Critical Access Hospitals
Val Schott, M.P.H., Director Oklahoma Office of Rural Health

September 1998

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     In the Balanced Budget Act of 1997, Congress created the Medicare Rural Hospital Flexibility Program.  This program establishes Critical Access Hospitals (CAH), a new category of limited service hospitals that will be eligible to receive reimbursement for Medicare patients on a reasonable cost basis rather than a prospective payment system basis.  This is a significant recognition by Congress that rural hospitals are a vital link to health for rural people and that link has been weakened because of many factors.
This program is also significant in that it involves a partnership between state governments and the federal government in the decision-making role.  Much has been ballyhooed about the new devolution of responsibility and funding from the federal government to the states.  Devolution is defined as the increasing decision making role of local and state entities, especially relative to programmatic activity funded with federal dollars, with a diminishing decision making role for the federal government.  The concept is that people know best as the local level.  This is one of the first real examples.  States that want to participate must develop a rural health plan.  The plan must include the development of at least one rural network and at least one facility in the state to be designated as a Critical Access Hospital.

     The Medicare Rural Hospital Flexibility Program replaces the existing Essential Access Community Hospital/Rural Primary Care Hospital (EACH/RPCH) program and, after October 1, 1998, the medical assistance facilities (MAF) demonstration project in Montana.  This essentially extends the basic concepts incorporated into these two demonstration projects to a nation-wide program.
 

Critical Access Hospitals Defined

    Facilities wanting to be designated as a Critical Access Hospital must meet several criteria established in the legislation as well as those designated by the state.  The criteria in the federal act specify that the facility must be a non profit or public hospital that is located in a rural area.  The hospital must provide for 24-hour emergency care services and not have more than 15 acute care inpatient beds.  The hospital may have up to 10 additional swing beds.  Those are beds that are not considered as a part of the acute care hospital services but provide long-term care services.  There is a length of stay limitation of 96 hours.  This may be extended because of inclement weather that delays a transfer or may be waived on an exception, case-by-case basis by a peer review organization.

     Additionally, there are location and distance requirements.   The hospital must be located in a rural area.  The definition used is the Office of Rural Health Policy's definition of rural with the Goldsmith modification.  Basically, this procedure allows for rural designation of sparsely populated areas that are contained within a county that is large in land area and that contains a large population center with the rest of the county being sparsely populated.  If you need more information about your own classification, contact your state Office of Rural Health.

    The hospital must be located more than a 35-mile drive on primary roads or 15 miles on secondary roads from another hospital.  Or, the hospital may be designated as a necessary provider by the state under that state's rural health plan.  The state has the option to define "necessary provider;" however, the reasons for such designation and the criteria to be used must be well-defined.
The purpose of this initiative seems not to be just to add another cost based classification to the health care landscape.  The purpose seems rather to increase access to primary care and emergency services locally, expand the use of technology where applicable, and to provide these services in the most cost effective manner possible.
 

State Rural Health Plan

   The state rural health plan must address the creation of a network of care that promotes regionalization of health care services.  This is to improve access to services for rural residents.  The rural health network is loosely defined as an organization that contains at least one full service hospital facility and at least one critical access hospital that have entered into an agreement regarding patient transfer.  The critical access hospital must also have arrangements for staff credentialing and for quality assurance and review.  This arrangement can be with a network member or with a peer review organization.  The network must include something about the development and use of communication equipment and must provide for emergency and non-emergency transportation.
The legislation specifies that the state rural health plan must be developed in consultation with the state office of rural health, the state hospital association, and rural hospitals.  Other parties are not specifically excluded from this process but only these three participants are required by the legislation.
 

Summary of Medicare Rural Hospital Flexibility Program

    The state Office of Rural Health is responsible for submitting the state rural health plan to the appropriate Health Care Financing Authority (HCFA) regional office.  HCFA has the authority to either approve the plan or to request clarification on issues raised in the plan.  HCFA expects there will be differences in the applications from state to state. However, the basic principles must include the following:

• State must have a rural health plan.
• Hospital must be public or not-for-profit.
• Hospital must be in a rural area.
• Hospital must be more than 35-mile drive on primary roads or 15 miles on secondary roads.
• Hospital must have no more than 15 acute care beds; an exception is that the hospital may have up to 10 additional swing beds.  However, no more than 15 beds may be used for acute care inpatients at any one time.
• Hospital must provide for 24-hour emergency services.
• Hospital must have a length of stay of no more than 96 hours.
• Hospital must have the ability evidenced by agreements to transfer patients for services not provided in the limited service hospital.
• The state has the responsibility under the act to establish necessary providers.  The state must provide sufficient documentation that supports the notion that the hospitals so designated are essential to the welfare of the rural community.
   

Benefits For Rural Hospitals

    Rural hospitals that choose to become critical access hospitals can benefit in several ways.  First, the hospital will be paid for services provided to eligible Medicare recipients on a reasonable cost basis.  This provision includes both inpatient and outpatient services.  Medicare recipients account for generally sixty to more than eighty-five percent of rural hospital discharges.
Hospital staffing requirements are relaxed, thus reducing costs.  Personnel costs are the major component in hospitals.  The CAH is not required to meet hospital staffing standards except that it must have nursing services available on a 24 hour basis and must make provision for emergency services on a 24 hour basis.  Inpatient care may be provided by a physician or a physician's assistant, a nurse practitioner, or a clinical nurse specialist subject to the oversight of a physician who is not required to be physically present in the facility.  State practice requirements regarding supervision and oversight still apply.
 

Conclusion

    The Medicare Rural Hospital Flexibility Program offers opportunities to rural health care providers.  This program allows for staffing flexibility and enhanced reimbursement for services provided to Medicare patients.  At the same time, the program requires that facilities designated as Critical Access Hospitals review their service mix and length of stay.
States wishing to participate must submit a rural health plan. The plan must be developed at least in consultation with the state Office of Rural Health, the state hospital association, and rural hospitals.  Plans must be submitted to HCFA regional offices for review and approval. The hospitals are required to provide for 24-hour emergency services and transfer to an upstream facility for services not offered locally.   The hospitals must be a public or not-for-profit facility located in a rural area.  The program encourages providers to fit their service mix to local needs.  This anticipates that state rural health plans will include some method of community needs assessment and would allow for local differences in populations, needs, and resources.

For further information, please contact your state Office of Rural Health, or the Federal Office of Rural health Policy.