A small hospital in Washington state and 800 other so-called “tweener” hospitals could gain an important label and more financial security in a post-Chevron world.
The 67-bed Olympic Medical Center in Port Angeles, Washington, is too large to be considered a critical access hospital and too small to be a rural referral center. Critical access hospitals with no more than 25 beds are paid 101% of their costs for many Medicare services. A high volume rural referral center with at least 275 beds receives additional Medicare payments to offset the costs of providing complex care.
Related: What policies could be affected by the Chevron ruling
Those in between, like Olympic, are paid at a Medicare reimbursement rate that only covered about 82% of hospitals' costs in 2022, according to the American Hospital Association.
About 85% of Olympic's payer mix is Medicare and Medicaid, making it difficult to compete with cost-based reimbursed providers, Olympic CEO Darryl Wolfe said.
“When your costs are going up 15% to 20% over the last three years, it pushes you into a pretty untenable situation,” he said.
Rural hospital CEOs are hoping last month’s Supreme Court ruling that ended decades of deference to federal agencies could lead to revised criteria for the critical access hospital program.
Hospitals that have been excluded from the program are expected to sue the federal government, and if those lawsuits are successful, it could cause the Centers for Medicare and Medicaid Services to overhaul certain regulations and expand eligibility, healthcare lawyers said.
“Most of the hospital associations advocating for these small rural hospitals believe this could be an important relief valve to save many of these 800 hospitals who may seek such a change in designation, although not all are interested in such a change,” said Michael Topchik, national leader for the Chartis Center for Rural Health, which advises providers.
Critical access hospitals have tended to fare better financially than small rural hospitals paid under the Prospective Payment System. As of the third quarter of 2023, critical access hospitals had a 0.5% operating margin compared with a negative 2.1% operating margin for PPS rural hospitals with less than 200 beds, according to a data analysis provided to Modern Healthcare by the Chartis Center.
“The data show being a critical access hospital is protective against closure,” said Topchik.
There have been 119 rural hospital closures over the past decade, according to data from the Sheps Center for Health Services Research at the University of North Carolina. Of the 119 facilities that closed, 37% were Prospective Payment System and 33% were critical access hospitals.
While changes to the critical access hospital program requirements could help hospitals like Olympic, they could still be years away. Susan Banks, a healthcare attorney at law firm Holland & Knight, said a lawsuit could trigger a potential three-year rulemaking process.
Critical access hospitals must be located 35 miles from another hospital — or 15 miles from another hospital in an area with mountainous terrain or only secondary roads; keep acute patients’ length of stay below 96 hours on average and provide around-the-clock emergency services.
Rural hospitals could challenge how CMS defines a bed or what constitutes a mountainous region in the conditions of participation for the critical access program, healthcare attorneys said.
If a court finds conflicting regulatory guidance on those issues or that CMS didn’t adequately factor in provider input in the proper notice and comment rulemaking framework, the agency may be forced to revamp the regulation, they said.
"If the conditions of participation are used to deny enrollment or levy fines, you absolutely can challenge that by saying the regulation is inconsistent,” said Harsh Parikh, a healthcare lawyer at the law firm Nixon Peabody. “Now that an aggrieved party has more power, it could have a ripple effect across the industry.”
