They're Called 'Critical Access Hospitals' for a Reason

It's staggering to think of the challenges that CAHs face. Now OIG is calling for a re-examination of a program that it says has overpaid CAHs billions of dollars to provide skilled nursing services using hospital swing beds.

They're called "Critical Access Hospitals" for a reason. These tiny healthcare outposts provide "critical access" to people who live in remote areas.

That was the intent of the legislation that created CAHs in 1997 at a time when rural hospitals were shuttering at an alarming rate. Congress understood that rural America needed extra Medicare dollars to keep the doors open at hospitals that serve an older, sicker and poorer patient mix.

It's staggering to think of the challenges that CAHs face:

• Because of their location and size, CAHs have few economies of scale, little leverage with vendors or payers, or a sufficiently large patient mix or volume of commercial payers to help cover costs.
• CAHs are often limited in their ability to provide some of the more lucrative services that are cash cows for larger hospitals in urban areas.
• Recruiting clinicians to rural areas is a slog.
• And because of all those challenges, it's also more difficult to merge or collaborate with other healthcare providers from such an isolated perch. It's surprising to learn that only 40% of CAHs operate in the red.  

Unfortunately, some people in Washington, DC have short institutional memories.

For the past couple of years, reports from the Office of the Inspector General at the Department of Health and Human Services have made it clear that they believe the CAH designation and funding scheme should be overhauled.

In its latest shot across the bow, OIG this week called for a re-examination of the swing bed program that allows CAHs to provide long-term care. The OIG audit claimed that the federal government has overpaid CAHs $4.1 billion over the past six years for services that could have cost less in relatively nearby skilled nursing and long-term care facilities.

Tavenner Pushes Back
Rural healthcare advocates rallied around the reply to the OIG recommendations from former Centers for Medicare & Medicaid Services Administrator Marilyn Tavenner, who challenged the OIG findings and recommendations in her formal response, and suggested that auditors don't understand healthcare delivery in rural areas.

In that same response to OIG, however, Tavenner said the Obama 2016 budget has called for reducing the Medicare reimbursement that CAHs receive from 101% to 100% of allowable costs, and reassessing and eliminating CAH status for hospitals that are within 10 miles each other.

While Tavenner's rebuff of OIG was heartening for rural providers, she no longer runs CMS. Regardless, the Obama budget proposal puts CAHs in the crosshairs, and it's not clear if Tavenner's replacement, Acting Administrator Andy Slavitt, understands the special challenges posed by rural healthcare.

Tim Putnam, president and CEO of Margaret Mary Community Hospital in Batesville, IN, expresses the concerns of many rural providers who feel that there is a disconnection in the federal government when it comes to rural healthcare.

"If you grew up in an urban area or trained in an urban area or work in an urban area, it takes effort to understand the specific challenges that exist in a rural community," Putnam says. "That is one thing where you see a lot of organizations trying to educate legislators and policy makers and groups like HHS about the specific challenges for rural areas."

A Disconnect
The OIG call to re-examine the CAH swing bed program is a great example of that disconnect, Putnam says. It makes sense from a bottom line perspective, but the bottom line doesn't tell the whole story.

"You can pick one program and say 'Aha! It' seems like they are paid more than they should be,'" he says. "But there are also 99 programs that aren't paid at all or paid very poorly that critical access hospitals have to run 24/7 that are not reimbursed anywhere near what it costs to provide those services."

"Having a swing bed program allows for staffing to exist in these low-volume facilities 24/7," Putnam says. "The swing bed volume is not very heavy in some communities, but you have [to have the] staff for it because you have to be ready for patients all the time. It helps to have staff available for acute care. A lot of times the hospitals will cross-train staff to work in swing beds and acute care. It really helps form the foundation of having an availability to serve a community need any time day or night."

CMS, Rural Care Advocates Rip OIG Report Targeting Swing Beds

Putnam says the proposed cuts to CAH funding and a reappraisal of their special status in the Obama budget also send a troubling message at a time when rural hospitals are trying to make the transition from volume to value.

"Because of sequester and because 'allowable costs' eliminate a lot of things that are necessary costs, nobody in the CAH world is making money on Medicare," he says.

"Why should you make money on the government? Well, I can understand that mindset, but really for a hospital to remain viable, they need to make in that 3%–4% range to replace equipment and update facilities and add services. If you are just breaking even you are going to fall behind."

The National Rural Health Association says that more than 40 rural hospitals have closed since 2010. Putnam says most CAHs already lose about 5%­–7% on Medicare.

"If the president's budget is to reduce 101% of allowable to 100% you will see we will lose 6% to 8%," Putnam says. "We face an impending clear threat to an income stream that doesn't allow us to help make a smooth transition to that value piece. There is no plan you could put forward that says, 'this is where we will make it.'"

We should not fault the Obama administration or the OIG too greatly for trying to reduce inefficiencies in healthcare delivery. Any entity that takes taxpayer dollars should be required to account for how they spend it. Too often, however, the cost cuts we're seeing reflect only the bottom line for a particular service, examined in isolation.

Before anyone proposes additional cuts to critical access hospitals, it is not unreasonable to ask that they understand what these hospital do, the challenges they face, and why they were granted "critical access" designation in the first place.