible for reimbursement under the OPPS. This provides REHs with considerable flexibility to tailor the services they will offer (provided the REH CoPs are met). The definition will in effect provide a higher reimbursement level for any outpatient service that is eligible for reimbursement under the OPPS.

Facilities that enroll as REHs are not eligible for reimbursement for acute care inpatient services. As a result, the regulatory definition proposed by CMS will exclude acute inpatient services from the definition of “REH Services.”

The final CoPs for REHs require REHs to provide basic laboratory services and certain diagnostic services. In addition, REHs may (but are not required to) provide other outpatient services, including radiology, outpatient rehabilitation, surgical, maternal health and behavioral health services. CMS has finalized its proposal that any outpatient service that does not meet the definition of an REH service will be paid at the same rate as if the service was furnished in a hospital outpatient department and paid under a fee schedule other than the OPPS. In effect, a laboratory service furnished by an REH will be paid under the clinical laboratory fee schedule, and other non-REH Services furnished by an REH will be paid under the otherwise applicable fee schedule.

Following statutory changes implemented in 2017, most off-campus hospital departments are subject to a site-neutral payment methodology that reduced payments to hospitals for services at off-campus locations that began billing Medicare after November 1, 2015. CMS finalized its interpretation of the site-neutral provisions such that REH Services are not subject to this payment reduction. CMS will pay for REH Services at 105% of the OPPS rate, regardless of the location or original date of Medicare billing. CMS also clarified that a provider-based rural health clinic (RHC) that is currently excepted (and entitled to a payment limit per visit based on their all-inclusive rate rather than a national statutory payment limit) may maintain excepted status if the hospital to which the RHC is provider-based converts to an REH.

Proposed REH Reimbursement Methodology

Medicare payments for REHs will be made at the OPPS rate for services provided, plus a 5% add-on to the OPPS rate and a fixed monthly payment. By statute, this must be calculated by reference to the 2019 reimbursement for CAHs. CMS maintained its proposed payment reimbursement methodology largely as proposed, despite commentary from the Medicare Payment Advisory Commission (MedPAC) noting that CMS should exclude beneficiary copayments from the payment calculation.

In the final rule, CMS calculates the monthly facility payment, which is based on reimbursement to CAH through claims paid for dates of service in calendar year 2019, by including both amounts paid by the Medicare program and from beneficiary copayments. In addition to relying on the CAH claims data, CMS finalized adjustments for certain supplemental payments Medicare makes to CAHs, including new technology payments, outlier claims payments, indirect medical education payments, disproportionate share hospital (DSH) payments, uncompensated care payments and low-volume hospital payments. CMS modified the calculation of the REH add-on payment slightly to exclude the low-volume payment adjustment for CAHs that do not meet the 15 road miles distance requirement.

As finalized, the monthly REH add-on payment for 2023 will be $272,866. The monthly payment amount for REHs in future years will be based on the 2023 payment, increased by the hospital market basket percentage increase.

REH Conditions of Participation

The final CoPs for REHs are taken largely from the CAH CoPs and are largely consistent with the proposed rule. CMS recognized that REHs will not provide inpatient services and therefore will not require the same level of staffing and oversight as general acute care hospitals. However, the CoPs require an REH to maintain a staffed emergency department 24 hours a day, seven days a week, with a physician, nurse practitioner, clinical nurse specialist or physician assistant immediately available to provide emergency services in the facility. REHs also are required to have a transfer agreement in place with a Level I or Level II trauma center. REHs with distinct part skilled nursing units are required to comply with the skilled nursing facility CoPs.

REHs are required to maintain licensure and operate under applicable state or local licensure laws, which may impose more stringent requirements than CMS, in order to operate as an REH. As required by statute, REHs are limited to an annual average length of stay of 24 hours. CMS emphasizes that REHs could keep patients for more than 24 hours if necessary, but the agency does not anticipate that the frequency with which this might be required would result in an REH exceeding the 24-hour average annual length of stay requirement.

The final CoPs for REHs also include the following provisions:

  • REHs must be staffed at all times by an individual who is competent in the skills needed to address emergency medical care. There must be adequate medical and nursing personnel qualified in emergency care to meet the needs of the facility. An REH must have a physician or other practitioner on call at all times and available onsite within 30 or 60 minutes (depending on if the facility is located in a frontier area).
  • REHs must develop, implement and maintain a data-driven quality assessment and performance improvement program (QAPI), consisting of the following five parts: (1) program and scope, (2) program data collection and analysis, (3) program activities, (4) executive responsibilities, and (5) a unified and integrated QAPI program for an REH in a multi-hospital system. (REHs that are part of a multi-facility system consisting of multiple separately certified hospitals, CAHs and/or REHs may elect to have a unified and integrated QAPI program in accordance with state and local laws.) Finally, the REH must specifically measure, analyze and track staffing as a quality indicator.
  • Emergency, laboratory, radiologic and pharmaceutical services must be provided to meet the needs of an REH’s patients in a manner consistent with the CoPs for CAHs.
  • REHs must have discharge planning that focuses on returning the patient to a home or community-based setting and aligns with CoPs for hospitals and CAHs. This requirement is notable because the discharge planning CoPs for hospitals and CAHs do not generally apply to outpatients. However, CMS expects that some REH patients may be discharged from the REH to a post-acute setting, and discharge planning would allow for a smooth transition and continuity of care for the patient across the continuum of treatment facilities.
  • REHs are permitted to serve as telehealth originating sites and apply medical staff credentialing rules for telehealth providers similar to those for telehealth services provided in hospitals and CAHs.
  • REHs are allowed to provide any outpatient services consistent with the needs of the community (based on a community needs assessment) that meet certain additional requirements. For example, outpatient services must be provided in a manner based on nationally recognized guidelines or standards of practice, and the REH must have a system for referral of patients receiving outpatient services to different levels of care, as appropriate.

REH Enrollment Provisions

To facilitate enrollment of REHs, CMS finalized its proposal to permit REHs to enroll in Medicare through the “change of information” process by submitting a Form CMS-855A, rather than having to terminate the current CAH or hospital enrollment and then submit a new enrollment as an REH. In response to commenters asking about CAHs or rural hospitals that closed after December 27, 2020, but which would otherwise be eligible to convert to an REH, CMS clarified that a CAH or rural hospital that closed may submit a CMS-855A change of information to enroll as an REH. The facility must meet all CoPs for REHs in order to reopen as an REH.

Stark Law Regulatory Modifications to Accommodate REHs

Under the final conditions of participation, REHs are required to provide radiology and certain imaging services, clinical laboratory services and outpatient prescription drugs. Each of these services are considered to be “designated health services” within the meaning of the federal self-referral law (the Stark Law). With respect to services furnished to Medicare beneficiaries, an REH would be an entity that furnishes designated health services (a DHS entity).

There are several regulatory Stark Law exceptions that apply to physician-owned entities and that may currently be relied on by small rural hospitals and CAHs for purposes of Stark Law compliance, such as the rural provider exception and the whole hospital exception. However, once a CAH or a small rural hospital converts to an REH, the entity will no longer qualify as a “hospital” for purposes of the physician self-referral law and will not be able to qualify for the whole hospital exception. The rural provider exception, in contrast, will remain available.

In the proposed rule, CMS expressed concerned that the Stark Law could serve as an impediment to the enrollment of entities that are owned by or invested in by physicians but are otherwise eligible to become REHs. Accordingly, CMS proposed to create a relatively broad new REH Exception (the REH Exception) that would have permitted physicians to own and invest in REHs. In the proposed exception, CMS did not propose to incorporate many of the limitations imposed by Congress through the Affordable Care Act (ACA) to physician-owned hospitals, including strict limits on expansion of size and additional physician ownership or investment interests. CMS sought comment in the proposed rule as to whether CMS should incorporate requirements for public disclosures of physician ownership and investment or an annual report to CMS in the REH Exception. Due to concerns raised by commenters regarding the risk of program or patient abuse based on the REH Exception as proposed, CMS declined to finalize the proposed exception.

CMS finalized its definition of “rural emergency hospital,” for purposes of the Stark Law regulations, as proposed. In addition, CMS clarified that REHs located in rural areas will be eligible to rely on the rural provider exception and will not be obligated to comply with the additional requirements applicable to “hospitals” under this exception. Specifically, an REH may qualify for this exception if the entity furnishes substantially all (not less than 75%) of the DHS it furnishes to residents of rural areas.

CMS finalized its revisions to certain exceptions applicable to compensation arrangements between certain types of DHS entities and physicians to clarify that such exceptions may be used for compensation relationships between REHs and physicians. Because REHs are not “hospitals” within the meaning of the Stark Law or its implementing regulation, these changes are necessary to ensure REHs can qualify for certain regulatory compensation exceptions. Specifically, CMS modified the exceptions for the following types of arrangements to incorporate REHs as entities eligible to rely on the exception, when all elements of the exception are met:

  • Physician recruitment
  • Obstetrical malpractice insurance subsidies
  • Retention payments in rural and underserved areas
  • Electronic prescribing items and services
  • Assistance to compensate a non-physician practitioner
  • Timeshare arrangements.

CMS is seeking comment on whether revisions to the exception for medical staff incidental benefits are necessary to explicitly clarify that REHs are eligible to utilize the exception, although CMS notes that an REH could use the existing exception even absent modification. CMS is also seeking comment on the need for REHs to recruit physicians to establish or join medical practices in the geographic area served by the REH and how CMS should define an REH’s geographic service area for purposes of physician and non-physician practitioner recruitment.

Final Definition of “Primary Road” for CAH Designation

In addition to finalizing the CoPs for REHs, CMS also proposed a definition of “primary roads” in connection with modifications to the CoPs for CAHs. CMS received numerous comments from existing CAHs and hospitals interested in applying for CAH designation expressing concern that the proposed definition of primary roads, which included federal highways with only one lane in each direction, could jeopardize their eligibility to operate as CAHs.

In line with CMS’ effort to reduce the burden for providers to meet the distance criteria and codify the definition of primary road in a way that would provide greater flexibility, consistency and clarity to providers regarding the distance requirement for CAH eligibility, CMS agreed with the feedback it received through comments that the proposed definition may have had unintended consequences for existing CAHs and/or hospitals interested in applying for CAH designation.

After review of the comments and consideration of potential unintended implications, CMS took an alternative approach as it related to federal highways and finalized the definition of primary road to include numbered federal highways with two or more lanes each way, similar to the description of numbered state highways. Excluding federal highways with only one lane in each direction is a deviation from the status quo regarding how to measure distance between a CAH and another hospital or CAH and may open opportunities for new CAHs.

The complete definition is codified at §485.610(c)(2) to include a numbered federal highway, including interstates, intrastates, expressways or any other numbered federal highway with two or more lanes each way; or a numbered state highway with two or more lanes each way.

Notably, CMS further clarified that an REH established within less than a 35-mile drive (or less than a 15-mile drive in areas with only secondary roads available or in mountainous terrain) will not impact CAH designation. Because an REH cannot provide inpatient services, CMS noted that the services provided and the distinct community purpose served by CAHs and REHs would not duplicate or overlap.


CMS finalized its proposed expansive definitions that will enable REHs to provide a wide variety of services eligible for payment as REH Services and finalized an REH-favorable approach to calculating the fixed monthly payment amount. Similarly, CMS opted for an enrollment process for REHs that is less burdensome than the standard enrollment process for new providers and clarified that entities that would otherwise have been eligible to enroll as REHs but have closed since December 27, 2020, may nonetheless enroll in Medicare as an REH.

However, due to strong objections from several commenters, CMS declined to finalize the relatively broad regulatory exception that would have permitted physicians to own and invest in REHs, without many of the restrictions that are generally applicable to physician-owned hospitals. Commenters expressed concerns about the potential for overutilization, misutilization and patient steering due to physician ownership in REHs if the exception was finalized as proposed. CMS noted that commenters did not provide alternative program integrity criteria (outside of those applicable to the whole hospital exception) and, as such, CMS decided not to finalize the proposed REH Exception. It remains to be seen whether the absence of the REH Exception will limit the conversion of physician-owned rural hospitals to REHs.