Critical Access Hospitals: Understanding Medicare Reimbursement

Critical Access Hospitals (CAHs) are reimbursed by Medicare through a cost-based model, allowing for flexible staffing and services. CAHs are eligible for allowable costs plus 1% reimbursement, though this was reduced by 2% in 2013 due to sequestration. This reimbursement structure aims to improve financial stability for rural hospitals, but it does not guarantee improved financial performance. CAHs must assess their own financial situation to determine if this model is beneficial. Additionally, Medicare reimbursement includes capital improvement costs and provides access to educational resources and grants. Some CAHs have received reimbursements for ambulance services, and they are not required to provide emergency medical services. Understanding the financial indicators of CAHs is essential for evaluating the effectiveness of Medicare reimbursement policies.

Cost-based reimbursement from traditional fee-for-service Medicare

Critical Access Hospitals (CAHs) are eligible for cost-based reimbursement from traditional fee-for-service Medicare. This means that, as of January 1, 2004, CAHs can receive allowable costs plus a 1% reimbursement. However, this reimbursement rate was subject to a 2% reduction from April 1, 2013, due to sequestration. In some states, CAHs may also receive cost-based reimbursement from Medicaid.

CAHs have flexible staffing and services, and capital improvement costs are included in allowable costs for determining Medicare reimbursement. CAHs also have access to educational resources, technical assistance, and grants through the Flex Program. Despite these benefits, CAH status does not guarantee improved financial performance. Some hospitals may find the cost-based reimbursement model advantageous, while others may not. Financial analysis is required to determine if CAH status will result in a better financial return compared to other payment systems.

Medicare reimbursements are typically calculated using fee schedules, which list the maximum fees used to pay doctors, providers, or suppliers. These fee schedules are developed by CMS for physicians, ambulance services, clinical laboratory services, and durable medical equipment, among other services. The Medicare Physician Fee Schedule (MPFS) includes both facility and non-facility rates, with non-facility rates generally being higher to account for overhead and equipment costs.

Medicare typically pays 80% of the allowable amount of the MPFS, and the patient is responsible for a 20% co-insurance payment. Participating providers must accept the Medicare allowable fee as payment in full and cannot balance bill the patient for any difference. Nonparticipating providers can decide whether to accept the Medicare fee schedule rate or bill the patient through a limiting charge, which allows for a slightly higher rate but may be challenging for patients to pay.

CAH reimbursement is subject to a 2% reduction due to sequestration

Critical Access Hospitals (CAHs) are eligible for cost-based reimbursement from traditional fee-for-service Medicare. This means that, as of January 1, 2004, CAHs can receive allowable cost plus 1% reimbursement. However, this reimbursement is subject to a 2% reduction due to sequestration, which has been in effect since April 1, 2013. This reduction is a result of the Budget Control Act of 2011, which imposed mandatory across-the-board reductions in federal spending to achieve $1.2 trillion in budget savings over a 10-year period. This act, also known as sequestration, has been extended through fiscal year 2031 and the first half of fiscal year 2032 for Medicare benefit payments.

While CAH status can provide financial advantages, it does not guarantee improved financial stability for hospitals. Each hospital must conduct its own financial analysis to determine if being a Prospective Payment System (PPS) hospital or a CAH would result in better financial returns. In some cases, hospitals have closed even after converting to CAH status. Additionally, CAHs may face challenges in maintaining ambulance services, as they are not required to provide emergency medical services.

The 2% reduction due to sequestration applies to Medicare's payment to beneficiaries for unassigned claims. It is important to note that beneficiary payments toward deductibles and coinsurance are not subject to this 2% reduction. The reduction is applied to Periodic Interim Payments (PIP), CAH and Cancer Hospital interim payments, and pass-through payments for certain services.

The impact of sequestration on Medicare reimbursement is significant, and CMS encourages Medicare physicians, practitioners, and suppliers who bill claims on an unassigned basis to discuss these effects with beneficiaries. For questions regarding reimbursement, CAHs can direct their inquiries to their Medicare Administrative Contractor. Additionally, resources such as the Medicare Learning Network's booklet, "Information for Critical Access Hospitals," can provide further details on CAH reimbursement and payment benefits.

In conclusion, the 2% reduction in CAH reimbursement due to sequestration is a result of federal spending reductions aimed at achieving budget savings. While CAH status offers financial advantages, hospitals must carefully consider their financial situation and seek appropriate resources to understand the implications of sequestration on their reimbursement.

CAHs may receive cost-based reimbursement from Medicaid

Critical Access Hospitals (CAHs) are eligible for allowable cost plus 1% reimbursement from traditional fee-for-service Medicare. This policy has been in place since January 1, 2004, but a 2% reduction was implemented on April 1, 2013, due to sequestration. CAH reimbursement covers capital improvement costs included in allowable costs.

The financial performance of CAHs can be assessed through the annual CAH Financial Indicators Report released by the Flex Monitoring Team. This report provides insights into the profitability of CAHs, which can vary significantly, as evidenced by the range of total margins for rural CAHs in 2022-2023, from -20.5% to 28.0%.

It is worth noting that CAHs are not required to provide emergency medical services like ambulance services. However, in some cases, CAHs have been reimbursed at 101% of the reasonable costs of furnishing Medicare Part B ambulance services, allowing them to enhance emergency response capabilities, such as increasing stipends for volunteer EMTs, providing additional training, and purchasing equipment.

CAH status doesn't guarantee better finances

Critical Access Hospitals (CAHs) are intended to reduce the financial vulnerability of rural hospitals and improve healthcare access in these areas. CAHs are eligible for cost-based reimbursement from traditional fee-for-service Medicare, including allowable costs plus 1% reimbursement. However, CAH status does not guarantee improved finances. Each hospital's financial situation is unique, and factors such as payer mix and operational efficiency play a significant role in financial success.

CAHs may face financial challenges due to their reliance on government payers, such as Medicare and Medicaid. Payment reductions or policy changes by these payers can have a substantial impact on CAH revenues. For example, the 2013 sequestration resulted in a 2% reduction in CAH reimbursement rates. Additionally, CAHs are not required to provide emergency medical services or maintain an ambulance service, which can affect their reimbursement rates and increase costs.

While CAH status offers certain benefits, hospitals must consider their specific circumstances before adopting this designation. A financial analysis is necessary to determine if CAH status will indeed result in improved finances. Factors such as community needs, bed limits, and service lines should be carefully evaluated. Even with increased reimbursement, some hospitals have struggled financially or even closed after converting to CAH status.

The financial performance of CAHs varies, and success stories like the Crete Area Medical Center (CAMC) demonstrate that efficient operations, strong affiliation, and effective physician employment can contribute to positive financial outcomes. However, the majority of CAHs face financial challenges, with more than 38% reporting negative operating margins. CAHs must carefully navigate reimbursement complexities and advocate for their interests at state and federal levels to optimize their financial situation.

CAHs aren't required to provide emergency medical services

Critical Access Hospitals (CAHs) are eligible for allowable cost plus 1% reimbursement from traditional fee-for-service Medicare. This has been the case since January 1, 2004, however, since April 1, 2013, CAH reimbursement is subject to a 2% reduction due to sequestration. In some states, CAHs may also receive cost-based reimbursement from Medicaid.

CAHs have flexible staffing and services, and capital improvement costs are included in allowable costs for determining Medicare reimbursement. They also have access to Flex Program educational resources, technical assistance, and grants. Despite this, CAH status does not guarantee a better financial situation. Each hospital must perform its own financial analysis to determine if being a Prospective Payment System (PPS) hospital or a CAH is more financially viable.

CAHs are not required to provide emergency medical services. They are, however, required to provide a notice to all patients upon admission regarding how emergency services are provided when a physician is not onsite. This requirement came into effect on October 1, 2007, by CMS.

The decision for CAHs to not provide emergency medical services may be influenced by the fact that maintaining an ambulance service can be costly. In 2022, only 22.1% of CAHs provided ambulance services. However, after accounting for hospital health systems and joint ventures, 57.5% of CAHs had access to ambulance services. Additionally, 48.2% of CAHs were designated as certified trauma centers.

Frequently asked questions