OIG Recommendations Could Jeopardize Nearly Two-Thirds of CAHs' Status

On August 15, 2013, the Office of the Inspector General for the Department of Health and Human Services (“OIG”) released a report titled “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 carried out, it could cause nearly two-thirds of the approximately 1,300 critical access hospitals (“CAHs”) to lose their CAH status due to their locations with respect to other hospitals. The idea of reevaluating the availability of CAH status is not new. At least one proposal has been made in recent years to revoke CAH status for any CAH less than 10 miles from another hospital. This Report is likely to strengthen those efforts.

Report Summary

CAH status was created to increase access hospital services for beneficiaries in rural areas that are typically underserved for health care services. To this end, the Medicare program in turn reimburses CAHs at 101% of their reasonable costs instead of under the prospective payment systems for ordinary acute care hospitals. In addition, CAHs may qualify for enhanced Medicaid reimbursement and automatically qualify for discounted drugs under the 340B Drug Program.

To be designated as a CAH, a hospital must meet the CAH conditions of participation located in 42 C.F.R. § 485.600 et seq., including 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 (“Location Requirement”). However, a facility is exempt from the Location Requirement if it was designated as a “Necessary Provider” pursuant to a state plan designating the facility as a necessary provider prior to December 31, 2005. The facility must also have been approved by Medicare as meeting the CAH conditions of participation prior to that date. Necessary Provider CAHs are permanently exempt from meeting the Location Requirement.

In the Report, the OIG plotted the locations of CAHs and other hospitals on maps to determine the extent to which CAHs would meet the Location Requirement if they were required to re-enroll. The OIG found that 64% of CAHs would not currently meet the Location Requirements if required to re-enroll, and the vast majority of these CAHs originally qualified as Necessary Providers. The Report also estimated that the Centers for Medicare & Medicaid Services (“CMS”) could have saved nearly $450 million in 2011 if it decertified CAHs that are located less than 15 miles from the nearest hospital.

As a result of the findings in the Report, the OIG recommended and CMS concurred with the following:

Seek legislative authority to remove Necessary Provider CAHs’ exemption from the Location Requirement. This would allow CMS to reassess these CAHs for the Location Requirement;
Ensure that it periodically re-examines CAHs’ compliance with the Location Requirement; and
Ensure that it applies its uniform definition of “mountainous terrain” published in April 2013 to all CAHs.

CMS did not agree with the recommendation to seek legislative authority to revise the Conditions of Participation for CAHs to include alternative location-related requirements.

Practical Takeaways

If the recommendations in the Report are fully implemented, the status of two-thirds of CAHs could be in jeopardy. This could mean decreased Medicare reimbursement or potential closure for those hospitals.
The loss of CAH status could also mean decreases in Medicaid reimbursement and loss of the ability to purchase discounted drugs under the 340B Program.
CAHs should engage in a comprehensive legislative strategy to respond to the Report. Although industry associations are addressing the issue in Washington, CAHs should contact their congressmen and senators directly to express their concerns. CAHs should remind lawmakers of the important role they play in their communities and rural health care and ask that them to not support the Report’s recommendations.

The Report is available here.

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