Some of the staff who work for the Southern Humboldt Community Healthcare District, which operates Jerold Phelps Community Hospital. The facility became a Critical Access Hospital in 2002.

Advocates for rural hospitals will gather in Washington, D.C. today for the March for Rural Hospitals. The event is designed to defend the system under which many rural hospitals receive payments from government programs like Medicare.

[imgcontainer right][img:phelps.jpg][source] Southern Humboldt Community Healthcare District [/source] Some of the staff who work for the Southern Humboldt Community Healthcare District, which operates Jerold Phelps Community Hospital. The facility became a Critical Access Hospital in 2002. [/imgcontainer]

About 1,340 rural hospitals – that’s a quarter of all American hospitals – are “Critical Access Hospitals.” These facilities get special treatment and payment from Medicare, and, in some states, from Medicaid, too.

But this special treatment is in jeopardy on a couple of fronts. The Medicare Payment Advisory Commission, an influential federal advisory body, wants to end or at least change the special treatment. President Obama’s budget calls for reducing payments a tiny bit and doing away with the special payments for a few hospitals. Against these proposed changes, some rural advocates want to wrap the whole bunch of Critical Access Hospitals in the flag and defend them to the death.

You may be wondering what all the fuss is about.

How Critical Access Hospitals Work

All Critical Access Hospitals (CAHs) are in rural counties, rural areas or counties that were rural when the hospital was designated. They have 25 beds or fewer. Those beds can be used for acutely ill patients or people who would ordinarily be recovering in a nursing home. 

The theory behind Critical Access Hospitals has to do with the economics of healthcare. First, larger hospitals lose money on most of their Medicare patients. They overcharge the privately insured patients to make up the loss. This is called “cost shifting.” The very small hospitals, CAHs, don’t have enough privately insured patients to make cost shifting work reliably.

Second, even though CAHs have fewer patients, their costs of delivering medical care don’t always shrink proportionately. You can’t reduce your lab, nursing and administrator costs below one person, for example. 

Third, in a sizable hospital, high costs on one case will be made up by low costs on another case.  In a hospital with only one or two patients at a time, one medical catastrophe could bankrupt the place. 

For these reasons it seemed prudent to simply pay these very small hospitals what they actually spend caring for Medicare patients, rather than using some preset rate.  Medicare also pays extra for its patients seen in hospital clinics. Many states also pay the extra costs of care for their Medicaid patients.

Even with these special considerations, Critical Access Hospitals are a small part of the nation’s healthcare expenditures. They account for only about 4% of the nation’s hospital payments.  But that doesn’t mean the extra payments aren’t significant. In fact, the higher payments made through “cost-based reimbursement” have become a big reason hospitals want to be Critical Access Hospitals. It didn’t start out that way. 

How We Got Here

The story of how Critical Access Hospitals come to be tells us more about the intentions of the program. Circa 1983 a tiny, isolated hospital in Montana lost its doctor. The physician assistant in town thought, “We could keep this place going if Montana Medicaid and Federal Medicare relaxed the rules so the hospital could sort of hibernate when there are no patients.”

It was a long way to anywhere else to get medical care, so the Montana legislature authorized the Montana Medical Assistance Facility (MMAF). Three tiny, remote facilities were designated.  Instead of having to keep a full staff on duty when there were no patients, all you needed was someone to answer the phone and notify the clinician on call that an emergency was coming.

[imgcontainer left][img:cahchart.jpg][source]Kaiser Health News[/source][/imgcontainer]

The MMAF worked well, so Congress authorized a multistate, multi-year demonstration of Rural Primary Care Hospitals (RPCHs) and their larger supporting partners, the Essential Access Community Hospitals (EACHs). The pairing became known as “Eachs and Peaches.” The arrangement was successful, but the emphasis was balanced between relaxing rules to accommodate small, rural hospitals and increasing payments to cover the cost of care.

In 1997 the Balanced Budget Act gave any state that had rural counties access to the next iteration, the Critical Access Hospital program. At that point no acutely ill patient could stay in the small rural facility more than three days. Complex cases were supposed to be sent on to a larger hospital. To be a Critical Access Hospital under the new rules, the facility had to be at least 35 miles by all-weather road from another hospital. In mountainous terrain or where there were only secondary roads, that distance requirement was cut to 15 miles.

There were lots of objections. Hospitals in rural areas thought the changes gave them second-class status.  “We’re a real hospital, not a Band-Aid station.” “Our community wouldn’t stand for it.” etc.  But when the realization got around that cost-based reimbursement could mean real money, objection changed to supplication. Suddenly, hospitals wanted to be considered Critical Access Hospitals. “The road snows shut in winter.” “The bridge is impassable with tourists in the summer.”  “Washington bureaucrats don’t know what we’re up against” etc.

Eventually Congress changed the rules from requiring seriously ill patients to be transferred within three days, to requiring an annual average stay of no more than four days. They also gave governors more control over the program. Governors could decide on a case-by-case basis to override the distance requirement, thus giving more facilities status as Critical Access Hospitals. Some governors exercised reasonable judgment.  Others just saw a way to tap the Medicare trust fund for more money, even when a hospital’s didn’t exactly fit the intentions of the CAH program.

That expansion of CAH and the general increase in healthcare spending have led us to this point.

Proposals for Changing the System

So here we are. The president’s budget proposes to remove Critical Access Hospital designation from a facility within 10 miles of another hospital and treat those “near” hospitals just like any other hospital.  They would get paid what Medicare thinks it should cost to care for Medicare patients, which usually turns out to be a bit less than is realistic. The president’s budget would also take away a supplemental 1% payment that all CAHs currently get. That doesn’t sound like much, but administrators tell me it’s important.

The federal Medicare Payment Advisory Commission (“MedPAC”) from time to time recommends cost-based reimbursement be abolished for all facilities including CAHs.   We rural folk have argued with MedPAC for decades. I won’t rehash those arguments here. Some budget hawks, including rural representatives in Congress with CAHs in their districts, would probably support MedPAC’s position.

The tough argument for me has to do with whether to defend what I’ll call the “close-to-town” CAHs. These are the hospitals that governors have been allowed to designate as CAHs, even though they are closer to larger facilities than more remote rural hospitals. 

[imgcontainer right][img:BHMC-A.jpg][source][/source] Baptist Health Medical Center in Arkadelphia, Arkansas, is one of 29 Critical Access Hospitals located in the state.[/imgcontainer]

To sharpen the question I’ll assume these “close-to-town” CAHs would have to close if their special designation is withdrawn. (In reality some would close, some wouldn’t, more than likely.)

Closure will cost a few, but not many, jobs. Jobs will follow the medical care, which will move from the smaller facility and town to the larger town.

Conversely, closing the CAH doesn’t save the money that MedPAC says it saves. That’s because MedPAC looks at just the hospital bills, not the total cost of the illness. It’s true the cost-based bill from the CAH is a bit higher than the under-payment that Medicare pays other hospitals. But when the Medicare patient goes into the larger urban hospital he gets seen by a long line of consulting specialists who may or may not do him any good but who most certainly get paid a bunch of bucks for just saying “Hello, Mrs. Jones” and moving on to the next patient. The bills of these consulting specialists go into a different Medicare “In-box” which is not MedPAC’s responsibility.  Those bills push the urban cost of care above the rural cost, but MedPAC doesn’t see that total cost. Medicare overall does.

The real issue, though, is keeping essential care accessible where it is needed.  If the cost-based reimbursement were to be ended for all CAHs, some would do all right primarily as outpatient and emergency facilities.  Those are hospitals that are in relatively prosperous communities, fairly close to urban centers.  The facilities that disappear will be the ones that struggle even now in poor, remote and isolated communities. 

All this brings us back to where we started. The Montana Medical Assistance Facility, the program that eventually led to the creation of Critical Access Hospitals, was about keeping remote, rural emergency rooms and clinic facilities and a few beds open to take care of people. As the national model for Critical Access Hospitals became more and more convenient, and more and more financially advantageous, more and more hospitals sought designation under either the federal rules or through state governors’ waivers. Today, some of those designations look kind of hard to defend.

Which position will you support?

1. Defend them all.  We need all our rural hospitals and jobs.

2. Bring the Critical Access Hospital program back to its core mission: essential care where it’s really needed.  Medicare is not a jobs program.

3. Get rid of the whole Critical Access Hospital designation.  Telemedicine is the answer.

Of course with the two teams we’ve got in Congress, we probably won’t get much beyond the national anthem.

 Wayne Myers is a retired pediatrician and rural medical educator. He directed the federal Office of Rural Health Policy from 1998 through 2000 and was president of the National Rural Health Association in 2003. He and his wife, JoAnn, farm in rural Maine.


Critical Access Hospitals by State

Source: Flex Monitoring Team, March 31, 2013

New Hampshire13
New Mexico8
New York13
North Carolina23
North Dakota36
South Carolina5
South Dakota38
West Virginia19

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