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CRITICAL ACCESS HOSPITALS paymentbasics PAYMENT SYSTEM Revised: Medicare beneficiaries can receive care in state. Because states could waive the October 2010 approximately 1,300 small hospitals called distance requirement, the CAH program critical access hospitals (CAHs). CAHs are became an option for almost all small limited to 25 beds and primarily operate rural hospitals, as opposed to being in rural areas. Unlike traditional hospitals limited to helping isolated hospitals. (which are paid under prospective Approximately 65 percent of CAHs are payment systems), Medicare pays CAHs between 15 and 35 miles from the nearest based on each hospital’s reported costs. hospital. However, some are less than Each CAH receives 101 percent of its costs 5 road miles from another hospital and for outpatient, inpatient, laboratory and others (approximately 20 percent of CAHs) therapy services, as well as post-acute care are more than 35 road miles from an in the hospital’s swing beds.1 alternative source of emergency care. In addition to 25 acute beds, CAHs are The Medicare Prescription Drug, allowed to have distinct-part skilled Improvement, and Modernization Act of nursing facilities, 10-bed psychiatric 2003 eliminated states’ ability to declare units, 10-bed rehabilitation units, and additional hospitals “necessary providers” home health agencies. However, these starting in January 2006. As a result, CMS departments of the CAH are paid through has authorized few additional CAHs since Medicare’s prospective systems and are 2006 because most hospitals that meet not eligible for cost-based reimbursement. the distance and size criteria have already converted to CAH status. Current CAHs will retain their CAH status, even if they History of the CAH program do not meet the distance criteria. In 1988, the Montana Hospital Research and Education Foundation designed a Defining the care that Medicare buys demonstration of a type of hospital called from CAHs a medical assistance facility (MAF) that received cost-based reimbursement from Medicare pays for the same services Medicare. MAFs were isolated, limited- from CAHs as from other acute care service hospitals that could admit patients hospitals (e.g., inpatient stays, outpatient for no more than a four-day length of stay. visits, laboratory tests, and post-acute In 1989, the Congress authorized the Rural skilled nursing days). However, CAHs’ Primary Care Hospital (RPCH) program, payments are not based on the type of a second demonstration program whereby service provided or the number of services This document does not small, rural hospitals would receive cost- provided. Payments are based on each reflect proposed legislation based payments from Medicare. In 1997, CAH’s costs and the share of those costs or regulatory actions. the Balanced Budget Act of 1997 merged that are allocated to Medicare patients. the MAF and RPCH programs into a new category of hospitals called critical access Computing Medicare payments hospitals. CAHs would receive cost-based inpatient and outpatient payments from Medicare pays CAHs 101 percent of their 601 New Jersey Ave., NW Medicare. allowable costs for most services. The cost Suite 9000 of treating Medicare patients is estimated Washington, DC 20001 To qualify for the CAH program, a using cost accounting data from Medicare ph: 202-220-3700 hospital had to be at least 15 miles by cost reports. CMS’s cost accounting fax: 202-220-3759 secondary road and 35 miles by primary methodology allocates costs among patients www.medpac.gov road from the nearest hospital or be based on a combination of factors such as declared a “necessary provider” by the FIGURE 1 Share of hospitals and inpatient payments by rural hospital type Figure 1 Share of hospitals and Medicare payments by rural hospital type Share of rural hospitals Share of rural Medicare payments Standard PPS 17% CAH 30% Standard PPS 32% MDH 8% CAH 57% SCH 17% MDH 9% SCH 29% Note: CAH (critical access hospital), SCH (sole community hospital), MDH (Medicare-dependent hospital), PPS (prospective payment system). Payments are from 2008 Medicare cost reports. Standard PPS refers to hospitals paid under the traditional PPS payment rates and includes rural referral centers that are not SCHs or MDHs. Percentages may not add to 100 percent due to rounding. the number of days a patient stays in the methodology differs in two significant hospital and the dollar value of charges the ways from CAH cost-based payments. patient incurs for ancillary services. First, SCHs and MDHs only receive cost- based payments for inpatient care; CAHs Medicare’s cost-based payments to CAHs receive cost-based payments for inpatient, were over $7 billion in 2008, representing outpatient, lab, therapy, and post-acute 5 percent of all Medicare inpatient and services in swing beds. Second, SCHs’ and outpatient payments to hospitals. MDHs’ payments are based on historical costs trended forward. Therefore, if a Differences between CAH, SCH, and SCH or MDH increases its expenditures MDH Medicare payments per patient, its payments will not be affected. In contrast, if a CAH increases As Figure 1 illustrates, most rural hospitals its expenditures per patient, Medicare are either CAHs (57 percent), sole payments increase accordingly. community hospitals (SCHs) (17 percent), or Medicare-dependent hospitals (MDHs) To qualify for the SCH program, a hospital (8 percent). These hospitals receive a must be located at least 35 miles from the majority of rural inpatient Medicare nearest like hospital (excluding CAHs), payments. “Cost-based payments” or meet other federal criteria for being provided to CAHs differ from “cost-based deemed a community’s sole source of care. payments” paid to SCHs and MDHs. SCHs To qualify for MDH designation, a facility receive the higher of either (a) standard must be located in a rural area, have no inpatient prospective payment rates or more than 100 beds, not be classified as (b) payments based on the hospital’s costs an SCH, and have at least 60 percent of in a base year updated to the current year inpatient days or discharges attributable and adjusted for changes in their case to Medicare patients. ■ mix. MDHs are similar to SCHs, but they are eligible for a prospective payment 1 Most CAH beds are “swing beds”, which can be used rate based on a blend of current PPS rates for acute or post-acute care. In some states, these beds (25 percent) and their historical costs (75 can also be used for long-term care of Medicaid patients. percent). The SCH and MDH payment 2 Critical access hospitals payment system paymentbasics
"MedPAC Payment Basics Critical Access Hospitals Payment System "