United States: Potential Updates To Hospital Co-Location Rules Provide Opportunities For Healthcare Providers

Earlier this year, the Centers for Medicare & Medicaid Services (CMS) released a proposed survey memo (Memo), which, if adopted, would expand the ability of Medicare-enrolled hospitals to co-locate with other healthcare entities.

Specifically, the Memo would amend the CMS State Operations Manual Appendix A, which provides interpretive guidelines for contractors who certify hospital compliance with the Medicare conditions of participation (CoPs). The amendments would allow hospitals and providers to share certain non-clinical space, staff, and services (subject to restrictions). Moreover, signaling that CMS recognizes the need for real, substantive changes to its current hospital co-location guidance, it invited the public to comment on the Memo, a rare move for guidance documents of this kind. The comment period, which ended July 2, 2019, drew written comments from numerous sources, including a letter from Senator Grassley (R–IA).

This alert briefly explores (i) the current state of CMS guidance regarding the co-location of hospitals with other healthcare provider entities, (ii) how the guidance proposes to change historical CMS guidance, (iii) certain open issues, and (iv) what the guidance might mean for healthcare providers.

Current CMS Guidance Regarding Co-Location Arrangements

Historically, CMS has permitted co-location between Medicare-enrolled providers under limited circumstances. For example, hospitals may be permitted to co-locate with other hospitals under the “hospital within a hospital” model (42 CFR 412.22(e)). Moreover, two or more ASCs may co-locate in the same clinical space when such space is used exclusively by only one ASC at a time. Finally, ASCs are increasingly sharing space with other types of providers, such as Office Based Labs. However, when it comes to co-location arrangements between hospitals and non-hospital providers, CMS has historically taken a far more restrictive view.

Under current guidance, provided in CMS’ State Operations Manual, CMS has indicated that it evaluates a hospital’s compliance with its CoPs “as a whole,” including whether “all of its components are under legal control of the hospital governing body.” In 2011, CMS interpreted this guidance to effectively ban co-location arrangements where hospitals “acquire only portions of a freestanding space to treat as a department of the hospital” regardless of whether the hospital “attempts to create a subsection of the overall space through a sublease or other arrangement.” In subsequent official presentations, CMS’ Technical Director of Hospital Survey & Certification indicated that hospital space must be “under the hospital’s control 24/7.”

Taken together, many providers have interpreted CMS’ guidance as effectively prohibiting all co-location arrangements between hospitals and other providers. And, because the penalty for running afoul of CMS’ guidance is so high (up to and including Medicare disenrollment of the hospital), many hospitals have abandoned their co-location arrangements, foregoing the substantial financial benefits associated with renting underutilized space or otherwise providing their patients with increased access to more flexible types of care. Those that have not abandoned co-location entirely have ensured that their operations were indeed completely separate from the other providers, including providing completely separate entrances, waiting areas, restrooms and other “non-clinical” spaces.

Providers have routinely expressed, however, that co-location arrangements could be significantly expanded without negatively impacting patient care. In the Memo, CMS appears to agree, at least in part.

Proposed Changes

Under CMS’ proposed guidance in the Memo, CMS would provide greater certainty and flexibility to Medicare-enrolled hospitals in how they structure co-location arrangements. The Memo proposes two substantive changes to CMS’ current guidance, subject to state licensure requirements (some states may not permit providers to share certain spaces that CMS otherwise would).

First, CMS would permit co-located providers to share “public spaces” and “paths of travel,” including public lobbies, waiting rooms and reception areas (with separate check-in areas and clear signage), public restrooms, staff lounges, elevators and main corridors through non-clinical areas, and main entrances to a building. Notably, however, CMS expressed concern regarding patient privacy, security, and infection control and advised that paths of travel that move patients through clinical space could not be permissibly shared under the expanded guidance.

Second, in an unanticipated move, CMS proposed to permit co-located providers to also share certain personnel and services, subject to limitations. For example, shared staff would not be permitted to “float” (i.e., CMS would require that they be assigned to specific entities for specific shifts and that they would not provide services to both during the same shift), unless the staff were part of the entity’s active medical staff. In practice, the guidance appears to permit staff working primarily at one entity to also serve the co-located entity during specific times. Both entities, however, would still be required to separately meet minimum staffing requirements at all times, as dictated by state law or the CoPs. The guidance would also permit co-located providers to share certain services “under-arrangement,” including non-clinical food services, maintenance, housekeeping and security services, as well as clinical laboratory and pharmacy services.

Open Questions

Timesharing Arrangements for Clinical Space

While the draft Memo was relatively clear in its intent, one particular omission will be disappointing for many providers: CMS did not include additional guidance on timesharing of the same clinical space between providers. We suspect many providers will welcome the ability to share non-clinical space, which has the potential to significantly decrease non-clinical operational costs. However, the draft Memo does not modify the requirement that clinical space remain entirely separate at all times.

Many hospital providers, especially in rural areas, increasingly desire to lease or “timeshare” portions of their clinical spaces to other providers, where only one provider would have exclusive use over clinical space at a specific time. Rural hospitals in particular argue that, as acute care providers, timesharing their clinical space to sub-acute care providers such as ASCs or specialists would represent a win-win for everyone, providing new life for underused hospital space and avoiding costly buildout costs for the sub-acute providers.

CMS’ published guidance regarding hospitals time sharing with other providers appears to foreclose this option. Specifically, in addition to CMS’ guidance indicating that hospital space must be under the hospital’s control on a 24/7 basis, Medicare State Operations Manual, Appendix L, Q-0002 provides that while two ASCs may enter into a timesharing arrangement:

“an ASC and a hospital or CAH outpatient surgery department, including a provider-based department that is either on or off the hospital’s or CAH’s main campus, may not share the same physical space, since the regulations at 42 CFR 413.65(d)(4) require that the provider-based department be held out to the public as a part of the main hospital, and that patients entering the provider-based facility are aware that they are entering the hospital.”

The draft Memo does not address or otherwise modify these prohibitions on timesharing of clinical space between hospitals and non-hospital providers.

Clarifications to Proposal

As with any draft guidance document, one purpose of soliciting feedback is for the public to highlight portions of the proposal that could benefit from additional clarity. Among numerous other submissions from the public, on June 26, 2019, Senator Grassley published a letter detailing his office’s requests for clarification in the guidance. While he did not go so far as to request that CMS permit sharing of clinical space under certain circumstances, he did request that CMS to:

  • Clarify important definitions (such as the term “healthcare entity,” “distinct space” and “duty hours”) to prevent confusion;
  • Provide exceptions to permit patients to travel under supervision through the clinical space of the co-located entity, if the such travel would assist in providing better patient care;
  • Clarify precisely the types of staff permitted to “float” between entities (noting that the roles comprising a “medical staff” may vary, depending on the entity); and
  • Provide additional guidance regarding provision of emergency services in co-located entities.

Opportunities for Providers

Regardless of any opportunities to further clarify or expand its guidance regarding proper co-location between hospitals and other providers, the draft Memo, if finalized, will represent a significant opportunity for new hospital co-location ventures.

  • Hospitals may benefit from sharing non-clinical space and services with separate providers, especially in high-cost real estate markets.
  • The ability to share staff, especially when additional full-time employees are not necessary for one co-located provider, can provide benefits of convenience, better patient care and flexibility.

We hope on behalf of our provider clients that CMS’ openness to the benefits of co-location and space sharing arrangements may result in additional flexibility in the future to benefit patients and providers alike.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions