Download - 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.
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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
CRITICAL ACCESS HOSPITAL IMPLICATIONS 4
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,
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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).
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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,
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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
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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
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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
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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
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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
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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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