“Getting the Cart Before the Horse” – Failing to Integrate Federal Reimbursement Requirements Into the Programing and Schematic Design Phases of Modern Healthcare Facilities

Sep 20, 2022 at 12:21 pm by Staff

Christopher S. Dunn and David M. Johnston


By Christopher S. Dunn, David M. Johnston


  1. Overview of Healthcare Construction Sector in the U.S. Construction Economy

As reported by the U.S. Census Bureau, in the last decade the value of put in place private healthcare construction in the U.S. has ranged from a low of 29 billion in 2014, to close to 39 billion in 2021.  Only the energy and manufacturing sectors involve greater spending, and with demographic shifts and trends in the U.S., and the need for greater energy efficiency to combat climate change multiple macro factors point to continued growth in healthcare spending in the next decade.

      It is given that healthcare construction is technically complex.  The sector attracts top tier design and construction professionals to develop facilities with unique systems involving operating suites, medical gas, imaging, resilient power, pharmacies, laboratories, decontamination facilities, complex fire and smoke protection, and intensive care units, many of which are often operated on a 24/7, 365 days a year basis through a variety of extreme weather conditions.  As a result of the technological complexity, these same design professionals and building contractors contend with an array of national standards and state and local codes apply to the technical design and construction aspects to acute care facilities, in addition to requirements imposed by accreditation agencies. 

What is less commonly understood or appreciated is that Federal regulations regarding reimbursement for medical services can have a profound impact on the successful operation of a facility and are often neglected in the design process.  While top tier architects and engineers can be trusted to manage the technical codes and requirements associated with various building systems, the reality is that many healthcare providers do not gather the necessary Federal reimbursement advice and counsel early in the design process in what are known as the “programing” or schematic stages of design process to convey to their design teams.


  1. An Overview of Federal Reimbursement Requirements as They Relate to the Design and Construction of Acute Care Facilities in the U.S.

Apart from technical design and construction standards, the healthcare industry is one of the more heavily regulated in the U.S. both because the literal life-or-death nature of its services making accuracy, safety, and accountability of care of paramount importance, and also because the significant cost of health services ensures that government and private payors only want to pay for care that conforms to their stringent reimbursement rules. 

To be enrolled in and bill to the Medicare program the Federal government has established conditions of participation for each type of health care provider.  To be paid by Medicare, health care providers must comply with Medicare conditions of payment.  A significant portion of these conditions of participation and conditions of payment (collectively the Federal Reimbursement Requirements or FRR) involve health care facility construction, layout, signage, and the physical location of a facility to other adjoining and co-located health care facilities.  To be able to bill Medicare for health care services, the underlying health care facilities must be designed and constructed to comply with a variety of Federal regulations appropriately.  These regulations are particularly applicable to all types of hospital locations, ambulatory surgery centers, skilled nursing facilities, and wherever two or more providers are located in the same building or on the same campus.

State agencies also frequently license various types of health care facilities in their state.  These requirements are often different, and can be more restrictive than Medicare requirements, so complying with Medicare rules alone may not be sufficient to operate some facilities in some states.  State Medicaid plans may also have rules regarding physical space and environment of care that can influence the design of facilities.  Though private payors often base their reimbursement rules on the FRR, private payors have separate sets of reimbursement rules from both state Medicaid and federal Medicare rules.  The design and construction of healthcare facilities, therefore, has to take into account not only Medicare rules, but also state-specific facility licensure rules, state Medicaid rules, and at times, rules specific to individual private payors. Failing to comply with the applicable FRR could jeopardize more than 70% of the projected reimbursement a facility because of the bottom-line impact of Medicare reimbursement and the number of other reimbursement sources that the FRR impact.


  1. Integrating FRR Into the Design and Construction Process

Designing and constructing a facility from which you can provide reimbursable care should be the goal of most construction projects in the health care industry and is not hard to achieve.  In order to help ensure the ability to provide and bill payors for services from a facility, the FRR and state licensure rules must be integrated into the design at the programing and schematic design phases as the planned use(s) of the facility is determined.  This decision takes into account patient service needs, financial realities of the developing health care provider, realities of the building site or existing facility, and the future needs of the developing health care provider.  All that is needed to hit this goal is early and active discussions among a healthcare providers, regulatory experts, construction counsel, designers, and business planners, to look far enough ahead to ensure that the design professionals are well equipped to prepare designs which navigate not only the maze of technical standards but also the FRR.  When the technical standards integrate FRR then a healthcare provider is on the path to operational success in a way that maximizes its capital investment.


Chris Dunn and David Johnston are Members of Epstein Becker Green.

Chris Dunn counsels owners and developers of health care and other facilities. He has the transactional and litigation experience needed to handle all aspects of construction projects, from the creation of custom design and construction agreements to creative and efficient dispute resolution.

David Johnston counsels health care clients on a wide range of reimbursement issues. He also guides clients on pharmacy compliance and operations, provider and supplier enrollment and enforcement issues and appeals, and change of ownership transactions and implementation.

Sections: Business/Tech