Healthcare Business News
Alan Morgan, CEO of the National Rural Health Association

OIG proposal threatens enhanced payments to two-thirds of critical-access hospitals

By Joe Carlson
Posted: August 15, 2013 - 12:01 am ET

More than 800 small hospitals that dot the American countryside would lose enhanced Medicare funding for providing healthcare access in remote settings under a proposal put forward in a report today from HHS' Office of the Inspector General. Opponents say the proposal could put hundreds of hospitals out of business and roll back years of progress on access to healthcare.

Critical-access hospitals, which have 25 or fewer beds, are already facing reductions in Medicare reimbursements under President Barack Obama's proposed 2014 budget. The OIG report released Thursday (PDF) urges a broader approach to budget-trimming that would affect a much larger pool of hospitals and cut hundreds of millions a year in Medicare spending for small hospitals.

Alan Morgan, CEO of the National Rural Health Association, said deep cuts to Medicare funding “would effectively kill rural healthcare.”

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“Looking at CMS data, critical-access hospitals do primary care, and that is where we want our health system headed,” Morgan said. “If those patients are not being seen in a rural hospital, are they expecting the patient to go to urban facilities? Or are they expecting them not to seek care? There is a larger issue that is not being talked about here.”

Since 1997, critical-access hospitals (PDF) have been paid 101% of what they say it costs them to provide services to residents of remote areas, unlike traditional Medicare hospitals that receive payments based on uniform fees and which typically cover about 93% of costs of Medicare patients, according to calculations by the American Hospital Association.

But the OIG found that about two-thirds of the small hospitals that get extra funding to reach remote residents aren't actually that remote at all.

All told, 846 of the small hospitals were less than 35 miles from another hospital, even though the CMS guidelines require at least that distance in order to qualify for the extra critical-access funding. Seventy-one critical-access providers are less than 10 miles from the nearest hospital.

It turns out that about three-quarters of the nation's 1,300 critical-access hospitals were certified under an old process that allowed states to exempt the hospitals from CMS' distance rules, the report says. Though Congress abolished that loophole in 2006, the CMS is still prohibited by law from second-guessing the states' decisions in those cases.

Most of the hospitals (88%) that would lose their additional Medicare funding if the distance rules were applied uniformly got their certifications through the now-banned, state-approval process.

The OIG recommended that the CMS jettison the state-granted certifications and create amended criteria that could apply nationally. If even half of the 846 hospitals that were less than 35 miles from another hospital were kicked out of the program, Medicare would spend $373 million less, according to calculations using 2011 spending.

The Obama administration has proposed decertifying hospitals (PDF, p. 196) that are less than 10 miles from the nearest hospital, which would only cut off the enhanced funding for 71 hospitals, the OIG estimated. Obama's proposed budget projects that would save $40 million in 2014.

CMS Administrator Marilyn Tavenner wrote that the agency is in favor of asking Congress to give it the power to decertify state-granted critical-access status, but it disagrees with the OIG's recommendation to establish revised criteria because it could be time-consuming and affect hospitals' payment status.

For example, the report suggests, the CMS could follow the lead of some states and declare that hospitals in high-poverty areas could be exempt from the distance requirements. Or the government could modify the wording to say that critical-access hospitals must be at least 35 miles from another hospital that offers the same services.

“The existing location and distance criteria already represent a uniform standard to which all CAHs certified since January 2006 have been subjected,” Tavenner wrote. “We believe a facility's Medicare certification as a CAH versus a hospital should not be tied to rapidly fluctuating criteria.”

Follow Joe Carlson on Twitter: @MHJCarlson

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