BROWNSVILLE, Texas – The Federation of American Hospitals and the American Hospital Association are among those who oppose DHR Health’s expansion into Brownsville.

The two groups penned a joint eight-page letter to the Centers for Medicare & Medicaid Services (CMS) urging rejection of DHR’s application to expand.

In order to build and operate a general hospital in Brownsville, DHR Health had to seek an exception to a federal prohibition against expansion of the facility capacity of a physician-owned hospital.

DHR Health is a physician-owned hospital based in Edinburg, Texas. It is slated to officially open a 59-bed general hospital in Brownsville, Texas, in the coming weeks. 

According to information sent to the Texas Health & Human Services Commission, DHR says the hospital will have 39 medical/surgical inpatient beds at single occupancy and 59 at double occupancy, along with “clinical laboratory services, diagnostic x-ray services, treatment facility, including surgery, a 24/7 basic emergency department, intensive care unit with three beds, and seven nursing stains with around-the-clock nursing care.”

As it considered DHR’s expansion application, CMS invited public comment. Some of the correspondence CMS received was in favor of DHR’s expansion. Some was against. Here, below, is the letter sent jointly by the Federation of American Hospitals and the American Hospital Association. Stacey Hughes, executive vice president of AHA, and Charles N. Kahn, III, president and CEO of FAH, are pictured above.

March 11, 2022

The Honorable Chiquita Brooks-LaSure


Centers for Medicare & Medicaid Services

Department of Health and Human Services

Hubert H. Humphrey Building

200 Independence Avenue, SW

Washington, DC 20201

Re: CMS-1774-PN; Medicare Program: Announcement of Request for an Exception to the Prohibition on Expansion of Facility Capacity under the Hospital Ownership and Rural Provider Exceptions to the Physician Self-Referral Prohibition; Notice with request for comment, Federal Register (Vol. 87, No. 27), February 9, 2022

Dear Administrator Brooks-LaSure:

The American Hospital Association (AHA) represents 5,000 member hospitals, health systems and other health care organizations, our clinician partners – including more than 270,000 affiliated physicians, 2 million nurses and other caregivers – and 43,000 health care leaders who belong to our professional membership groups. The Federation of American Hospitals (FAH) is the national representative of more than 1,000 leading tax-paying hospitals and health systems throughout the United States. Together, our members provide patients and communities with access to high-quality, affordable care across settings in both urban and rural areas. They include teaching and non-teaching, acute, inpatient rehabilitation, behavioral health, and long- term care hospitals. They provide a wide range of acute, post-acute, emergency, children’s cancer care, and ambulatory services, including in communities that would be impacted by the expansion application of Doctors Hospital at Renaissance (DHR). The AHA and FAH appreciate the opportunity to comment to the Centers for Medicare & Medicaid Services (CMS) on the above Notice with Request for Comment (Notice) published in the Federal Register (87 Fed. Reg. 7471) on February 9, 2022.

The AHA and FAH urge CMS to deny DHR’s request for an exception to the prohibition on expansion of the facility capacity of a physician-owned hospital. 

CMS is not obligated by statute or regulation to grant an expansion request to any facility that satisfies the “high Medicaid facility” exception criteria, and CMS should deny DHR’s request because the requested expansion is inconsistent with Congress’s intent, does not serve a valid public policy purpose, and would set a bad precedent.

Further, the current exception request clearly illustrates how the “high Medicaid facility” exception, as amended in the 2021 hospital outpatient prospective payment system (OPPS) final rule published on December 2, 2020, opens the door for requests that may technically meet, but clearly violate the spirit of the general statutory ban on physician-owned hospitals. Accordingly, we also urge CMS to reverse the 2020 amendments to the “high Medicaid facility” exception.

1. CMS Has Discretion to Deny the Requested Expansion

In Section 1877(i)(3) of the Social Security Act, Congress conferred the Secretary with the discretion to consider certain physician-owned hospital requests for facility expansion, despite the statutory prohibition on physician-owned hospitals expanding beyond their licensed capacity as of March 23, 2010. Both the statute and the regulations state that a hospital that meets the criteria for a “high Medicaid facility” may “apply for” or “request” an exception to the expansion limits.1 Nowhere does the statute or the regulations state that a facility that meets the “high Medicaid facility” criteria is entitled to an exception to the prohibition on facility expansion or that CMS is obligated to grant any particular exception. Rather, the statutory and regulatory default is that a physician-owned hospital that expands after March 23, 2010, is no longer entitled to an exception to the prohibition on physician self-referrals and cannot submit Medicare or Medicaid claims for designated health services where a physician owner or investor referred the beneficiary for the services. The only circumstance in which an expansion is permitted is where the Secretary exercises his discretion and grants an expansion exception request to a qualifying facility.

Although the Secretary is required to deny a request that does not comply with the statutory and regulatory requirements, the Secretary may also deny a request based on additional, case-specific considerations, including those raised by commenters. This discretion to consider additional information beyond the three high Medicaid facility criteria is apparent from the community input requirements that are a part of the exception request process. The statute requires that the exception request process include an opportunity for community members “to provide input with respect to” the request. Likewise, under 42 C.F.R. § 411.632(c)(5), community members “may provide input with respect to the hospital’s request” for a high Medicaid facility expansion through “written comments.” Neither the statute nor the regulation limits public comment to data or information concerning the high Medicaid facility criteria. In fact, when adopting this regulation, the Secretary acknowledged his discretion to consider the full range of potential community input, stating that he was “not restricting the type of community input that may be submitted.” This opportunity for community input on all aspects of the request suggests that the Secretary is not limited to considering the three high Medicaid facility criteria when considering whether he should exercise his discretion to grant or deny an exception request. Indeed, the AHA and FAH believe that DHR’s request to expand into a wholly new and distant community should be properly denied for the reasons explained further below.

Moreover, the purpose of the high Medicaid facility exception – preserving the Secretary’s discretion to promote access to care for Medicaid recipients by permitting certain expansion exception requests – reinforces our contention that Congress purposefully omitted automatic entitlement for any hospital that meets the criteria for “high Medicaid facility” status. As explained further below, the general acute care hospitals in Cameron County, Texas are adequately providing for the needs of Medicaid beneficiaries in the County; the creation of a distant second campus of DHR in Cameron County is not warranted by beneficiary needs and clearly violates the spirit and intent of the statutory prohibition on physician-owned hospitals under the Stark law.

2. The Request to Expand to a New Community Should Be Denied Based on Community Need and Beneficiary Interests

In its application, DHR is seeking to serve an entirely different community than it does in its main facility. It would accomplish this by building a new inpatient facility approximately 55 miles away from its main hospital campus in a different county. Previously, this extraordinary request for a distant, off-campus provider-owned hospital expansion would have been denied under 42 C.F.R. § 411.362(c)(6)(ii), which prior to 2021 limited expansion requests for high Medicaid facilities to expansions on the hospital’s main campus. Although a high Medicaid facility may submit an expansion exception request for an off-campus location under the amended regulation, DHR’s request should be denied in light of public policy concerns, community needs, and beneficiary interests.

CMS Should Closely Scrutinize Public Policy Considerations When Evaluating an Off- Campus Expansion Request for a Physician-Owned Hospital. 

First, DHR’s expansion request is troubling considering the extraordinary distance between DHR’s proposed Brownsville campus and its main hospital campus in Edinburg. The new facility would not be a typical provider-based location that operates off the main hospital campus but still serves the same or a closely related, nearby community; instead, it would be among the most extreme of off-campus facilities, serving a distinct community over 50 miles away in another county. The AHA and FAH continue to believe that the recent amendments to the high Medicaid facility expansion request requirements are inappropriate for the reasons set forth in their respective letters opposing the 2020 amendments to 42 C.F.R. § 411.362 (see AHA Ltr., pp. 35 – 37 (Oct. 5, 2020), FAH Ltr., pp. 23 – 29 (Oct. 5, 2020), and urge CMS to reverse these problematic amendments that open the doors for expansion requests that fail to serve the needs of Medicaid beneficiaries. CMS properly exercised its authority under section 1871 and 1877(i)(3)(A)(i) of the Social Security Act in the 2012 OPPS Final Rule to apply the on-campus limitation to both applicable hospitals and high Congress, in permitting the Secretary to consider expansion exception requests from high Medicaid facilities, imposed county-specific criteria, reflecting an expectation that the Secretary would limit high Medicaid facility expansions to the same county in which the expanding physician-owned hospital is located. This expectation—apparent in the plain text of the statute—is best served by applying the location limitation for applicable hospital expansions to high Medicaid facility expansions.

Even under the amended regulations, however, CMS is not obligated to grant DHR’s request, and the AHA and FAH urge CMS to consider all relevant facts and circumstances — including the extraordinary distance between DHR’s main campus in Edinburg and the proposed expansion site in Brownsville. Based on this and other case-specific factors, such as DHR’s Medicaid and uncompensated care numbers and data showing adequate hospital services in Brownsville, the AHA and FAH urge CMS to decline DHR’s request for an exception to the prohibition on physician-owned hospital expansions.

In amending the regulation to eliminate the on-campus expansion requirement for high Medicaid facilities, CMS relied on the operation of “distance limitations related to the location of off campus facilities and provider-based departments” to address concerns that high Medicaid facilities would expand into “additional campuses far away from the patients the expansion is intended by statute to serve.” CMS cited “section 1833(t)(B)(i) of the Act and § 413.65(e)(3)(v)(F)” in support of the assertion that the distance limitations for off-campus provider-based departments would suffice to protect against expansions to distant communities. However, neither of these provisions operates to impose a distance limitation applicable to DHR. Section 1833(t)(21)(B)(i) of the Social Security Act8 defines an “off-campus outpatient department of a provider” but does not itself impose any distance limitation for off-campus facilities. And § 413.65(e)(3)(v)(F) does not impose a distance limitation—rather, it requires that a provider-based department of a children’s hospital be located more than 35 miles from the nearest other neonatal intensive care unit. As a general matter, a provider-based facility must typically be “located within a 35-mile radius of the campus” of the main provider. But the provider-based regulations also permit the establishment of some provider-based facilities in far-flung communities. DHR’s request exploits the flexibility of the provider-based regulations to its fullest extent, relying on DHR’s contract with Cameron County and its disproportionate share adjustment percentage in an effort to satisfy the alternative standard under 413.65(e)(3)(ii).

It is evident that the amendment eliminating the on-campus requirement for high Medicaid facility expansions was made with the assumption that the typical 35-mile “distance limitation” for provider-based departments would be adequate to prevent high Medicaid facilities from expanding to distant locations. Because DHR’s current expansion request exceeds these assumed distance limitations, it should be denied. At a minimum, the AHA and FAH urge CMS to closely scrutinize the request in light of larger policy objectives and to decline to permit the requested expansion as unnecessary to serve the needs of Medicaid beneficiaries in Cameron or Hidalgo County.

DHR is Not the Highest Medicaid Provider in Hidalgo County. 

DHR relies on discharge data to argue that it has the highest percentage of Medicaid admissions in Hidalgo County (where DHR’s main campus is located). But data on actual Medicaid days indicate that DHR’s inpatient Medicaid utilization is lower than other hospitals in Hidalgo County. Indeed, according to the Texas Medicaid DSH qualification file, DHR’s Medicaid days as a percentage of total days was 48.65% in 2020 and 46.874% in 2021.12 These percentages are lower than those for Mission Regional Medical Center (56.67% in 2021) and Knapp Medical Center (50.65% in 2020 and 55.12% in 2021).13 Although the high Medicaid facility criteria focus on Medicaid admissions rather than Medicaid days, CMS has discretion to consider this data in determining the overall benefit (or lack thereof) of the proposed expansion.

Patient Access Considerations Do Not Warrant DHR’s Expansion into Cameron County. 

DHR has not identified any reason that an exception to the prohibition on new or expanded physician-owned hospitals is needed in order to address patient access issues in Cameron County. In fact, in its application for a waiver to the 30-mile distance limitation in Texas’ hospital licensing law, DHR presented data showing that Cameron County has more inpatient acute care beds per capita than Hidalgo County (2.6 beds vs. 2.1 beds per 1,000 people) and that the per capita inpatient bed capacity in Cameron County exceeds the national average of 2.4 beds per 1,000 people (see DHR application, pg. 13 of Appendix C). To the extent that DHR has shown any need for any expansion, it would be a need for expanded capacity at its current location in Hidalgo County. And, in fact, CMS has already granted DHR’s request to add 551 operating rooms, procedure rooms, and beds under the “applicable hospital” exception to the expansion limitations for physician-owned hospitals,14 but DHR has failed to follow through with a robust expansion of its on-campus capacity in Hidalgo County. In obtaining the “applicable bed” expansion exception, DHR presented HCRIS data indicating that DHR has an average bed occupancy rate that is greater than the statewide bed occupancy rate. At present, DHR has 363 acute licensed beds (despite CMS’ grant of its “applicable hospital” exception request)  but operated at 80.02%, 85.71%, and 83.90% occupancy over the three most recent fiscal years.

Despite the data showing high utilization in Hidalgo County, DHR is seeking to instead expand in a different community that is already well served by existing providers. There are currently two general acute care hospitals in Brownsville: Valley Baptist Medical Center – Brownsville (VBMC with 240 acute licensed beds) and Valley Regional Medical Center (VRMC with 214 acute licensed beds). Over the past three fiscal years, the percentage occupancy at these two facilities has ranged between 46.06% (VBMC in 2019) and 66.02% (VRMC in 2021), indicating that additional capacity is not needed in Brownsville. In addition, as explained below, VRMC has consistently had a higher percentage of Medicaid discharges as compared to DHR, indicating that Medicaid beneficiaries are already well served in Brownsville.

The Proposed Brownsville Campus is Unlikely to Operate as a High Medicaid Facility.

Medicaid beneficiaries in Brownsville, Texas are already served by several Cameron County hospitals. In particular, the percent of total VRMC hospital discharges that were Medicaid discharges was 46.188% in 2021, 50.145% in 2020, and 50.522% in 2019. These numbers exceed DHR’s Medicaid percentages in these years (41.672%, 37.431%, and 46.176%, respectively). The statutory criteria for a high Medicaid facility focus on the percent of Medicaid admissions “in the county in which the hospital is located,” but it is not clear that Congress (or CMS) anticipated the high Medicaid facility expansion exception being used to create a new hospital campus over 50 miles away in another county where existing hospitals already exceed the expanding provider’s percent of Medicaid admissions. CMS should therefore use its discretion to consider the Medicaid discharge percentages in Cameron County in evaluating the public interests at play. Because DHR serves a lower percentage of Medicaid beneficiaries in Hidalgo County compared to VRMC in Cameron County, it appears unlikely that DHR would operate a high Medicaid facility in Cameron County if it expanded there.

Along similar lines, DHR provides relatively low levels of uncompensated care compared to Brownsville and Edinburg hospitals. DHR’s uncompensated care cost as a percentage of operating expenses has been consistently less than half of the uncompensated care percentages for the two existing Brownsville hospitals (VBMC and VRMC) and also significantly less than the other large hospital based in Edinburg (South Texas Health System):

Careful consideration of this data is appropriate because the statute does not set forth a process for revoking an expansion exception if a physician-owned hospital, after expanding to a new community, exploits the whole-hospital exception to direct cherry-picked physician-investor referrals of lucrative patient populations to its facilities, compromising the payer and case mix at other area general acute care hospitals.

DHR’s Proposal to Transfer Patients to its Edinburg Campus Raises Significant Safety Concerns. 

In its request for a waiver of the 30-mile limitation on new hospital locations under Texas Law, DHR indicated that if a patient requires a transfer, that patient would be transferred to the DHR parent hospital in Edinburg (see page 6 of Appendix C). This would mean that patients requiring transfer would travel over 50 miles rather than receiving care at another Brownsville acute care facility. The proposed patient transfer process creates significant safety concerns that are wholly unnecessary considering the services and facilities in Brownsville and Cameron County. In addition, the high occupancy rate at DHR raises additional concerns as patients will be transferred from an area with more moderate hospital utilization and lower occupancy rates (occupancy rates in Brownsville hospitals have ranged between 46.06% and 66.02% over the past three years) to a high-occupancy facility (over 80% occupancy at DHR from 2019 through 2021).

3. The ACA’s Limitations on the Whole Hospital Exception Provide Crucial Programmatic Protections that Warrant Rejecting DHR’s Request

Under the ACA amendments to the physician self-referral law, the owners of DHR cannot build a new hospital and then make referrals to that hospital. Instead, DHR’s only option to expand physician-ownership into a new market is to cobble together a high Medicaid facility expansion exception with a Texas licensing thereby exploiting the law and regulation as amended in December 2020 by leveraging its grandfathered status under the ACA. There is no indication that Congress intended the high Medicaid facility exception to be used to permit such an expansion of a physician-owned hospital into a new and distinct market. Rather, with the high Medicaid facility and applicable hospital exceptions, Congress simply recognized that expansion exceptions may be necessary to protect access to care among Medicaid and low- income individuals in certain communities. But, here, the expansion request overlooks local needs in DHR’s own community and instead exploits local circumstances to expand into a new market.

In short, the extraordinary facts presented by DHR make clear that it is inappropriate for CMS to approve a physician-owned hospital expansion simply because the three high Medicaid facility criteria are met. The creation of a new physician-owned hospital in Brownsville risks distorting the hospital market, skewing hospital payer and case mix, and raising the costs of health care in the area – the very reasons Congress enacted the POH prohibitions in the first place. In fact, the public discourse that ultimately prompted the ACA’s prohibition opening and expanding physician-owned hospitals has its roots in Atul Gawande’s seminal article, The Cost Conundrum, which highlighted the extraordinary cost of care at DHR.19 CMS should therefore deny the request, and the AHA and FAH further urge CMS to repeal its December 2020 amendments to 42 C.F.R. § 411.362(c)(1), restoring the on-campus requirement for high Medicaid facility expansions.

The AHA and FAH appreciate the opportunity to submit these comments. If you have any questions, please contact us or have a member of your team contact Joanna Hiatt Kim, AHA Vice President for Payment Policy, at (202) 626-2340 or Steve Speil, FAH Executive Vice President, Policy, at (202) 624-1529.


Stacey Hughes, Executive Vice President President, American Hospital Association 

Charles N. Khan, III, President and CEO, Federation of American Hospitals

Editor’s Note: The above news story is the second in a series of stories about DHR Health’s expansion into Brownsville. Click here to read the first.

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