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OIG Examines Critical Access Hospital Locations

August 30, 2013:

Regina Magnani, RHIT, Clinical/Technical Editor

The Office of Inspector General (OIG) released a report in August 2013 (OEI-05-12-00080) that recommends that the Centers for Medicare and Medicaid Services seek legislative authority to decertify critical access hospitals (CAH) that do not currently meet location requirements. The OIG estimates that CMS and patients would have saved $449 million in 2011 had CMS decertified CAHs that did not meet mileage requirements.

In 1997, the Balanced Budget Act (BBA) created the CAH certification to ensure that hospital care is available in rural communities. For small hospitals that meet specific requirements, Medicare reimbursement is 101 percent of their reasonable inpatient and outpatient costs. There are more than 1,300 CAHs in the United States in every state except Connecticut, Delaware, Maryland, New Jersey, and Rhode Island. In 2011, CAHs provided care for approximately 2.3 million patients, with payment of approximately $8.5 billion.

Aside from meeting the requirements set forth in the CAH conditions of participation, CAHs must meet two location-related requirements. CAHs must be more than a 35-mile drive from a hospital or another CAH or be more than a 15-mile drive from a hospital or another CAH in areas of mountainous terrain or areas where only secondary roads are available. CAHs must also meet the rural requirement by being located either in rural areas or in areas that are treated as rural. CMS uses a formula based on multiple criteria to determine rural status.

Prior to January 1, 2006, states had discretion to designate hospitals that did not meet the distance requirement as “necessary provider” (NP) CAHs. Such CAHs had to comply with all of the other CAH conditions of participation at their certifications, including the rural requirement. Existing NP CAHs are permanently exempt from meeting the distance requirement unless they relocate. Effective January 1, 2006, the Medicare Prescription Drug, Improvement, and Modernization Act prohibited the creation of new NP CAHs but allowed existing NP CAHs to retain their NP designations indefinitely, as long as they continue to meet all other requirements.

The OIG plotted CAHs’ and hospitals’ locations onto digital maps. Sixty-four percent, or 849 of the 1,329 CAHs, would not meet the location requirements if required to re-enroll in Medicare. Of those, 846 CAHs would not meet the distance requirement, and three would not meet the rural requirement (approximately 1.2 million beneficiaries received services at these CAHs in 2011). Of the 846 CAHs that would not meet the distance requirement, 306 were a drive of 15 or fewer miles from their nearest hospitals or other CAHs.

The OIG suggests that Medicare could realize substantial savings were CMS to decertify some CAHs that would not meet the location requirements. For example, if all CAHs 15 or fewer miles from their nearest hospitals or other CAHs were decertified, Medicare could have saved an estimated $268 million in 2011. Similarly, patients could have saved an estimated $181 million in coinsurance in 2011 since CAH coinsurance is based on charges. The OIG calculated these figures using 2011 inpatient and outpatient claim files to compare CAH’s reasonable cost payments for inpatient and selected outpatient services with what would have been paid under prospective payment systems and fee schedules.

The OIG recommends that CMS seek the legislative authority to reassess CAHs and to remove unnecessary NP CAHs and those CAHs that do not meet location requirements.


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