Critical Access Hospital Implications

Running head: CRITICAL ACCESS HOSPITAL IMPLICATIONS 1

Critical Access Hospital Implications

Patrick Williams

Saint Joseph’s University

CRITICAL ACCESS HOSPITAL IMPLICATIONS 2

Abstract

US Health care is organized with a mixed system, changing continuously to fit the needs of

millions worldwide. Unlike many first world countries, the US combines both market and social

justice systems. Within that combination lies: inpatient care facilities and outpatient/ambulatory

care facilities. Inpatient care facilities or hospitals, can be further defined into facility size and

patient number served. In certain locations rural health care facilities offer the public care needs,

many spanning from obstetrics to long term care. In 1997, President Clinton signed the Balanced

Budget Act which allowed many small health care facilities the option to enter into Centers for

Medicare and Medicaid services cost based reimbursement system. This system is labeled

Critical Access Hospital status (CAH) (Fannin & Nedelea, 2013, p.1). Regulatory requirements

issued by CMS are arduous for CAH organizations because of higher accountability related to

higher reimbursement. This research paper will explore regulatory requirements and financial

implications associated with CAH status and determine if the healthcare distinction is an

effective means of survival.


Critical Access Hospital Regulatory Requirements

Health care is extensive; millions of people worldwide rely on solutions from health care

facilities to ease pain and continue everyday life. Inpatient and outpatient care accounts for most

health service in the United States. Outpatient care is defined as health care a service that doesn’t

require an overnight stay in a health care facility. In the past, ambulatory care was provided by

physicians visiting patient homes and performing medical procedures. Currently, with advances

in technology and medical science, most outpatient care is performed in a clinic setting (Shi &

Singh, 2013, p.161). In contrast, inpatient care is labeled as an overnight stay in a health care

facility. Most inpatient care derives from hospitals. This type of care dates back to the

almshouses of the preindustrial era, where patients were treated for chronic and long term care

ailments. Inpatient care facilities are in the process of downsizing rather than expanding because

of technology, medical care and the increase in outpatient services, however they are still

necessary for health conditions requiring more medical attention (Shi & Singh, 2013, p.188). It

should be noted that admission into a health care facility can only happen thru physician order.

Inpatient census growth or reduction is based upon their judgment for health outcomes

(Buchbinder & Shanks, 2012, p.212). A hospital is defined as an organization that manages

medical conditions while having a minimum 6 beds for inpatient care (Shi & Singh, 2013, p.

185). Hospital names and distinctions are associated with size and outreach. According to Shi &

Singh (2013), hospitals are labeled as: community, public, private, general, specialty, rural,

teaching and osteopathic (p.202). Rural hospitals are located in areas not part of a metropolitan

location, serving a majority of elderly and low socioeconomic status patients (Shi & Singh, 2013,

p. 201).Shortages in financial stability and physician recruiting offer challenges for most rural

organizations. In order to keep rural hospitals open, the Balanced Budget Act of 1997 was signed


into law (Buchbinder & Shanks, 2012, p.160). This document offers qualifying facilities Critical

Access Hospital status, with the goal of increasing revenue, profitability, quality and efficiency

of care (Fannin & Nedelea, 2013, p.1). CAH are located in many locations, spanning even into

distant states like Alaska and Hawaii. This research paper will explore regulatory requirements

associated with CAH and determine if the distinction is effective for the future of rural health

care.

Critical Access Hospital Regulations

According to Li & Ward (2009), CAH status is defined as an organization that functions

under Medicare conditions of participation (COP) and receives cost-based reimbursement to

enhance performance and reduce the risk of closure (p.46). Currently, US health care funds 1,327

CAH around the nation (Fannin & Nedelea, 2013, p.1). Certain regulatory measures require

CAH’s to function under higher quality and patient care competencies. Meeting these

requirements or COP, grant CMS certification of CAH status, inferring all of the benefits the

designation provides (CMS, 1997). There are 4 critical guidelines for CAH regulation: federal

and state compliance, status/location, number of beds, length of hospitalization and emergency

services (CMS, 1997).

Federal and State compliance. Like any other health care institution, a CAH must comply with

federal and state regulations. Regulations ensure patient safety, quality of care, infection control

and financial reporting. (CMS, 1997) Both state and federal government play roles in monitoring

hospital competency. Many health care organizations rely on a compliance officer and specific

compliance programs to adhere to CAH regulations. According to Wade & Bachrach (2009),

noncompliance with state and federal regulations can lead to fraud or abuse which could result in

termination of CAH status (p. 7). Certain entities policy compliance for heath care institutions,


these include: the Office of Inspector General (OIG), Centers for Medicaid and Medicare

Services (CMS), the Department of Justice (DOJ) and U.S. Attorney office, the Federal Bureau

of Investigation (FBI), State Medicaid control funds, and private payers (Wade & Bachrach,

2009, p. 11). Among the most important for CAH regulation is CMS. CMS is primarily

responsible for rulemaking authority within the health care system. Since CMS manages

Medicare and Medicaid services, much funding is funneled through this organization (CMS,

1997).

Status and location. Status is defined as standards regarding Conditions of Participation, which

are regulated by CMS. Status regulations include facilities licensed under the state in which it is

located (Schneider & Ward, 2009, p.115). State departments of health and social services

mandate most status regulations for CAH. CAH are required by federal law to be located in a

rural area or treat those located in rural areas. According to Shi & Singh (2013), CAH /Rural

hospitals are located in a location not considered part of the Metropolitan Statistical area (p.200).

A Metropolitan Statistical area is any city or urbanized locating with a minimum of 50,000

people living within its vicinity (Shi & Singh, 2013, p.201). This designation also implies

hospital location relative to differing facilities. CAH’s are required to be in a location absent

from other hospitals or medical institutions providing the same type of community care (CMS,

1997). Specifically, CAH’s are required to be located at minimum 35 miles by primary road or

15 miles by secondary road from another hospital (Fannin & Nedelea, 2013, p.1). CAH’s are

also regulated to have necessary provider designation, issued by their state of organizational

existance. Provider parameters include caring for a minimum of 75% within the CAH service

area, meaning most community members chose to have care and treatment at their community

CAH (CMS, 1997).


Number of beds. CAH’s are required to maintain a limited number of beds to be categorized as

a rural organization. According to CMS (1997) a CAH is required to maintain no more than 25

beds, which can be used for inpatient and swing-bed services. In relation to CMS, hospital beds

are referred to as active patient beds that are staffed and ready to be filled by those needing care.

CAH designation does not include long term care beds, which are mandated under a different set

of rules and regulations. According to Ward & Schneider (2009), limiting CAH active patient

beds may not increase financial profitability, but is designated to increase patient quality of care,

through direct medical staff attention. This regulation also increases likelihood that patients will

be assessed through outpatient care services, which are expected to grow in the future (p. 129).

Length of hospitalization. CAH’s are meant to be treatment hospitals with access to larger

healthcare organizations for specialty and extended care. Healthcare for those needing highly

skilled care are commonly transferred to larger hospitals within a city or suburban area (this

excludes swing-bed rehabilitation and long term care). Length of hospitalization regulates

CAH’s by placing a 96 hour time limit on average acute hospital stays (CMS, 1997). A 96 hour

length of stay ensures that the average patient sees a specialist within another healthcare

organization in a treatable period of time.

Emergency services. Rural hospital Emergency departments (ED) are an integral part a

community. Most ED locations function specifically for quick response acute care. According to

Baker & Dawson (2013), an ED is critical for health and providing this essential care service is

something rural organizations must pursue and provide (p. 255). CAH regulations dictate 4 ED

service guidelines: (1) availability, (2) equipment, (3) personnel and (4) response systems (CMS,

1997). (1) Availability refers to a 24 hour staffed ED. This regulation requires maintaining

needed medical staff for provision of either on-call and immediate services (Baker & Dawson,


2013, p.254). (2) Equipment regulations ensure supplies and medication are kept within the

facility. This provides reassurance that ED’s will maintain necessary items to attempt restorative

care. According to CMS (1997), several medical devices/items must be kept in ED stocking:

drugs/biologicals, life-saving equipment, oxygen and cardiac monitor and a defibrillator.

(3)Personnel are also regulated within a CAH ER. According to federal guidelines running a

fully operational/ 24 hour ED, requires at least one of the following medical professionals:

physician, physician assistant (PA) or nurse practitioner (FNP). These medical staff providers

must be licensed within their organizational state of practice (CMS, 1997). Personnel regulations

also involve mandatory usage of registered nurses with clinical ED experience, licensed in the

state of organizational practice (Fannin & Nedelea, 2013, p. 1). (4) Lastly, response system

guidelines are also in place for CAH designation. Regulations within this ED subset refer to

communication agreements with a Doctor of medicine or Osteopathy if a FNP or PA is used for

ED coverage (CMS, 1997). This ED subset provides specialty referral backup because medical

doctors are needed to provide information regarding facility transfer for specialty care.

Critical Access Hospitals and Financial Performance

In order to understand CAH financial performance factors, one must understand the

distinction of inpatient and outpatient care funding and its relation with the evolution and

introduction of CAH designation. In the past decade, monetary funding has remained a pivotal

reason there continues to be a shift toward outpatient based care. Most individual patients and

organizations prefer outpatient rather than inpatient services because of the economics

surrounding price and payment. Outpatient care reimbursement standards are easier to follow

and there are financial incentives in place that have led to less inpatient care (Shi & Singh, 2013,

p.163). Inpatient reimbursement rates are decreasing to implement higher outpatient care


utilization. Because of recent struggles in the movement toward outpatient services, rural

facilities have substantially lost financial strength. In 1997 the US passed the Balanced Budget

act to prevent an uptrend in spending and to limit federal payout for unnecessary inpatient care.

This became troublesome for rural facilities with a low inpatient census (because of the move to

outpatient services). In order to keep many rural hospitals open, multiple rural facilities moved

to: Critical Access Hospital (CAH) status, which accompanied a higher reimbursement rate from

the Centers for Medicaid and Medicare services. Temporary financial fixes like the CAH

designation allowed many rural inpatient care facilities to stay open (Stensland, et al., 2002,

p.177).

Higher reimbursement. In 1983, Medicare shifted its repayment structure from Cost-based

reimbursement (CBR) to a Prospective Payment System (PPS), to limit health care costs. The

PPS system offers healthcare organizations a fixed fee per case, and occasionally failed to cover

much costs associated with Medicare patients (Fannin & Nedelea, 2013, p.1). This proved to be a

financial burden with rural hospitals. The majority of those served in rural locations are absent

from the insurance realm of healthcare and rely on both hospital charity care and government

programs for care costs (Buchbinder & Shanks, 2012, p.160). The Balanced Budget Act of 1997

provided one of the most dramatic changes in rural health sustainability. Goals of this bill, was to

limit closures of rural healthcare organizations nationwide. One of the main ways this bill kept

many rural facilities functional was improving performance in both revenue and profitability by

reinstituting CBR reimbursement for qualified rural healthcare organizations.

Revenue and Profitability. When converting to CAH status, most organizations confirmed an

increase in both revenue and profitability. According to Fannin and Nedelea (2013), converting

to a CBR plan insured rural hospitals would inquire an extra $850,000 more than reimbursement


on the formally used PPS plan. Studied profit margins issued within the time period of 1998-

2003 reveled a 3% increase for CAH profitability. Rural organizations organizations that

continued on the PPS reimbursement plan were issued a 2% drop in profitability over this

studied 5 year period (p.2). These numbers are determined from CAH Financial Indicators

Report, generated by CMS (Pink et al., 2009, p.56). This financial evaluation occurs on a nation-

wide level which causes rural organizational concern regarding can limiting accreditation of

individual facilities. According to Pink et al., (2009), it is essential for each organization to

measure CAH success within organizational scope of practice (p. 56).

Cost and Efficiency. Financial reports also reveal cost and efficiency of CAH’s. According to

Fannin and Nedelea (2013), healthcare efficiency is defined as the cost to for a level of hospital

output (p. 2). Efficiency studies were compared around the nation, revealing that CAH’s were on

average 5.6% more inefficient than average PPS reimbursed rural hospitals (Rosko & Mutter,

2010, p.95). Inefficiency surrounding CAH’s are considered to be a result of higher regulations

and accountability upkeep from federal organizations like CMS. While many PPS reimbursed

facilities can dictate much of their own quality, CBR based CAH’s are held to a higher standards.

Three types of inefficiencies surround CAH’s: cost, technical and allocative. Each of these three

distinctions dictate a specific level of hospital output (e.g., inpatient days, surgeries, and labor.

Most studies show similar results with numbers reaching an average loss of $450,000 on average

for CAH using CBR reimbursement (Fannin & Nedelea, 2013, p. 2).

State Economic Impact Assessment. Many states have developed economic impact

assessments regarding CAH status in their communities. Using data from 1989 to 2006, the state

of Kentucky analyzed economic input-output models and quasi-experimental control groups to

determine if statewide CAH designations were economically beneficial. Results from this impact


assessment revealed that Kentucky maintained a positive economic structure within CAH annual

payroll growth rates and social assistance (Ona & Davis, 2009, p.27). Impact assessments like

this example help verify that CAH designations continue to keep hospital doors open across the

nation and build strong community framework for healthcare (Ona & Davis, 2009, p.27).

Future Health Policy. Healthcare policy is playing a role in CAH status with the

implementation of a US social justice system. The Affordable Care Act (ACA) issued in 2010

has raised some questions regarding relevancy of CAH status and ability to maintain in the

future. According to Fannin & Nedelea (2013), the ACA is likely to increase the number of

Medicaid patients in rural locations (p.3). This increase in federally delegated payers would

ensure less rural hospital charity care and service reimbursement among low socioeconomic

status patients. Increasing Medicaid numbers may mean depletion of higher funding for CBR

organizations. State Medicaid expansion ideals are linked with this fund depletion (Fannin &

Nedelea, 2013, p.3). Future healthcare policy will depend on extended information technology,

medical science and pharmaceutical delivery. It is expected that rural communities will be

impacted tremendously from differentiating health policy within the next decade (Fannin &

Nedelea, 2013, p.3).

Conclusion

CAH research has revealed distinct specification regarding regulatory requirements and

financial implications. Regulatory requirements for CAH can be grueling at times, requiring

details in 5 chief areas: federal and state compliance, status and location, number of beds, length

of hospitalization and emergency services (CMS, 1997). Financial implications reveal CAH:

higher reimbursement rate, increased revenue/profitability, decreased cost/efficiency and positive

state impact assessments (Stensland et al., 2002, p. 177). Many healthcare organizations are


required to ask the question: is CAH designation effective for our facility? Studies show that

CAH regulations are strenuous and time consuming for rural organizations, causing time

constraints and administrative oversight. Conversely, financial implications reveal CAH

designation is valuable economically for hospitals that struggling to keep their doors (prior to

1997) (Ona & Davis, 2011, p. 27). Since increases in federal guidance for healthcare, many

hospitals have prioritized financial implications above other possible negatives. According to Li

& Ward (2009), CAH’s are associated with better operating revenues, expenses and bottom line

margins (p.46). Research and studies conclude that precedence of financial strength associated

with a higher reimbursement rate for CAH’s, exceed the difficult measures associated with

regulatory compliance. Effectiveness of the Balanced Budget Act of 1997 is portrayed in many

organizations and institutions today. An example of CAH program growth can be shown in

participating hospitals: in 1999 there were 41 and in 2011 there were 1,327 (Fannin & Nedelea,

2013, p.1). The need for continued funding from government entities for rural healthcare

organizations is evident. Rural locations have a higher prevalence of serving low socioeconomic

status patients, which include those covered by Medicare and Medicaid. Studies reveal CAH

designation limits the negative effects of PPS reimbursement associated with bad debt.

Continued funding will ensure that life saving healthcare in rural communities and will sustain in

the future (Fannin & Nedelea, 2013, p. 3). While CAH status is not essential for the entirety of

small hospitals across the country, evidence reveals that CAH status is critical for many rural

healthcare organizations to continue survival into the future. According to Fannin & Nedelea

(2013), changing healthcare trends and policy, presents increased speculation that CAH funding

will decrease if trends continue (p.3). Decreasing funds within the current healthcare structure

(2015) will limit essential healthcare for rural community members without access. Continuing


CAH funding will benefit US healthcare of the future by providing service where it should be

rendered and economically strengthening rural communities (Ona & Davis, 2011, p.27).


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Critical Access Hospital Implications

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