On August 15, 2013, the Office of the Inspector General of the Department of Health and Human Services (“OIG”) released a report entitled “Most Critical Access Hospitals Would Not Meet the Location Requirements if Required to Re-enroll in Medicare” (“Report”). If the recommendations in the Report are fully executed, it would cause a detrimental blow to rural hospitals. There are approximately 1,300 critical access hospitals (“CAHs”) currently in operation.

To be designated as a CAH, a hospital must meet the CAH conditions of participation, which include being located in a rural area and at least 35 miles (or 15 miles in the case of secondary roads or mountainous terrain) from any other hospital. This is known as the “location requirement.” However, if prior to December 31, 2005, a facility was designated as a “necessary provider” pursuant to a state plan and was approved by Medicare as meeting the CAH conditions of participation, the facility is permanently exempt from the location requirement. Medicare officials lack statutory authority to investigate CAHs which have been given the necessary provider status by state governments.

As a result of their findings, OIG made, and CMS concurred with, three recommendations in its Report:

1. CMS should “seek legislative authority to remove necessary provider CAHs’ permanent exemption from the distance requirement, thus allowing CMS to reassess these CAHs;”
2. CMS should “ensure that it periodically reassesses CAHs for compliance with all location-related requirements;” and,
3. CMS should “ensure that it applies its uniform definition of ‘mountain terrain’ to all CAHs.”

OIG also recommended that CMS “seek legislative authority to revise the CAH conditions of participation to include alternative location-related requirements.” CMS did not concur with this suggestion. The Report found that if CAHs less than 15 miles from the nearest hospital were removed from the program, savings would be more than $268 million a year.

CAHs are reimbursed by Medicare for 101% of their reasonable costs. In addition to limiting geographic eligibility, CAHs must also worry about Obama’s proposed federal budget for 2014 which would trim Medicare payments to 100% of the CAHs’ costs. Losing CAH status could also mean these providers would become ineligible to participate in the 340B Program, which gives smaller hospitals the ability to get discounts of up to 50% on prescription drug prices.

It is questionable what real savings would be realized by eliminating CAHs, as many patients without a local provider would have to seek care at a more urban hospital or delay care until it reached emergency status. Proponents of CAHs also maintain that these hospitals provide important jobs in rural areas, benefit other local healthcare providers, and bring critical services to high poverty areas where chronic illnesses are prevalent.

CAHs will no doubt lobby against implementation of the Report’s recommendations. We will continue to track this issue and inform you of any changes to the CAH program.