Study explores potential impact on rural communities from proposed changes in hospital designations

April 8, 2015

Proposed minimum-distance requirements could harm high-performing Critical Access Hospitals in rural communities, according to a new study by researchers at the UNC-Chapel Hill Gillings School of Global Public Health.

Dr. Mark Holmes

Dr. George H. Pink

Study co-authors from the Gillings School include Mark Holmes, PhD, and George H. Pink, PhD. Both researchers lecture for the Department of Health Policy and Management at Gillings, where Holmes is an associate professor and Pink is a Humana Distinguished Professor, in addition to his role as a senior research fellow with the Cecil G. Sheps Center for Health Services Research.

Since 1997, over 1,300 rural hospitals have been designated as Critical Access Hospitals (CAHs). This label authorizes the institutions to receive cost-based reimbursement from Medicare at 99% of allowable costs, in place of a lower, fixed reimbursement based on the prospective payment system (PPS).

In the late 90s, application of the CAH status markedly alleviated financial difficulties and closures among small rural hospitals. Recently proposed changes to CAH eligibility requirements could jeopardize that success. If approved, the changes would mandate a minimum distance of ten miles between hospitals before they can be considered CAHs.

To explore possible impacts of the proposed minimum distance, Holmes and Pink compared the financial and quality performance of CAHs that could lose their status to data from CAHs that would maintain their designation.

Using a mapping program, national hospital surveys, and Medicare cost reports, the researchers found that CAHs located within 15 miles of another hospital tend to serve significantly more patients than hospitals separated by greater distances. These near-distance CAHs are also more likely to provide high quality, recommended care to patients and to be financially stable, operating with net profit margins.

Among other consequences, changes to the application of CAH status could severely impact the financial health of many rural hospitals. If all near-distance CAHs in the study were to revert to PPS status while facing other, concurrently proposed financial changes, the number of CAH facilities operating at a net loss would double from 38 to 76 percent.

These findings have multiple implications for public policy. Most importantly, rural hospitals serve as critical safety nets for residents of surrounding areas. If closures of these hospitals increase, members of rural communities could become drastically underserved and face longer commutes to access vital health care.

Imposing a minimum distance standard would principally affect CAHs in the rural South and Midwest. Establishing the prerequisite would generate modest cost savings for Medicare, but would be disproportionately disruptive to small communities in these regions of the country.

The researchers propose an alternative option for ensuring high quality of care at CAHs, thereby maximizing the return on investment of cost-based reimbursement from Medicare. They suggest that all CAHs be required to publicly report internal quality measures. Where these measures reveal areas for improvement, hospitals should be required to demonstrate active initiative to increase the quality of care.

This study, titled “Proposed minimum-distance requirements could harm high-performing Critical Access Hospitals and rural communities,” was published online April 6 by the journal Health Affairs.