Critical Access Hospitals Soon to Undergo CMS Reassessments

August 2013

The Department of Health and Human Services Office of Inspector General (OIG) has issued a report, Most Critical Access Hospitals (CAH) Would Not Meet The Location Requirements if Required to Re-Enroll in Medicare (August 2013).  The basis for the report was to determine whether certified CAHs could meet the variety of regulatory requirements under re-certification today.

The findings within the report are shocking.  If CAHs were to undergo a re-certification examination today, nearly two-thirds would not meet the location requirement and 846 out of 1,329 would not meet the rural requirement.

The report goes on to state:

“In 1997, the Balanced Budget Act (BBA) created the CAH certification to ensure that hospital care is accessible to beneficiaries in rural communities.  Small hospitals that meet specific requirements can qualify for the CAH certification and receive favorable Medicare reimbursements.  Medicare reimburses CAHs at 101 percent of their reasonable inpatient and outpatient costs.”

Among the certification criterion listed in the CAH Conditions of Participation are the Distance and Rural requirements.

The Distance Requirement can be met by satisfying 1 of the following 2 approaches:

  1. Be located more the 35 miles away from the nearest hospital or designated CAH.
  2. Be located more than 15 miles from the nearest hospital or designated CAH in areas of mountainous terrain or where only secondary roads are available.  CMS clarifies secondary roads as those roads that are not primary roads, federal highways or interstate highways.  Mountainous terrain is an area so designated on official recognized maps or other documents published by the state as such.

The Rural Requirement is met by being located either in a rural area or in areas treated as rural.  Centers for Medicare and Medicaid Services (CMS) determines nationally designated rural areas as well as areas to be recognized and treated as rural based on proximity to metropolitan statistical areas or rural census tracts or an area designated by a state to be rural.

Other standard CAH requirements continue to exist such as the Licensed Capacity test that limit the provider to no more than 25 beds that must be used for acute or swing bed stays.  The CAH must also have 24 hour emergency services and achieve an annual average length of stay no greater than 96 hours.

In addition to these other standards, prior to 2006, CMS also allowed states to deem certain hospitals as “Necessary Providers” (NP) which were not subject to the Distance Requirement.  The NPs were subject to all of the other CAH requirements, including the Rural Requirement.

The impetus behind the NP was to allow for a certain amount of latitude to account for, among other things, shortages in health care resources or areas in which unemployment and or poverty rates exceeded states’ averages.  Existing NPs are permanently exempt from meeting the Distance Requirement including a relocation if specific conditions are met.

The creation of additional NP CAHs was halted January 1, 2006 by the Medicare Prescription Drug, Improvement and Modernization Act.  It did, however, allow existing NP CAHs to keep their NP designations as long as they continue to meet all of the other requirements.  Interestingly, most CAHs are NP CAHs.  In fact, 75% of the certified CAHs received this special designation.

In order to maintain CAH and NP CAH certification CMS is responsible for periodic compliance reassessments of the provider.  The reassessment should take place every 3 years and verify, among other things, that the CAH continues to meet all applicable Conditions of Participation.

Prior to 2013, CMS was not reassessing whether CAHs continued to meet the location requirements.  Guidance at that time only required CMS test non-NP CAHs compliance with the Distance Requirement and non-NP CAH and NP CAHs compliance with the Rural Requirement during the initial certification process.  Since there was no follow up regarding these requirements, after this period many CAHs that subsequently no longer met the requirements retained CAH status.

Effective March 1, 2013 CMS removed the limitation that it review compliance with the location requirements post-initial certification.  As such, any non-NP CAH that does not meet the Distance Requirement and any non-NP or NP CAH that does not meet the Rural Requirement at the time of reassessment can now be decertified with the option to convert their license to a certified Medicare hospital.

The OIG has made the following recommendations to CMS:

  1. Seek legislative authority to remove necessary provider CAHs permanent exemption from the Distance Requirement, thus allowing CMS to reassess these CAHs.
  2. Seek legislative authority to revise the CAH Conditions of Participation to include alternative location related requirements.
  3. Ensure that it periodically reassesses CAH’s compliance with all location related Conditions of Participation.
  4. Ensure that it applies its uniform definition of “Mountainous Terrain” to all CAHs.

Based on follow up discussions between the two parties, CMS has agreed with OIG Recommendations 1, 3 and 4.

As you can see, the broad sweeping change in thought backed behind the might of regulatory authority, CMS certification will be challenged through the forthcoming reassessments. 

CAHs, both NP and non-NP, should begin to internally evaluate all Conditions of Participation developing a gap analysis of their compliance in addition to analyzing their risk and exposure now before being subjected to CMS reassessment.

Baker Newman Noyes can assist you in these evaluations and work with your Board and staff to educate them on the reassessment process.

If you would like to learn more, please contact your BNN advisor at 1.800.244.7444.

Disclaimer of Liability: This publication is intended to provide general information to our clients and friends. It does not constitute accounting, tax, or legal advice; nor is it intended to convey a thorough treatment of the subject matter.