OIG: Medicare Could Save Millions by Reassessing Critical Access Hospitals

Medicare spent an extra $449 million in 2011 reimbursing facilities that don't meet location requirements for critical access hospital status, according to a report from the HHS Office of Inspector General.

HospitalMedicare reimburses critical access hospitals 101 percent of their reasonable costs rather than using the typical prospective payment system rates or fee schedules to ensure people in rural areas have access to hospital services. Based on 2011 claims data, nearly two-thirds of critical access hospitals wouldn't meet the location requirements needed to qualify for the program if they were to reapply, the OIG found.

In order to be certified as a critical access hospital, a facility must meet certain location requirements, including being in a rural area and being a certain driving distance from other hospitals. Prior to 2006, states could exempt hospitals from the location requirements on the grounds that they're "necessary provider" hospitals. These necessary provider hospitals are permanently exempt from the location requirements.

The OIG recommends CMS revoke necessary provider hospitals' exemption from the location requirements so they can be reassessed. Only critical access hospitals that serve patients who would otherwise be unable to reasonably access hospital services should be certified, according to the OIG.

The OIG also advised CMS to revise the critical access hospital conditions of participation to include alternative location requirements and ensure these hospitals are routinely reassessed to see if they meet location requirements.

Additionally, CMS should uniformly apply its definition of mountainous terrain to all critical access hospitals, according to the OIG. In order to meet location requirements, hospitals must be more than a 35-mile drive from another hospital or more than a 15-mile drive in areas of mountainous terrain where only secondary roads are available.

At the time of OIG's assessment, CMS didn't apply a uniform definition of mountainous terrain and not all states had a definition. This prevented the OIG from being able to determine if 62 hospitals met location requirements. CMS published a uniform definition of mountainous terrain in April 2013.

CMS has agreed with all of these recommendations except the one concerning alternative location requirements, saying creating new criteria could be duplicative and difficult to implement.

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