In response to a recently released Office of Inspector General (“OIG”) report that concluded CMS is overpaying many Critical Access Hospitals (CAHs), CMS pledged to reassess all CAHs’ certification.  The report asserts that CMS could realize substantial savings by decertifying non-compliant CAHs because nearly two-thirds of CAHs would not meet the location requirements if required to re-enroll in Medicare.  CMS developed CAH certification to ensure rural beneficiaries are able to access hospital services.  Hospitals must meet a variety of regulatory requirements to become a certified CAH, including “location requirements” such as being located in rural areas (“rural requirement”) and being located a certain driving distance from other hospitals and CAHs (“distance requirement”).   Currently, CAHs designated as “necessary provider” (“NP”) CAHs prior to 2006 are permanently exempt from meeting the distance requirement.  CAH certification is desirable because unlike standard Medicare reimbursement based on rates set by prospective payment systems or fee schedules, CAHs receive increased Medicare reimbursement of 101 percent of their reasonable costs.

The report summarized a study that evaluated 1,329 active CAHs and found that 849 CAHs (64%) would not meet the location requirements. More specifically, 846 CAHs (88% of which are NP CAHs) would not meet the distance requirement.  Only three CAHs would not meet the rural requirement. Approximately 1.2 million beneficiaries received services at these CAHs in 2011.  The OIG determined that CMS could realize substantial savings by decertifying CAHs not in compliance with location requirements and reimbursing at standard rates if the hospitals remain enrolled in Medicare.

The OIG report recommended CMS take four measures to address overpayment of CAHs and realize savings: (1) seek legislative authority to remove NP CAH’s permanent exemption from the distance requirement; (2) seek legislative authority to revise the CAH Conditions of Participation to include alternative location-related requirements; (3) ensure that it periodically reassesses CAHs for compliance with all located-related requirements; and (4) ensure that it applies its uniform definition of “mountainous terrain” to all CAHs.  CMS accepted three recommendations, agreeing to ask Congress to remove NP CAH’s permanent exemption from the distance requirement, to periodically reassess all CAH’s compliance with location-related requirements and to apply its uniform definition of “mountainous terrain” to all CAHs.  

Implementation of these measures could have substantial legal and practical implications on CAHs and care in rural areas.  If Congress approves CMS’ request to remove the distance requirement exemption for NP CAHs, many CAHs could face decertification.  Loss of increased Medicare reimbursement due to CAH decertification may create dire financial circumstances for many rural hospitals and even force some facilities to close.  The OIG report states that emergency services are available in 93% of the hospitals and CAHs nearest to the non-compliant CAHs, however closure of “too close” CAHs could result in rural patients losing their access to essential medical services.  The National Rural Health Association (“NRHA”) reports that “approximately 50 percent of the CAHs that would lose their designation under this scheme would do so because they are ‘too close’ to another CAH that would also lose its status,” forcing both facilities to close.  Additionally, a CAH could lose its certification even if it is “too close” to another hospital that does not treat the same type of patient.  According to the NRHA, “7 percent of the other facilities do not serve typical rural Medicare patients because they are psychiatric facilities, rehabilitative hospitals, children’s hospitals or veteran facilities.”  It is imperative for CAHs to keep apprised of CMS’ progress and development as reassessments could have considerable impact on the ability to deliver quality care to patients in rural areas.