News & Insights


January 25, 2021

Health Headlines – January 25, 2021

CMS Releases Mid-Build Off-Campus Outpatient Department Audit Results – On January 19, 2021, CMS announced the results of its audit of off-campus outpatient departments claiming the “mid-build” exception following enactment of the 21st Century Cures Act (the Cures Act).  Of the 334 providers that CMS audited, only 132 providers qualified for the mid-build exception.  The Cures Act required that CMS complete these audits no later than the end of CY 2018, but CMS only announced the results of those audits on the last full day of the prior administration.  Despite the long delay, CMS had previously stated that hospitals that reasonably believed they qualified for the exception could bill for services provided in mid-build facilities at full Outpatient Prospective Payment System (OPPS) rates.  Denials now call into question whether affected hospitals must repay the difference between excepted and non-excepted rates for nearly four years of claims.  King & Spalding has received feedback from many hospitals that audit determinations are conclusory and do not include underlying work papers supporting denials.  The Cures Act provides no administrative or judicial review rights for individual audit determinations.

When the Bipartisan Budget Act of 2015 was enacted, only existing off-campus provider-based departments (and several others) were permitted to be paid by Medicare through OPPS.  New off-campus departments would be paid according to the Physician Fee Schedule.  When enacted on December 13, 2016, the Cures Act offered an exception for provider-based departments that were “mid-build” when the Bipartisan Budget Act of 2015 was enacted.  Meeting the exception would allow the department to continue to be paid under OPPS.

The Cures Act required CMS to audit all providers seeking the mid-build exception. The audit process reviewed the following requirements:

  • The hospital must have timely filed an attestation within 60 days after the enactment of the Cures Act.
  • The attestation must support a finding that the department is provider-based under 42 CFR § 413.65(b)(3).
  • The chief executive officer or chief operating officer of the provider must have submitted a certification (before 60 days elapsed after the Cures Act enactment) stating that the off-campus provider-based department meets the “mid-build” definition.
  • The “parent” provider must have reported the off-campus provider-based department through submission of a change to its CMS-855A enrollment form (adding the location).
  • The provider must have entered into a binding written agreement with an outside, unrelated party for the actual construction of the department before November 2, 2015.

CMS started the audit process in July 2018.  CMS noted it completed the audit reviews prior to the COVID-19 public health emergency but, following associated delays, it issued the determination letters to providers on January 19, 2021. 

As noted above, CMS announced that, depending on the provider’s specific audit results, the audited provider may either have received overpayments (or may have been underpaid for services provided by the off-campus provider-based department during the auditing process if it had not billed for services at the full, excepted OPPS rate).  CMS stated it will “afford all providers a total of 240 days to address any overpayments” due to the audit findings.  For providers receiving overpayments, CMS notes that the Extended Repayment Schedule (ERS) may be available.

CMS’s fact sheet on the mid-build audit results is here.  CMS’s overview of the mid-build audits is available here, and the audit process FAQs from June 2018 are available here.

Reporters, Lee T. Nutini, Chicago, +1 312 764 6910,, and Christopher P. Kenny, Washington, D.C., +1 202 626 9253,

Biden Administration Announces Regulatory Freeze - On January 20, 2021, the White House issued a memorandum to the heads of federal executive departments and agencies requesting a freeze on federal rulemaking activity (the Memorandum).  The Memorandum directs agencies not to propose or issue any new rules without first obtaining approval from an agency head appointed or designated by President Biden.

Any rules that have been submitted to the Federal Register but not yet published should be withdrawn, consistent with Federal Register procedures, and should not be resubmitted without approval from an agency head appointed or designated by President Biden.  For rules that have been issued but have not yet taken effect, the Memorandum directs agencies to consider postponing the effective dates for 60 days in order to review any “questions of fact, law, and policy” the rules may raise and to consider opening a new 30-day public comment period.  If any pending rule raises substantial questions of fact, law, or policy, then the agency should “take further appropriate action” in consultation with the Director of the Office of Management and Budget (OMB).  The Memorandum provides that the Director of OMB may allow exceptions to the regulatory freeze for certain emergency situations and urgent circumstances.

The White House Memorandum is available here.

Reporter, J. Gardner Armsby, Atlanta, +1 404 572 2760,

McLaren Health Reaches $7.75 Million Drug Diversion Settlement - Reflecting the Department of Justice’s continued priority on opioid diversion and enforcement of controlled substance regulations, the U.S. Attorney’s Offices in the Eastern and Western Districts of Michigan jointly announced that McLaren Health Care Corporation (MHCC) agreed to pay a record-breaking $7,750,000 to resolve allegations that it violated the Controlled Substances Act (CSA) and its implementing regulations.  This settlement resulted from a multi-year investigation by the Drug Enforcement Administration (DEA) and is the largest settlement to date involving allegations of drug diversion at a health care system.  Matthew Schneider, U.S. Attorney for the Eastern District of Michigan, asserted that MHCC’s “internal practices were so deficient that it allowed the diversion of drugs, including opioids.”  Additional analysis is available in King & Spalding’s Client Alert here


HHS Renews Public Health Emergency Determination - HHS has formally renewed the coronavirus pandemic public health emergency (PHE) determination effective January 21, 2021.  On January 31, 2020, HHS first declared that a PHE had existed since January 27, 2020.  The PHE determination was then renewed on April 21, 2020, July 23, 2020, and October 2, 2020.  The HHS Secretary may continue to extend the PHE declaration for subsequent 90-day periods for as long as the PHE continues to exist.  The original PHE determination, issued on January 31, 2020, is available here.  The most recent renewal is available here.  PHE declaration Q&As, published by HHS, are available here.

Office for Civil Rights (OCR) Announces Notification of Enforcement Discretion for Use of Online or Web-Based Scheduling Applications for the Scheduling of COVID-19 Vaccination Appointments –  On January 19, 2021, OCR announced that it will not impose penalties for violations of HIPAA on covered health care providers, their business associates, and all vendors whose technology is being used by a covered health care provider or its business associate to schedule individuals to receive a COVID-19 vaccine in connection with the good faith use of online or web-based scheduling applications.  This decision is retroactive back to December 11, 2020.  OCR’s announcement is available here.  The Notification of Enforcement Discretion for Use of Online or Web-Based Scheduling Applications during the COVID-19 Nationwide Public Health Emergency is available here.

King & Spalding Webinar - An Update on Payer Specialty Pharmacy Policies, How the Industry is Responding to Them, and What is at Stake for Hospitals - King & Spalding will host a webinar on Tuesday, January 26, 2021 from 12:00 pm to 1:00 pm ET.  Following up on the November 2020 presentation titled “Challenging Payers’ New Specialty Pharmacy Policies that Reduce Payment to Hospitals,” this webinar will discuss the latest developments with respect to payers’ implementation of white-bagging policies, how the industry has been responding to and challenging these policies, and the financial stakes for hospitals.  The presenters will also discuss the results of targeted survey sent to hospitals regarding the rollout of the white-bagging policies.  Registration for the event is available here.