CMS confirmed that a physician-owned hospital proposing to move eight miles away from its original site and add an emergency department would continue to meet the whole hospital exception, provided all other conditions remain met.

CMS emphasized that the hospital must remain the same legal and operational entity post-relocation, with no changes in ownership or Medicare provider agreement.

The decision reflects CMS’s continued scrutiny of, yet possibly softening stance towards, physician-owned hospitals and the structural safeguards in place to protect against self-referral risks.

The Centers for Medicare & Medicaid Services (CMS) recently released Advisory Opinion No. CMS-AO-2025-1, addressing whether a physician-owned hospital’s proposed full-site relocation and addition of an emergency department would jeopardize its ability to continue to rely on the Stark Law’s “whole hospital exception.” In the advisory opinion, CMS concluded that relocation, by itself, is not necessarily disqualifying — and that no single factor is dispositive. Instead, the agency took a holistic approach in assessing whether the hospital remained the same entity post-relocation for purposes of the exception.

By retaining the same ownership, provider agreement, licensure, services, name, patient base, and bed count, CMS concluded that the hospital would remain the “same hospital” under Stark requirements and continue to qualify under the “whole hospital exception”— enabling the hospital to retain its protection for physician referrals.

This Advisory Opinion — the first issued since 2021 — provides noteworthy guidance and important considerations for hospital administrators, compliance officers, and legal counsel of physician-owned hospitals currently taking advantage of the exception considering structural changes or expansions.

Background and Legal Analysis

The Stark Law “Whole Hospital Exception”

In 2010, the Affordable Care Act tightened Stark Law rules to prevent the creation of new physician-owned hospitals (with limited exceptions) and restrict the expansion of existing ones.

According to the CMS Advisory Opinion, the hospital at issue had met the Stark Law’s whole hospital exception before the 2010 cutoff by having physician ownership and a Medicare provider agreement in place. The hospital requested that CMS confirm it would still qualify as the “same hospital” and remain in compliance with the Stark Law exception, despite its plans to relocate eight miles away and to add an emergency department.

The Hospital’s Proposal: A Relocation Without Disruption

CMS took a holistic approach in its analysis and reviewed the hospital’s comprehensive certification of facts in light of factors previously outlined in its CY 2023 OPPS/ASC proposed rule and reaffirmed in the FY 2024 IPPS final rule, namely:

• Continuity of state licensure and Medicare provider agreement;
• Consistent use of Medicare provider number and tax ID;
• Same services and patient base;
• No changes to ownership or scope of services (with some flexibility, such as adding an emergency room);
• Same state regulatory framework.

The hospital certified that it had maintained physician ownership and a Medicare provider agreement continuously since December 31, 2010; the aggregate number of operating rooms, procedure rooms, and beds had remained the same since March 23, 2010 (and would remain unchanged post-relocation); the hospital’s services and patient base would remain unchanged; the hospital would continue to operate under the same name, branding, and tax ID number; there would be no ownership or leadership changes; and the hospital would continue under the same Medicare provider agreement.

Additionally, the hospital certified that its state’s law did not require a certificate of need for new construction, but any structural changes required prior notice and approval from that state’s health department. The requesting hospital also affirmed that discussions with its state officials confirmed the facility could maintain its existing state licensure after relocation.

Based on the certifications and documentation provided by the hospital, CMS concluded that neither the relocation of the facility or the addition of an emergency department would run afoul of the Stark Law’s referral and billing prohibitions. Specifically, the hospital would continue to meet the condition at 42 C.F.R. § 411.362(b)(1) as set forth in Stark’s Whole Hospital Exception.

Five Key Considerations for Hospital Leadership

One of the leading takeaways from the advisory opinion is CMS’s emphasis on a hospital’s continuity in legal identity, services, structure, and ownership when making a “whole hospital exception” determination. But beyond its specific facts, the opinion also serves as an important reminder for hospital administrators, compliance officers, and legal counsel of physician-owned hospitals that even operational changes—like relocation or new departments—can trigger significant legal and regulatory scrutiny.

Here are five strategic considerations hospital leadership should keep in mind:

1. Maintain Continuity: Ensure Medicare provider agreements, tax IDs, and licensure remain uninterrupted during transitions.
2. Document Everything: Detailed certifications and planning are crucial for regulatory assurance.
3. Avoid Ownership Changes: Even minor shifts in physician ownership could threaten compliance with the Whole Hospital Exception.
4. Engage Regulators Early: Involve CMS and state departments of health well in advance of any move or structural change.
5. Seek Advisory Opinions: Where doubt exists, requesting a formal CMS advisory opinion can offer clarity and protection.