[Code of Federal Regulations]
[Title 42, Volume 2]
[Revised as of October 1, 2007]
From the U.S. Government Printing Office via GPO Access
[CITE: 42CFR412.22]

[Page 501-505]
 
                         TITLE 42--PUBLIC HEALTH
 
                             HUMAN SERVICES
 
PART 412_PROSPECTIVE PAYMENT SYSTEMS FOR INPATIENT HOSPITAL SERVICES--
Table of Contents
 
Subpart B_Hospital Services Subject to and Excluded From the Prospective 
  Payment Systems for Inpatient Operating Costs and Inpatient Capital-
                              Related Costs
 
Sec.  412.22  Excluded hospitals and hospital units: General rules.

    (a) Criteria. Subject to the criteria set forth in paragraph (e) of 
this section, a hospital is excluded from the prospective payment 
systems specified in Sec.  412.1(a)(1) of this part if it meets the 
criteria for one or more of the excluded classifications described in 
Sec.  412.23. For purposes of this subpart, the term ``hospital'' 
includes a critical access hospital (CAH).
    (b) Cost reimbursement. Except for those hospitals specified in 
paragraph (c) of this section, and Sec.  412.20(b), (c), and (d), all 
excluded hospitals (and excluded hospital units, as described in Sec.  
412.23 through Sec.  412.29) are reimbursed under the cost reimbursement 
rules set forth in part 413 of this chapter, and are subject to the 
ceiling on the rate of hospital cost increases as specified in Sec.  
413.40 of this chapter.
    (c) Special payment provisions. The following classifications of 
hospitals are paid under special provisions and therefore are not 
generally subject to the cost reimbursement or prospective payment rules 
of this chapter.
    (1) Veterans Administration hospitals.
    (2) Hospitals reimbursed under State cost control systems approved 
under part 403 of this chapter.
    (3) Hospitals reimbursed in accordance with demonstration projects 
authorized under section 402(a) of Public Law 90-248 (42 U.S.C. 1395b-1) 
or section 222(a) of Public Law 92-603 (42 U.S.C. 1395b-1 (note)).
    (4) Nonparticipating hospitals furnishing emergency services to 
Medicare beneficiaries.
    (d) Changes in hospitals' status. For purposes of exclusion from the 
prospective payment systems under this subpart, the status of each 
currently participating hospital (excluded or not excluded) is 
determined at the beginning of each cost reporting period and is 
effective for the entire cost reporting period. Any changes in the 
status of the hospital are made only at the start of a cost reporting 
period.
    (e) Hospitals-within-hospitals. Except as provided in paragraph (f) 
of this section, a hospital that occupies space in

[[Page 502]]

a building also used by another hospital, or in one or more separate 
buildings located on the same campus as buildings used by another 
hospital, must meet the following criteria in order to be excluded from 
the prospective payment systems specified in Sec.  412.1(a)(1):
    (1) Except as specified in paragraph (f) of this section, for cost 
reporting periods beginning on or after October 1, 1997--
    (i) Separate governing body. The hospital has a governing body that 
is separate from the governing body of the hospital occupying space in 
the same building or on the same campus. The hospital's governing body 
is not under the control of the hospital occupying space in the same 
building or on the same campus, or of any third entity that controls 
both hospitals.
    (ii) Separate chief medical officer. The hospital has a single chief 
medical officer who reports directly to the governing body and who is 
responsible for all medical staff activities of the hospital. The chief 
medical officer of the hospital is not employed by or under contract 
with either the hospital occupying space in the same building or on the 
same campus or any third entity that controls both hospitals.
    (iii) Separate medical staff. The hospital has a medical staff that 
is separate from the medical staff of the hospital occupying space in 
the same building or on the same campus. The hospital's medical staff is 
directly accountable to the governing body for the quality of medical 
care provided in the hospital, and adopts and enforces by-laws governing 
medical staff activities, including criteria and procedures for 
recommending to the governing body the privileges to be granted to 
individual practitioners.
    (iv) Chief executive officer. The hospital has a single chief 
executive officer through whom all administration authority flows, and 
who exercises control and surveillance over all administrative 
activities of the hospital. The chief executive officer is not employed 
by, or under contract with, either the hospital occupying space in the 
same building or on the same campus or any third entity that controls 
both hospitals.
    (v) Performance of basic hospital functions. The hospital meets one 
of the following criteria:
    (A) The hospital performs the basic functions specified in 
Sec.  Sec.  482.21 through 482.27, 482.30, 482.42, 482.43, and 482.45 of 
this chapter through the use of employees or under contracts or other 
agreements with entities other than the hospital occupying space in the 
same building or on the same campus, or a third entity that controls 
both hospitals. Food and dietetic services and housekeeping, 
maintenance, and other services necessary to maintain a clean and safe 
physical environment could be obtained under contracts or other 
agreements with the hospital occupying space in the same building or on 
the same campus, or with a third entity that controls both hospitals.
    (B) For the same period of at least 6 months used to determine 
compliance with the criterion regarding the age of patients in Sec.  
412.23(d)(2) or the length-of-stay criterion in Sec.  412.23(e)(2), or 
for hospitals other than children's or long-term care hospitals, for a 
period of at least 6 months immediately preceding the first cost 
reporting period for which exclusion is sought, the cost of the services 
that the hospital obtains under contracts or other agreements with the 
hospital occupying space in the same building or on the same campus, or 
with a third entity that controls both hospitals, is no more than 15 
percent of the hospital's total inpatient operating costs, as defined in 
Sec.  412.2(c). For purposes of this paragraph (e)(1)(v)(B), however, 
the costs of preadmission services are those specified under Sec.  
413.40(c)(2) rather than those specified under Sec.  412.2(c)(5).
    (C) For the same period of at least 6 months used to determine 
compliance with the criterion regarding the age of inpatients in Sec.  
412.23(d)(2) or the length-of-stay criterion in Sec.  412.23(e)(2), or 
for hospitals other than children's or long-term care hospitals, for the 
period of at least 6 months immediately preceding the first cost 
reporting period for which exclusion is sought, the hospital has an 
inpatient population of whom at least 75 percent were referred to the 
hospital from a source other than another hospital occupying space in 
the same building or on the same campus.

[[Page 503]]

    (2) Effective for long-term care hospitals-within-hospitals for cost 
reporting periods beginning on or after October 1, 2004, the hospital 
must meet the governance and control requirements at paragraphs 
(e)(1)(i) through (e)(1)(iv) of this section.
    (3) Notification of co-located status. A long-term care hospital 
that occupies space in a building used by another hospital, or in one or 
more entire buildings located on the same campus as buildings used by 
another hospital and that meets the criteria of paragraphs (e)(1) or 
(e)(2) of this section must notify its fiscal intermediary and CMS in 
writing of its co-location and identify by name, address, and Medicare 
provider number those hospital(s) with which it is co-located.
    (f) Application for certain hospitals. Except as provided in 
paragraph (f)(3) of this section, if a hospital was excluded from the 
prospective payment systems under the provisions of this section on or 
before September 30, 1995, and at that time occupied space in a building 
also used by another hospital, or in one or more buildings located on 
the same campus as buildings used by another hospital, the criteria in 
paragraph (e) of this section do not apply to the hospital as long as 
the hospital--
    (1) Continues to operate under the same terms and conditions, 
including the number of beds and square footage considered to be part of 
the hospital for purposes of Medicare participation and payment in 
effect on September 30, 1995; or
    (2) In the case of a hospital that changes the terms and conditions 
under which it operates after September 30, 1995, but before October 1, 
2003, continues to operate under the same terms and conditions, 
including the number of beds and square footage considered to be part of 
the hospital for purposes of Medicare participation and payment in 
effect on September 30, 2003.
    (3) For cost reporting periods beginning on or after October 1, 
2006, in applying the provisions of paragraph (f)(1) or (f)(2) of this 
section, any hospital that was excluded from the prospective payment 
systems under the provisions of this section on or before September 30, 
1995, and at that time occupied space in a building also used by another 
hospital, or in one or more buildings located on the same campus as 
buildings used by another hospital may increase or decrease the square 
footage or decrease the number of beds considered to be part of the 
hospital at any time without affecting the provisions of paragraph 
(f)(1) or (f)(2) of this section.
    (i) If a hospital to which the provisions of paragraph (f)(1) of 
this section applies decreases its number of beds below the number of 
beds considered to be part of the hospital on September 30, 1995, it may 
subsequently increase the number of beds at any time as long as the 
resulting total number of beds considered to be part of the hospital 
does not exceed the number of beds at the hospital on September 30, 
1995.
    (ii) If a hospital to which the provisions of paragraph (f)(2) of 
this section applies decreases its number of beds below the number of 
beds considered to be part of the hospital on September 30, 2003, it may 
subsequently increase the number of beds at any time as long as the 
resulting total number of beds considered to be part of the hospital 
does not exceed the number of beds at the hospital on September 30, 
2003.
    (g) Definition of control. For purposes of this section, control 
exists if an individual or an organization has the power, directly or 
indirectly, significantly to influence or direct the actions or policies 
of an organization or institution.
    (h) Satellite facilities. (1) For purposes of paragraphs (h)(2) 
through (h)(5) of this section, a satellite facility is a part of a 
hospital that provides inpatient services in a building also used by 
another hospital, or in one or more entire buildings located on the same 
campus as buildings used by another hospital.
    (2) Except as provided in paragraphs (h)(3), (h)(4), (h)(5), (h)(7) 
and (h)(8) of this section, effective for cost reporting periods 
beginning on or after October 1, 1999, a hospital that has a satellite 
facility must meet the following criteria in order to be excluded from 
the acute care hospital inpatient prospective payment systems for any 
period:

[[Page 504]]

    (i) In the case of a hospital (other than a children's hospital) 
that was excluded from the prospective payment systems for the most 
recent cost reporting period beginning before October 1, 1997, the 
hospital's number of State-licensed and Medicare-certified beds, 
including those at the satellite facilities, does not exceed the 
hospital's number of State-licensed and Medicare-certified beds on the 
last day of the hospital's last cost reporting period beginning before 
October 1, 1997.
    (ii) The satellite facility independently complies with--
    (A) For psychiatric hospitals, the requirements under Sec.  
412.23(a);
    (B) For rehabilitation hospitals, the requirements under Sec.  
412.23(b)(2);
    (C) For the children's hospitals, the requirements under Sec.  
412.23(d)(2); or
    (D) For long-term care hospitals, the requirements under Sec.  Sec.  
412.23(e)(1) through (e)(3)(i).
    (iii) The satellite facility meets all of the following 
requirements:
    (A) Effective for cost reporting periods beginning on or after 
October 1, 2002, it is not under the control of the governing body or 
chief executive officer of the hospital in which it is located, and it 
furnishes inpatient care through the use of medical personnel who are 
not under the control of the medical staff or chief medical officer of 
the hospital in which it is located.
    (B) It maintains admission and discharge records that are separately 
identified from those of the hospital in which it is located and are 
readily available.
    (C) It has beds that are physically separate from (that is, not 
commingled with) the beds of the hospital in which it is located.
    (D) It is serviced by the same fiscal intermediary as the hospital 
of which it is a part.
    (E) It is treated as a separate cost center of the hospital of which 
it is a part.
    (F) For cost reporting and apportionment purposes, it uses an 
accounting system that properly allocates costs and maintains adequate 
statistical data to support the basis of allocation.
    (G) It reports its costs on the cost report of the hospital of which 
it is a part, covering the same fiscal period and using the same method 
of apportionment as the hospital of which it is a part.
    (3) Except as provided in paragraphs (h)(4) and (h)(5) of this 
section, the provisions of paragraph (h)(2) of this section do not apply 
to--
    (i) Any hospital structured as a satellite facility on September 30, 
1999, and excluded from the prospective payment systems on that date, to 
the extent the hospital continues operating under the same terms and 
conditions, including the number of beds and square footage considered, 
for the purposes of Medicare participation and payment, to be part of 
the hospital, in effect on September 30, 1999; or
    (ii) Any hospital excluded from the prospective payment systems 
under Sec.  412.23(e)(2)(ii).
    (4) For cost reporting periods beginning before October 1, 2006, in 
applying the provisions of paragraph (h)(3) of this section, any 
hospital structured as a satellite facility on September 30, 1999, may 
increase or decrease the square footage of the satellite facility or may 
decrease the number of beds in the satellite facility if these changes 
are made necessary by relocation of a facility--
    (i) To permit construction or renovation necessary for compliance 
with changes in Federal, State, or local law; or
    (ii) Because of catastrophic events such as fires, floods, 
earthquakes, or tornadoes.
    (5) For cost reporting periods beginning on or after October 1, 
2006, in applying the provisions of paragraph (h)(3) of this section--
    (i) Any hospital structured as a satellite facility on September 30, 
1999, may increase or decrease the square footage or decrease the number 
of beds considered to be part of the satellite facility at any time 
without affecting the provisions of paragraph (h)(3) of this section; 
and
    (ii) If the satellite facility decreases its number of beds below 
the number of beds considered to be part of the satellite facility on 
September 30, 1999, it may subsequently increase the number of beds at 
any time as long as the resulting total number of beds considered to be 
part of the satellite facility does

[[Page 505]]

not exceed the number of beds at the satellite facility on September 30, 
1999.
    (6) Notification of co-located status. A satellite of a long-term 
care hospital that occupies space in a building used by another 
hospital, or in one or more entire buildings located on the same campus 
as buildings used by another hospital and that meets the criteria of 
paragraphs (h)(1) through (h)(5) of this section must notify its fiscal 
intermediary and CMS in writing of its co-location and identify by name, 
address, and Medicare provider number, those hospital(s) with which it 
is co-located.
    (7) The provisions of paragraph (h)(2)(i) of this section do not 
apply to any long-term care hospital that is subject to the long-term 
care hospital prospective payment system under Subpart O of this 
subpart, effective for cost reporting periods occurring on or after 
October 1, 2002, and that elects to be paid based on 100 percent of the 
Federal prospective payment rate as specified in Sec.  412.533(c), 
beginning with the first cost reporting period following that election, 
or when the LTCH is fully transitioned to 100 percent of the Federal 
prospective rate, or to a new long-term care hospital, as defined in 
Sec.  412.23(e)(4).
    (8) The provisions of paragraph (h)(2)(i) of this section do not 
apply to any inpatient rehabilitation facility that is subject to the 
inpatient rehabilitation facility prospective payment system under 
subpart P of this part, effective for cost reporting periods beginning 
on or after October 1, 2003.

[50 FR 12741, Mar. 29, 1985, as amended at 51 FR 34793, Sept. 30, 1986; 
57 FR 39820, Sept. 1, 1994; 62 FR 46026, Aug. 29, 1997; 63 FR 26357, May 
12, 1998; 64 FR 41540, July 30, 1999; 66 FR 41386, Aug. 7, 2001; 67 FR 
50111, Aug. 1, 2002; 67 FR 56048, Aug. 30, 2002; 68 FR 10988, Mar. 7, 
2003; 68 FR 34162, June 6, 2003; 68 FR 45469, Aug. 1, 2003; 69 FR 49240, 
Aug. 11, 2004; 69 FR 60252, Oct. 7, 2004; 69 FR 66976, Nov. 15, 2004; 70 
FR 24222, May 6, 2005; 71 FR 48136, Aug. 18, 2006; 72 FR 26991, May 11, 
2007]