Department of Health and Human Services 

OFFICE OF 

  
INSPECTOR GENERAL 

 
 
 
 
M C A
  OST  RITICAL  CCESS 

 
H W N
OSPITALS  OULD  OT 

 
 
M L
EET THE  OCATION 

R I R
EQUIREMENTS  F  EQUIRED 

T R - M
O  E ENROLL IN  EDICARE
 
 
Daniel R. Levinson 
  
Inspector General
  
 
August 2013 

OEI-05-12-00080 
  
EXECUTIVE SUMMARY:  MOST CRITICAL ACCESS HOSPITALS WOULD NOT MEET 
THE LOCATION REQUIREMENTS IF REQUIRED TO RE-ENROLL IN MEDICARE  
OEI-05-12-00080 
 
WHY WE DID THIS STUDY                           
The Critical Access Hospital (CAH) certification was created to ensure that rural beneficiaries are 
able to access hospital services.  Medicare reimburses CAHs at 101 percent of their reasonable 
costs, rather than at the rates set by prospective payment systems or fee schedules.  
 
Currently, hospitals can be certified as CAHs if they meet a variety of regulatory requirements, 
including being located at least a certain driving distance from other hospitals (including CAHs) 
and being located in rural areas. These two requirements are known as the distance requirement and 
the rural requirement, respectively.  Collectively, the two requirements are known as the location 
requirements.  Prior to 2006, States could exempt CAHs from the distance requirement by 
designating them as necessary provider (NP) CAHs.  NP CAHs are permanently exempt from 
meeting the distance requirement.   
 
HOW WE DID THIS STUDY                                                                           
We plotted the locations of CAHs and other hospitals onto digital maps to determine whether CAHs 
would meet the location requirements if they were required to re-enroll in Medicare.  Additionally, 
we calculated (using 2011 claims data) the potential savings to Medicare and beneficiaries if the 
Centers for Medicare & Medicaid Services (CMS) were to decertify CAHs that would not meet the 
location requirements. 
 
WHAT WE FOUND                                                                                                
Nearly two-thirds of CAHs would not meet the location requirements if required to re-enroll.  The 
vast majority of these CAHs would not meet the distance requirement.  CMS does not have the 
authority to decertify most of these CAHs, as most of these CAHs are NP CAHs.  However, if CMS 
were authorized to reassess whether all CAHs should maintain their certifications and concluded 
that some should be decertified, Medicare and beneficiaries could realize substantial savings.  If 
CMS had decertified CAHs that were 15 or fewer miles from their nearest hospitals in 2011, 
Medicare and beneficiaries would have saved $449 million.  
 
WHAT WE RECOMMEND                                                                                              
Because the CAH certification results in increased spending for both Medicare and beneficiaries, 
CMS should ensure that the only CAHs to remain certified would be those that serve beneficiaries 
who would otherwise be unable to reasonably access hospital services.  We recommend that CMS 
(1) seek legislative authority to remove NP  CAHs permanent exemption from the distance 
requirement, thus allowing CMS to reassess these CAHs; (2) seek legislative authority to revise the 
CAH Conditions of Participation to include alternative location-related requirements; (3) ensure that 
it periodically reassesses CAHs for compliance with all location-related requirements; and 
(4) ensure that it applies its uniform definition of mountainous terrain to all CAHs.  CMS 
concurred with our first, third, and fourth recommendations, but did not concur with our second 
recommendation.  
     
 
TABLE OF CONTENTS 
 
Objectives ....................................................................................................1 

Background..................................................................................................1 

Methodology................................................................................................7 

Findings......................................................................................................12 

Nearly two-thirds of CAHs would not meet the location 

requirements if required to re-enroll ..............................................12 

Medicare and beneficiaries could realize substantial savings if 

CMS were to decertify some CAHs ...............................................16 

Conclusion and Recommendations ............................................................17 

Agency Comments and Office of Inspector General Response .....19 

Appendixes ................................................................................................21 

A: Distance and Rural Requirements ............................................21 

B: Detailed Methodology..............................................................25 

C: Example of Critical  Access Hospital Locations Relative to 

Those of Other Hospitals ...............................................................30 

D: Agency Comments  ...................................................................31 

Acknowledgments......................................................................................34 

 
Most Critical Access Hospitals Would Not Meet the Location Requirements (OEI-05-12-00080)    
   
OBJECTIVES 
1. 	  To determine the extent to which Critical  Access Hospitals (CAH) 
would meet the location requirements if required to re-enroll in 
Medicare.  
2.	   To calculate potential savings to Medicare and beneficiaries if CMS 
decertified CAHs that would not meet the location requirements if 
required to re-enroll in Medicare. 
BACKGROUND 
Critical Access Hospitals 
In 1997, the Balanced Budget Act (BBA) created the CAH certification to 
ensure that hospital care is accessible to beneficiaries in rural 
communities.1, 2  Small hospitals that meet specific requirements can 
qualify for the CAH certification and receive favorable Medicare 
reimbursements.  Medicare reimburses CAHs at 101 percent of their 
reasonable inpatient and outpatient costs.3  
There are more than 1,300 CAHs in the United States.  CAHs are located 
in every State except Connecticut, Delaware, Maryland, New Jersey, and 
Rhode Island.  CAHs provided care for approximately 2.3 million 
beneficiaries in 2011.  Medicare and beneficiaries paid approximately 
$8.5 billion for this care. 
Medicare Requirements for CAH Certification 
Facilities must meet the requirements set forth in the CAH Conditions of 
Participation to receive the CAH certification.  Conditions of Participation  
lay out health, safety, and location-related requirements that facilities must 
meet to participate in the Medicare program as CAHs. 
Because the intent of the CAH certification is to ensure access to care in 
rural communities, CAHs must meet two location-related requirements.4   
CAHs must be located at least a certain distance from hospitals (including 
acute-care, psychiatric, rehabilitation, long-term, and childrens hospitals) 
and other CAHs, and they must be located in rural areas.  These 
 
1 Balanced Budget Act  of  1997, P.L.  105-33   4201.  The BBA amended several sections  
of the Social Security Act, including  sections 1820, 1861(mm), 1814(l) and 1834(g).   
2 Centers for Medicare & Medicaid Services (CMS), State Operations Manual, Pub. No.  
100-07, ch. 2,  2254A.  Accessed  at http://cms.gov  on July 7,  2011. 
3 Social Security Act,  1814(l) and 1834(g), 42  U.S.C.   1395f(l) and  1395m(g). 
4 Social Security Act,   1820(c)(2), 42 U.S.C.  1395i-4(c)(2); CMS,  State Operations  
Manual, Pub. No. 100-07,  ch. 2,  2256F.  Accessed at  http://cms.gov on  July 7, 2011. 
Most Critical Access Hospitals Would Not Meet the Location Requirements (OEI-05-12-00080)    
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two requirements are known as the distance and rural requirements, 
respectively.  Collectively, the two requirements are known as the location 
requirements.  Appendix A provides the official descriptions of the 
location requirements.    
Distance requirement. Facilities that wish to obtain the CAH certification 
can meet the distance requirement in one of two ways:  (1) by being 
located more than a 35-mile drive from a hospital or another CAH or 
(2) by being located more than a 15-mile drive from a hospital or another 
CAH in areas of mountainous terrain or areas where only secondary roads 
are available.5    
CMS defines secondary roads as roads that are not primary roads.  
Primary roads include Federal highways (including interstate highways), 
State highways with two or more lanes in one direction, and roads thatin 
accordance with U.S. Geological Survey (USGS) standardsare shown  
on maps as primary highways.6 Secondary roads typically are one-lane 
State highways and all other local roads. 
Prior to 2013, CMS defined mountainous terrain as areas identified as 
such on any official maps or other documents published by the State 
agency responsible for highways in the State (typically a Department of 
Transportation or Highways) or by USGS.7    
In April 2013, CMS published a uniform definition of mountainous 
terrain States are to use when certifying hospitals as CAHs.  According to 
this definition, roads that travel through mountainous terrain must be 
located in a mountain range and meet one of two additional requirements 
related to ease of travel or effort required to construct the roads.8    
Rural requirement. Facilities that wish to obtain the CAH certification can  
meet the rural requirement by being located either in rural areas or in areas 
that are treated as rural.9  CMS uses a formula based on multiple criteria to 
determine rural status.  Examples of these criteria include whether a CAH 
is located outside a metropolitan statistical area (MSA), located inside a 
 
5 42 CFR   485.610(c). 
6 CMS, State Operations  Manual,  Pub. No. 100-07, ch. 2,  2256A.  Accessed at 

http://cms.gov on  July 7,  2011. 

7 Ibid. Accessed at http://cms.gov  on July 7, 2011. 

8 CMS, Clarification of the Critical Access Hospital (CAH) Criteria for Rural Location 

and Mountainous Terrain Distance  Standard,  April 19, 2013 (S&C: 13-26-CAH).  

Accessed at http://cms.gov on  April 25, 2013. 

9 42 CFR   485.610(b). 

Most Critical Access Hospitals Would Not Meet the Location Requirements (OEI-05-12-00080)    
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rural census tract, or located in an area designated as rural by State law or 
regulation.10  
Additional CAH requirements. To be certified as CAHs, facilities must 
meet additional requirements beyond the location requirements described 
above. For example, CAHs cannot have more than 25 beds that are used 
for acute care or swing-bed patients, they must offer 24-hour emergency 
services, and they must achieve an annual average length of stay for 
patients that does not exceed 96 hours.11,  12,  13  
Necessary Provider CAHs 
Prior to January 1, 2006, States had discretion to designate hospitals that 
did not meet the distance requirement as necessary provider (NP) 
CAHs.14  NP CAHs had to comply with all of the other CAH Conditions of 
Participation at their certifications, including the rural requirement.15    
At least 40 States identified specific location-related requirements other 
than distance that hospitals had to meet to receive the NP designation.16   
Most of these States required CAHs to be located in areas where there was 
a shortage of health care resources or to be located in counties where the 
unemployment or poverty rates exceeded States averages.   
Existing NP CAHs are permanently exempt from meeting the distance 
requirement, unless they relocate.  Effective January 1, 2006, the Medicare 
Prescription Drug, Improvement, and Modernization Act prohibited the 
creation of new NP CAHs, but allowed existing NP CAHs to retain their 
NP designations indefinitely, as long as they continue to meet all other  
   
 
10 Ibid.  A metropolitan  statistical area (MSA) is an  urbanized area with at least 50,000 
 
inhabitants.  A rural census tract is a census tract that does not have  significant 

commuting ties to an area with  2,500 or more people. 
 
11 42 CFR   485.620(a).  A swing  bed is a CAH bed that is reimbursed for skilled 
 
nursing services. 

12 42 CFR   485.618(a). 

13 42 CFR   485.620(b). 

14  Balanced Budget Act of 1997, P.L. 105-33  4201, Social Security Act, 

 1820(c)(2)(B)(i)(II),  42 U.S.C.  1395i-4(c)(2)(B)(i)(II). 
 
15  Balanced Budget Act of 1997, P.L. 105-33  4201, Social Security Act, 
 1820(c)(2)(B) and  (e)(3), 42  U.S.C.  1395i-4(c)(2)(B)  and (e)(3).
  
16 Technical Assistance Center and Services Center, Necessary Provider Definitions, 

September 2012.  Accessed at http://www.ruralcenter.org/tasc/resources/necessary-
provider-definitions  on January 17, 2013. 
 
Most Critical Access Hospitals Would Not Meet the Location Requirements (OEI-05-12-00080)    
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CAH requirements.17, 18    
Although States are no longer able to designate new NP CAHs, most 
CAHs are NP CAHs.  At the time of this analysis, approximately 
75 percent of all CAHs were NP CAHs.   
Participating in Medicare as a CAH 
To participate in Medicare as CAHs, facilities must undergo a certification 
process. During this process, CMS verifies that facilities meet all of the 
requirements included in the CAH Conditions of Participation.19, 20, 21  If 
CMS finds facilities to be compliant, it approves them for CAH 
certifications.22   
Evaluation of the location requirements during certification. Since the 
creation of the CAH certification in 1997, there have been changes in how 
CMS evaluates the location requirements during the certification process.  
Currently, during the certification process, CMS verifies that prospective 
CAHs meet the distance and rural requirements. 23 Prior to 2006, when 
States were able to designate CAHs as NPs, CMS verified that prospective 
non-NP CAHs met the distance requirement and that both prospective NP  
and non-NP CAHs met the rural requirement. 24   As previously stated, NP  
CAHs were exempt from meeting the distance requirement at the time of 
their certifications.   
Maintaining the CAH Certification    
CAHs are subject to periodic reassessments of their compliance with the 
CAH Conditions of Participation.    According to CMS staff, these 
 
17  Medicare Prescription Drug, Improvement, and  Modernization Act  of 2003, 
P.L. 108-173   405(h), Social Security Act,   1820(c)(2)(B)(i)(II), 
42 U.S.C.  1395i-4(c)(2)(B)(i)(II). 
 
18 Medicare Prescription Drug, Improvement, and  Modernization Act  of 2003, 

P.L. 108-173 405(h), Social Security Act,  1820(h), 42 U.S.C.  1395i-4(h).  
19 CMS, State Operations  Manual, Pub. No. 100-07, ch. 2,  2256A.  Accessed at 
http://cms.gov on  July 7,  2011.   
20 In rare cases, CMS would also verify that  hospitals meet all of the requirements 
included in the hospital Conditions  of Participation. 
21 State agencies survey CAHs for compliance with the CAH Conditions of Participation 
prior to CMS verification.  Accreditations from one of the three CMS-approved CAH  
Medicare accreditation programs can replace  State agency survey and certification or 
reassessment for CAHs.  Organizations that maintain CAH Medicare accreditation  
programs include the Joint Commission; the American Osteopathic Association; and  Det 
Norske Veritas Healthcare, Inc. 
22 CMS, State Operations  Manual,  Pub. No. 100-07, ch. 2,   2256 AB.  Accessed  at 
http://cms.gov on  July 7.  2011. 
23 CMS, State Operations  Manual, Pub. No. 100-07, ch. 2,   2256A.  Accessed  at 

http://cms.gov on  April 29, 2013. 

24 Ibid. Accessed at http://cms.gov  on July 7, 2011. 

Most Critical Access Hospitals Would Not Meet the Location Requirements (OEI-05-12-00080)    
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reassessments must take place every 3 years, on average.  For CAHs to 
maintain their certifications, CMS or a CMS-approved Medicare CAH 
accreditation program must verify that the CAHs continue to meet all 
CAH Conditions of Participation.25    
Further evaluation of the location requirements. Prior to 2013, CMS did 
not periodically reassess whether CAHs continued to meet the location 
requirements.  CMS guidance required that non-NP CAHs compliance 
with the distance requirement and non-NP and NP CAHs compliance with 
the rural requirement be verified only during the initial certification 
process.26  Because CMS did not routinely reassess whether CAHs 
continued to meet the location requirements, most CAHs that did not meet 
the requirements retained their critical access certifications.   
In March 2013, CMS removed the limitation that it assess compliance 
with locations requirements only during the certification process.27   As a 
result, non-NP CAHs that do not meet the distance requirement and 
non-NP and NP CAHs that do not meet the rural requirement at the time of 
these reassessments can now be decertified and given the opportunity to 
convert to certified Medicare hospitals (after demonstrating compliance 
with the hospital Conditions of Participation).28  NP CAHs are statutorily 
exempt from meeting the distance requirement. 
CMS reassesses whether CAHs meet the rural requirement (and in some  
cases, the distance requirement) if CAHs relocate or have changes of 
ownership and the new owners do not assume the existing provider 
agreement.29, 30  In the case of non-NP CAHs, CMS reassesses whether 
they meet both requirements.  In the case of NP CAHs, CMS reassesses 
whether they meet the rural requirement but does not reassess whether 
 
25 CMS, State Operations  Manual, Pub. No. 100-07, ch. 2,   2021A and 2022B.  
Accessed at http://cms.gov on  July 7, 2011. 

26 CMS, State Operations Manual, Appendix W  Survey Protocol, Regulations and 

Interpretive Guidelines for Critical Access Hospitals (CAHs) and Swing-Beds in CAHs, 

 C-0160.  Accessed at http://cms.gov  on July 7,  2011. 

27 CMS, Guidance for Hospitals, Critical Access Hospitals (CAHs) and Ambulatory 

Surgical Centers (ASCs) Related to  Various Rules Reducing Provider/ Supplier Burden, 

March  15, 2013  ( S&C:  13-20-Acute Care), p. 119.  Accessed at http://cms.gov on  
April 25, 2013. 
28 Ibid. 

29 CMS, State Operations Manual, Appendix W  Survey Protocol, Regulations and 

Interpretive Guidelines for Critical Access Hospitals (CAHs) and Swing-Beds in CAHs, 

 C-0160.  Accessed at http://cms.gov  on July 7,  2011. 

30 CMS, State Operations  Manual, Pub. No. 100-07, ch. 2,   2256.  Accessed  at 
http://cms.gov on  July 7,  2011.   
Most Critical Access Hospitals Would Not Meet the Location Requirements (OEI-05-12-00080)    
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they meet the distance requirement.31  CAHs must notify CMS of any 
changes in their location or ownership.32       
Payments for CAH Services  
CMS pays CAHs under a system different from that for paying most other 
hospitals. CAHs receive 101 percent of their reasonable costs for most 
services provided.33, 34  CMS determines these costs using information 
from CAHs cost reports.35  CMS pays most other hospitals using inpatient 
and outpatient prospective payment systems (IPPS and OPPS), which pay 
predetermined rates for treating beneficiaries.36,  37 Inpatient services are 
paid on the basis of the patients diagnoses, while outpatient services are 
paid on the basis of the services provided. 
Like other Medicare beneficiaries, beneficiaries who receive services at  
CAHs are responsible for paying a deductible and coinsurance for 
inpatient services.38  However, the inpatient deductible and coinsurance are 
the same whether services were provided at a CAH or at a hospital paid 
under IPPS.39  
Additionally, like other Medicare beneficiaries, beneficiaries who receive 
services at CAHs are responsible for paying a deductible and coinsurance 
for outpatient services.40  CAHs cost-based reimbursement method results 
in coinsurance calculated from submitted charges rather than from final 
costs for services provided, making coinsurance a relatively high 
percentage of final total payments. Medicare beneficiaries generally do 
not pay coinsurance for outpatient laboratory services and certain 
preventive outpatient services.41    
Proposed CAH Changes  
Medicare payments to CAHs have come under increased scrutiny as part 
of ongoing deficit-reduction discussions.  In September 2011, the 
 
31 If an NP CAH relocates and  will not continue to serve essentially the same service 

area, it will need to meet the distance requirement.  CMS, State Operations Manual, 

Pub. No. 100-07, ch. 2,  2256F. 

32 42 CFR   424.516(e). 

33 Social Security Act,  1814(l) and 1834(g), 42  U.S.C.   1395(l) and  1395m(g). 

34 Reasonable costs are the direct and indirect costs associated with providing services 

to Medicare beneficiaries.  42 CFR  413.9(b)(1). 

35 42 CFR   413.20(a). 

36 Social Security Act,   1886(d) and  (g), 42  U.S.C.   1395ww(d) and (g).  

37 Social Security Act,   1833, 42 U.S.C.  1395l.
  
38  Social Security Act,  1866(a)(2)(A),  42 U.S.C.  1395cc(a)(2)(A). 

39 Social Security Act,   1813(a)(1), 42 U.S.C.  1395e(a)(1).   Inpatient coinsurance is a 
 
percentage of the inpatient  deductible, which is a fixed amount set annually by law.  

40  Social Security Act,  1866(a)(2)(A),  42 U.S.C.  1395cc(a)(2)(A). 

41 Social Security Act,   1833(a)(1), 42 U.S.C.  1395l(a)(1). 
  
Most Critical Access Hospitals Would Not Meet the Location Requirements (OEI-05-12-00080)    
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President published his Plan for Economic Growth and Deficit 
Reduction.4 2   The Plan proposed reducing CAH reimbursements to 
100 percent of reasonable costs and eliminating the critical access 
certification for CAHs fewer than 10 miles from another hospital.43   The 
Presidents proposed budget for fiscal year 2014 made the same  
recommendations and estimated the savings over 10 years to be 
$1.4 billion from reducing reimbursement to 100 percent of reasonable 
costs (from 101 percent) and $690 million from eliminating the critical 
access certifications of CAHs located  fewer than 10 miles from another 
hospital.44    
Related Work 
In 1996 and 2003, the Office of Inspector General (OIG) issued reports 
that focused on rural health clinic (RHC) program compliance.  Like the 
intent of CAHs, the intent of RHCs is to ensure accessible health care to 
Medicare beneficiaries in rural communities.  In both studies, OIG found 
numerous RHCs noncompliant with the requirements that they be located 
in rural and underserved areas. Additionally, OIG found that the 
requirements did not effectively prevent RHC participation in areas with 
existing health care providers.45,  46   
OIG is conducting a nationwide review of swing-bed services at CAHs.47   
OIG is comparing the reimbursement for swing-bed services at CAHs to 
the reimbursement for the same level of care obtained at skilled nursing 
facilities for 20052010. 
METHODOLOGY 
To determine the extent to which CAHs would meet the location 
requirements if required to re-enroll in Medicare, we plotted CAHs and 
hospitals locations onto digital maps using ArcGIS, a type of mapping 
and spatial analysis software. We also surveyed CMS and State agencies 
to collect information about rural areas and mountainous terrain.   
 
42 Office of Management and Budget, Living  Within  Our Means and  Investing in the 

Future:  The Presidents Plan for Economic Growth  and  Deficit Reduction, September 

2011.  Accessed at http://www.whitehouse.gov on October 24, 2011. 
 
43  Ibid., p. 36. 

44 OMB, Fiscal Year 2014  Budget  of  the U.S. Government,  p. 196, 2013.  

45 OIG,  Rural Health Clinics:  Growth, Access, and Payment, OEI-05-94-00040, 

July 1996. 

46 OIG,  Status of Rural Health Clinic Program, OEI-05-03-00170, August 2005. 

47 OIG,  U.S. Department  of Health and Human Services  Office of Inspector General 

Work Plan:   Fiscal  Year 2013, Part 1,  p. 7.   Accessed at  http://oig.hhs.gov on  
July 23, 2013.  
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To calculate the potential savings to Medicare and beneficiaries if CMS 
were to decertify some CAHs that would not meet the location 
requirements if required to re-enroll, we analyzed 2011 claims data. 
For a detailed description of the methodology, see Appendix B.    
Scope 
We limited our review to the location requirements used by CMS to certify 
CAHs. We determined whether CAHs would meet the location 
requirements if required to re-enroll, but we did not determine whether 
they would meet the remaining CAH Conditions of Participation.    
Further, we did not examine the types of services or quality of services 
provided by CAHs. We performed a limited review of emergency service 
availabilitywe determined whether nearby facilities provided emergency 
services, but we did not compare the complexity of the emergency 
services provided at these locations to the services provided at CAHs.   
Data Sources and Collection 
Hospital information. To identify CAHs and hospitals locations, we used 
the Certification and Survey Provider Enhanced Reports (CASPER) 
database.48   To identify CAHs and hospitals that had emergency 
departments, we used CMSs 2011 National Claims History (NCH) 
inpatient and outpatient files. Finally, CMS provided us a list of all NP  
CAHs.  
Distance requirement. To determine whether CAHs would meet the 
distance requirement if required to re-enroll, we used CAHs and 
hospitals locations and two additional sources:     
1. 	  Roadway classification codes from the ArcGIS U.S. and Canada 
Streets dataset to identify primary and secondary roads.49  
2. 	  Survey of all States Departments of Transportation regarding areas 
of mountainous terrain. 
Rural requirement. To determine whether CAHs would meet the rural 
requirement if required to re-enroll, we used CAHs locations, the U.S. 
Census Bureaus 2010 MSA files, the U.S. Department of Agricultures  
list of rural census tracts, and documents from States Departments of 
Rural Health that identify areas designated as rural by State law or 
regulation. 
 
48 The CASPER  database includes data  generated from certification surveys and includes 
information such as provider addresses and enrollment dates. 

49 Tom Tom, Data and Maps for ArcGIS, U.S. and Canada  Detailed Streets  Metadata, 

2012. 

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Potential savings. To calculate potential savings to Medicare and 
beneficiaries if CMS were to decertify CAHs that would not meet the 
location requirements, we used CMSs 2011 NCH inpatient and outpatient 
files.   
Data Analysis  
Hospital locations. To plot CAHs and hospitals locations, we first 
retrieved addresses for the 4,751 active hospitals and 1,329 active CAHs 
in the CASPER database. We then plotted all of the hospitals and CAHs  
locations onto a digital map using ArcGIS.  This digital map served as the 
foundation of our analysis of whether CAHs would meet the location 
requirements if required to re-enroll.     
Distance requirement. To determine whether CAHs would meet the 
distance requirement if required to re-enroll, we first determined the 
driving distance from each CAH to the nearest hospital or other CAH 
using ArcGIS.  We stopped at this point for CAHs greater than 35 miles or 
15 miles or fewer from the nearest hospital or other CAH, as driving 
distances alone were enough to determine that the first group of CAHs 
would meet the distance requirements and that the second group would 
not. For each of the remaining CAHsthose more than 15 and up to 
35 miles from the nearest hospital or other CAHwe analyzed routes to 
the nearest hospital or other CAH and survey responses from States  
Departments of Transportation to determine the number of miles that were  
through mountainous terrain or on secondary roads. 
Emergency services at hospitals near CAHs. To determine whether CAHs 
were providing services that beneficiaries could not get at nearby 
hospitals, we determined whether CAHs that would not meet the distance 
requirement were located near hospitals or other CAHs that provided 
emergency services.  Emergency services are one of several types of 
services that CAHs are required to provide. 
We used the 2011 NCH inpatient and outpatient files to identify CAHs and 
hospitals that Medicare paid for emergency services.  We then determined 
how many of the hospitals or CAHs nearest to the CAHs that would not 
meet the distance requirement Medicare had paid for emergency services 
in 2011.   
Rural requirement. To determine whether CAHs would meet the rural 
requirement if required to re-enroll, we used ArcGIS and the MSA files to 
determine whether CAHs were located outside MSAs.  Next, for CAHs 
that were located inside MSAs, we determined whether they were located  
in rural census tracts.  Finally, for CAHs that were located inside MSAs 
and not located in rural census tracts, we used States documents to 
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determine whether they were located in areas designated as rural by the 
States.  
NP CAH analysis. We used the list of NP CAHs to determine how many 
CAHs that would not meet the location requirements were NPs. 
Compliance with location requirements not possible to determine. For 
some CAHs, we could not determine whether they would meet the 
location requirements.  We discuss the reason why a determination was 
not possible in a finding. 
Potential savings. We used the 2011 inpatient and outpatient NCH files to  
calculate potential savings to Medicare and beneficiaries if CMS were to 
decertify some CAHs that would not meet the location requirements.  We  
included all inpatient services in this analysis, but only some outpatient 
services. The outpatient services we selected include clinic and 
emergency department visits; significant outpatient procedures and 
services provided along with these procedures, such as pathology services 
and x-ray services; imaging services; services paid under a fee schedule or 
payment system other than the OPPS; and outpatient laboratory services.  
These services represent approximately 60 percent of all outpatient 
services provided at CAHs that would not meet the location requirements 
if required to re-enroll and 47 percent of the outpatient services for which 
beneficiaries paid coinsurance. The payments to CAHs for these selected 
outpatient services represent approximately 67 percent of Medicare and 
beneficiary payments for all outpatient services provided at CAHs that 
would not meet the location requirements if required to re-enroll.  
We calculated potential savings to Medicare and beneficiaries if CMS 
were to decertify some CAHs that would not meet the location 
requirements.  We did this by comparing what CMS paid for inpatient and 
selected outpatient services at these CAHs in 2011 to what they would 
have paid for these services under prospective payment systems and fee 
schedules (hereinafter known as the base rates).   Table 1 describes the 
formulas we used to compute the savings to Medicare and beneficiaries 
for inpatient and selected outpatient services.   
 
   
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Table 1: Formulas Used To Compute Savings to Medicare and Beneficiaries If CMS Were 
To Decertify  Some CAHs That Would Not Meet the Location Requirements If Required To  
Re-enroll in Medicare 
Type of Service   Medicare Savings   Beneficiary Savings  
We did not attempt to calculate 
potential beneficiary savings for 
Medicare payments to CAHs that would not meet 
inpatient stays, as deductible and 
Inpatient services  the location requirements  
coinsurance amounts are the 
   minus base rates minus beneficiary inpatient 
same for services received at a 
deductibles 
CAH and at a hospital paid under 
IPPS 
Coinsurance payments to CAHs  
Medicare payments to  CAHs that would not meet 
that would not meet the location 
Outpatient services with  the location requirements  
requirements  
beneficiary coinsurance     minus base rates minus beneficiary  
minus coinsurance payments 
coinsurances 
under the OPPS 
Medicare payments to  CAHs that would not meet 
Outpatient services with no 
the location requirements   N/A 
beneficiary coinsurance  
 minus base rates 
     
Source:  OIG analysis method. 
 
Limitations 
We adopted a conservative definition of primary roads that likely 
resulted in an underestimate of the number of CAHs that would not meet 
the distance requirement if required to re-enroll.  We were not able to 
identify all primary roads because the  dataset we used did not include the 
number of lanes each road contained.  Instead, we adopted a conservative 
definition of primary roads, defining them only as interstate and Federal 
highways. We classified all State highways, including those with two or 
more lanes in one direction, as secondary roads. 
We used an older dataset for our distance analysis that may have resulted 
in a further underestimate of the number of CAHs that would not meet the 
distance requirement if required to re-enroll.  We used a dataset published 
in 2007 to find routes between CAHs and their nearest hospitals.  More 
recent datasets would contain newly constructed roads that might reduce 
the driving distances between CAHs and the hospitals closest to them.   
Our figures for potential per-CAH savings for Medicare and beneficiaries 
are likely low and should be considered conservative estimates, given that 
our analyses did not include all services performed at the CAHs that 
would not meet the location requirements.  We included only inpatient 
services and some outpatient services in our calculations.     
Standards 
This study was conducted in accordance with the Quality Standards for 
Inspection and Evaluation issued by the Council of the Inspectors General 
on Integrity and Efficiency. 
Most Critical Access Hospitals Would Not Meet the Location Requirements (OEI-05-12-00080)    
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FINDINGS 
Nearly two-thirds of CAHs would not meet the location 
requirements if required to re-enroll 
Overall, 849 of the 1,329 CAHs (64 percent) would not meet the location 
requirements if required to re-enroll in Medicare.  The vast majority of 
these CAHs would not meet the distance requirement, and only three of 
these CAHs would not meet the rural requirement.  Approximately 
1.2 million beneficiaries received services at these CAHs in 2011.  
Eight hundred forty-six CAHs would not meet the distance 
requirement 
Of the 846 CAHs that would not meet the distance requirement if required 
to re-enroll, 306 were located a drive of 15 or fewer miles from their 
nearest hospitals or other CAHs (and, therefore, had 15 or fewer miles of 
their routes going through mountainous terrain or on secondary roads.)  
Figure 1 illustrates the distribution of driving distances for these CAHs.  
Of these CAHs, 235 were between 1014 miles from their nearest 
hospitals or other CAHs. The other 71 CAHs were less than a 10-mile 
drive from their nearest hospitals or other CAHs.   
Figure 1: The Distribution of Driving Distances for CAHs That Would Not 
Meet the Distance Requirement That Are a Drive of 15 or Fewer Miles From  
Their Nearest Hospitals or Other CAHs 
80 
70 
60 
 s
H
A 50 
C
  f
  ro 40 
e
b
m 30 
u
N
20 
10 
0 
<1  1  2  3  4  5  6  7  8  9  10 11  12 13 14
  
Miles  from  CAHs  to  nearest  hospitals  or  other  CAHs 
 
    Source:  OIG analysis of CAHs distances to their nearest hospitals or other CAHs. 
The remaining 540 CAHs were located between 15 and up to 35 miles 
from their nearest hospitals or other CAHs.  These CAHs had 15 or 
fewer miles of their routes going through areas of mountainous terrain or 
Most Critical Access Hospitals Would Not Meet the Location Requirements (OEI-05-12-00080)    
  12   
   
areas where only secondary roads were available. Figure 2 illustrates the 
distribution of driving distances for these CAHs and the average number 
of miles of their routes that traveled though areas of mountainous terrain 
or were on secondary roads. On average, the routes from these CAHs to 
their nearest hospitals or other CAHs traveled through approximately 
5 miles of mountainous terrain or secondary roads. 
Figure 2: The Distribution of Driving Distances for CAHs That Were 
Between 15 and up to 35 Miles From Their Nearest Hospitals or Other CAHs 
and the Average Numbers of Miles of Their Routes That Were Through 
Mountainous Terrain or on Secondary Roads   
45 
40 
35 
30 
25  Number  of  CAHs 
20 
15 
10 
Average  miles  on 
moutainous  terrain 
5 
or  secondary  roads 
0 
15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 
Miles  from  CAHs  to  nearest  hospitals  or  other  CAHs 
 
Source:  OIG analysis of CAHs distances to their nearest hospitals or other CAHs.  
 
CAHs that would not meet the distance requirement if required to re-enroll 
were most often located near other CAHs.  Approximately 50 percent were 
located nearest to other CAHs; 43 percent were located nearest to 
acute-care hospitals; and the remaining 7 percent were located nearest to 
other types of hospitals, such as psychiatric or rehabilitation hospitals.  For 
an example of CAHs locations relative to those of other CAHs and 
hospitals in an average State, see Appendix C.  
Most of the CAHs and hospitals that were located near CAHs that would 
not meet the distance requirement if required to re-enroll provided 
emergency services in 2011.  Approximately 93 percent of CAHs and 
hospitals (including acute-care hospitals and other types of hospitals) 
located near these CAHs provided emergency services.  Most hospitals 
that were near CAHs and that did not provide emergency services were 
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psychiatric hospitals. Table 2 provides the number of all CAHs and 
hospitals that were near CAHs and that did not provide emergency 
services. 
Table 2: CAHs and Hospitals That Were Near CAHs and That Did Not 
Provide Emergency Services in 2011  
 
Type of Hospital   Number That Did Not Provide 
 
  Emergency Services  
 
Psychiatric hospital  34 
 
Acute-care hospital  15 
  Long-term-care hospital  4 
  Rehabilitation hospital   3 
CAH  1 
 
Source:  OIG analysis of CAHs and hospitals that are near CAHs and that do not 

 
provide emergency services.
 
 
 
 
Most CAHs that would not meet the location requirements are 
NP CAHs  
Of the 849 CAHs that would not meet the location requirements if 
required to re-enroll, 88 percent were NP CAHs.  NP CAHs did not have 
to meet the distance requirement when they were initially certified.  
Further, NP CAHs are permanently exempt from meeting the distance 
requirement because of statutory provisions.  Table 3 provides the number 
of NP and non-NP CAHs that would not meet the location requirements if 
required to re-enroll. 
Table 3: Number of NP and Non-NP CAHs That Would Not Meet the 
Location Requirements If Required to Re-enroll in Medicare  
 
Number of CAHs That Would  Number of CAHs That  
  Not Meet the Distance  Would Not Meet the Rural  Total  
 
Requirement   Requirement  
 
NP CAHs 
749  2  751 
  (n=994)  
Non-NP CAHs 
  97  1  98 
(n=335)  
  Total   846  3  849 
  Source:  OIG analysis of NP and non-NP CAHs. 
NP and non-NP CAHs that would not meet the location requirements if 
required to re-enroll differed in several ways.  NP CAHs were located 
closer and had shorter driving times to their nearest hospitals than non-NP  
Most Critical Access Hospitals Would Not Meet the Location Requirements (OEI-05-12-00080)    
  14   
   
CAHs. Most CAHs located in metropolitan areas were NP CAHs.  
Further, most CAHs that would not meet location requirements and were 
owned by private, for-profit organizations were NP CAHs.  
Table 4 describes these differences between NP and non-NP CAHs that 
would not meet the location requirements if required to re-enroll.  
Table 4: Differences Between  NP and Non-NP CAHs That Would Not Meet 
the Location Requirements If Required To Re-enroll 
 
    NP CAHs   Non-NP CAHs  
  Average distance to nearest 
18.8 miles  20.7 miles 
hospital 
 
Average time to nearest 
29.3 minutes  31.1 minutes 
hospital 
 
Located in metropolitan 
151 (87%)  22 (13%)  
areas (n= 173)  
 
Owned by private, for-profit 
40 (82%)   9 (18%)  
  entities (n= 49)  
 
  Source:  OIG analysis of differences between NP and non-NP CAHs. 
     
 
For 62 CAHs, it was not possible to determine whether they 
would meet the location requirements if required to re-enroll 
For 62 CAHs, it was not possible to determine whether they would meet 
the distance requirement if required to re-enroll because CMSs guidance 
at the time of our analysis did not reference a uniform definition of 
mountainous terrain and not all States have a definition of mountainous 
terrain. USGSs  Web site stated that the agency does not have an official 
definition despite CMSs naming USGS as a source of this information in 
guidance to State survey agencies.  Additionally, Department of  
Transportation staff of at least one State that did not have a definition 
would not provide OIG a subjective determination of what they consider 
to be mountainous terrain.  
   
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  15   
   
Medicare and beneficiaries could realize substantial 
savings if CMS were to decertify some CAHs  
Medicare and beneficiaries could realize substantial savings if CMS 
decertified some CAHs that would not meet the location requirements if 
required to re-enroll in Medicare.  Medicare would reimburse decertified 
CAHs at the rates set by prospective payment systems and fee schedules 
rather than at 101 percent of costs.  Rates set by the prospective payment 
systems and fee schedules are typically lower than the rates that CAHs 
receive for most services. 
Medicare could realize substantial savings if CMS were to 
decertify some CAHs   
Because services provided at CAHs are typically reimbursed at rates that 
are higher than the base rates, Medicare could realize substantial savings if 
CMS were to decertify some CAHs that would not meet the location 
requirements.  For example, if CMS had decertified all CAHs located 
15 or fewer miles from their nearest hospitals or other CAHs, Medicare 
could have saved an estimated $268 million in 2011.  Additionally, if CMS 
had decertified half of all CAHs that would not meet the location 
requirements, Medicare could have saved an estimated $373 million in 
2011.  On average, Medicare could have saved approximately 
$860,000 per decertified CAH in 2011.50  
Beneficiaries could realize substantial savings in coinsurance 
if CMS were to decertify some CAHs  
Because coinsurance amounts for services provided at CAHs are 
calculated on the basis of charges rather than final costs, beneficiaries pay  
more for services at these facilities than they likely would for the same  
services at acute-care hospitals.  For example, if CMS had decertified all 
CAHs located 15 or fewer miles from their nearest hospitals or other 
CAHs, beneficiaries could have saved an estimated $181 million in 
coinsurance in 2011.  Additionally, if CMS had decertified half of the 
CAHs that would not meet the location requirements, beneficiaries could 
have saved an estimated $200 million in coinsurance in 2011.  On average, 
beneficiaries could have saved an estimated $485,000 in coinsurance per 
decertified CAH, or approximately $400 per CAH beneficiary who 
received outpatient services, in 2011.51    
   
 
50 This amount includes payments for inpatient and selected outpatient services. 
51 This amount includes coinsurance for selected outpatient services. 
Most Critical Access Hospitals Would Not Meet the Location Requirements (OEI-05-12-00080)    
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CONCLUSION AND RECOMMENDATIONS 
Sixty-four percent of CAHs would not meet the location requirements if 
required to re-enroll in Medicare. Most of these CAHs are NP CAHs that 
would not meet the distance requirement.  CMS is not authorized to 
decertify these CAHs because NP CAHs are statutorily exempt from  
meeting the distance requirement.  Further, prior to April 2013, CMS did 
not evaluate whether non-NP CAHs continued to meet the location 
requirements after they enrolled in Medicare.  
 
Medicare and beneficiaries could realize substantial savings if CMS were 
authorized to reassess whether all CAHs should retain their certifications 
and concluded that some should be decertified.  For example, we 
calculated that Medicare and beneficiaries could have saved more than 
$1.3 million per decertified CAH in 2011.  These savings would come  
from paying the decertified CAH at the rates set by prospective payment 
systems and fee schedules.  These CAHs would have the option to remain 
enrolled in Medicare as acute-care hospitals.   
 
Because the CAH certification results in increased spending for both 
Medicare and beneficiaries, CMS should ensure that the only CAHs to 
retain the critical access certification are those that continue to serve 
beneficiaries who would otherwise be unable to reasonably access hospital 
services. 
 
To do this, we recommend that CMS: 
Seek Legislative Authority  To Remove Necessary Provider 
CAHs Permanent Exemption From the Distance Requirement, 
Thus Allowing CMS To Reassess These CAHs 
NP CAHs permanent exemption from the distance requirement prevents 
CMS from periodically reassessing these CAHs.  NP CAHs may have 
provided beneficiaries needed access to hospital services when originally  
certified, and many of them may continue to do so now.  However, CMS 
should periodically reassess whether these CAHs are still providing this 
access and are deserving of increased  financial support from Medicare and 
beneficiaries. 
Seek Legislative Authority to Revise the CAH Conditions of 
Participation To Include Alternative Location-Related 
Requirements 
The CAH Conditions of Participation currently include two 
location-related requirements:  the distance and rural requirements.  
However, most CAHs are NPs that were granted their CAH certifications  
because they met State-defined location-related requirements.  To ensure  
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  17   
   
that CMS can evaluate whether these and other CAHs serve beneficiaries 
who would otherwise be unable to reasonably access hospital services, 
CMS should include alternative location-related Conditions of 
Participation by which to further evaluate CAHs that would otherwise lose 
their certifications because they did not meet the distance or rural 
requirements.  For example, CMS could allow CAHs to keep their 
certifications if they serve communities with high poverty rates, even if 
they dont meet the location requirements.   
Including these alternative location-related requirements would allow 
CMS to make better-informed decisions about which CAHs should retain 
their certifications. We strongly encourage CMS to include only 
requirements that it can assess in a uniform manner on a national level.  
For guidance on alternative location-related requirements, CMS could 
reference States NP criteria.  
Under separate cover, we have referred to CMS the CAHs that would not 
meet the location requirements if required to re-enroll.  CMS could 
prioritize reassessing these CAHs after it updates the CAH Conditions of 
Participation. CMS could also conduct an evaluation of these CAHs, 
outside the current reassessment schedule, to determine whether these 
CAHs should retain their certifications. 
Ensure That It Periodically Reassesses CAHs Compliance 
With All Location-Related Conditions of Participation  
In March 2013, CMS began requiring that CAHs submit to periodic 
reassessment of the distance and location requirements.  CMS should 
ensure that these periodic reassessments continue and that these 
reassessments include any additional location-related requirements that it 
may add to the CAH Conditions of Participation in the future.   
While performing these periodic reassessments, CMS may determine that 
some CAHs should be decertified.  CMS could grant a transition period 
during which decertified CAHs would gradually move from cost-based 
payments to the prospective payment systems and fee schedules.      
Ensure That It Applies Its Uniform Definition of Mountainous 
Terrain to All CAHs  
In April 2013, CMS published a uniform definition of mountainous 
terrain. CMS should ensure that it uses this definition during periodic 
reassessments of CAHs compliance with the CAH Conditions of  
Participation, as well as during the certification of new CAHs. 
   
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AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL  
RESPONSE 
CMS concurred with our first, third, and fourth recommendations, but did 
not concur with our second recommendation.  CMSs responses to our 
recommendations indicate a desire to balance preserving beneficiary 
access to care with promoting payment efficiency.  OIG also believes that 
future management of CAHs should balance these competing objectives 
and urges CMS to take all of the actions described in our 
recommendations.  
CMS concurred with our first recommendationseek legislative authority 
to remove necessary provider CAHs permanent exemptionsthus 
allowing CMS to reassess whether these CAHs should retain their critical 
access certifications. However, the actions described by CMS did not 
address the main point of our recommendation, which was to remove the 
permanent exemption status from all NP CAHs.  CMS indicated that it 
supports the plan outlined in the Presidents FY 2014 budget to decertify 
all CAHs that are fewer than 10 miles from the nearest hospital or CAH.  
If CMS took only this action, it would have authority to reassess only 
71 of the NP CAHs.  We continue to recommend that CMS seek 
legislative authority to remove the necessary provider exemption from the 
remaining NP CAHs so it could reassess whether these CAHs should 
retain their certifications as well.  
CMS did not concur with our second recommendation, which originally 
read revise the CAH Conditions of  Participation to include additional 
location-related requirements.  CMS  noted that the existing distance and 
rural requirements have been uniformly applied to all CAHs certified since 
January 2006 and stated that establishing new criteria could be duplicative 
and overly burdensome to implement.  CMS also stated that it believes the 
CAH certification should not be tied to criteria that have the potential to 
change rapidly, such as the types of services offered.   
We have revised our second recommendation to better reflect our intent 
and to acknowledge that creating alternative location requirements would 
require a legislative change.  We now recommend that CMS seek 
legislative authority to revise the CAH Conditions of Participation to 
include alternative location-related requirements.  Beneficiary access may 
depend on factors other than distance to another provider or rural location.  
CAHs that are providing important access to beneficiaries but are not 
meeting the current distance or rural requirements could possibly retain 
their certifications by meeting alternative location-related requirements.  
These requirements could be tied to stable characteristics, as opposed to 
rapidly fluctuating criteria, of nearby hospitals or the surrounding 
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  19   
   
communities.  Examples of such stable characteristics could include 
whether the nearby hospital was a specialty hospital or an acute-care 
hospital or whether the surrounding community had a high poverty rate.  
We continue to encourage CMS to reference States NP criteria when 
developing additional location-related requirements. 
CMS concurred with our third and fourth recommendationsto 
periodically reassess CAHs compliance with all location-related 
Conditions of Participation and to apply its uniform definition of 
mountainous terrain to all CAHs.  CMS noted that it had recently issued 
two memorandums on these issues, one requiring that all non-NP CAHs 
be recertified periodically on the distance and rural requirements and one 
that establishes a uniform definition of mountainous terrain.  CMS 
stated that these memorandums now represent CMS policy to which CMS 
regional offices, State survey agencies, and accrediting organizations with 
CMS-approved Medicare CAH accreditation programs will be expected to 
adhere when certifying and recertifying CAHs.  We look forward to seeing 
CMSs plans for ensured compliance with both of these new policies. 
For the full text of CMSs comments, see Appendix D. 
 
 
 
   
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  20   
   
APPENDIX A 
Distance and Rural Requirements 
 
The material in this appendix is quoted verbatim from the sources listed in 
the footnotes. 
(b) Standard:  Location in a rural area or treatment as rural. The critical 
access hospital (CAH) meets the requirements of either paragraph 
(b)(1) or (b)(2) of this section or the requirements of either (b)(3) or  
(b)(4) of this section: 
(1) The CAH meets the following requirements: 
(i) The CAH is located outside any area that is a 
Metropolitan Statistical Area, as defined by the Office of 
Management and Budget, or that has been recognized as 
urban under the regulations in  412.64(b), excluding 
paragraph (b)(3) of this chapter.52  
   The term  urban area means  
(A) A Metropolitan Statistical Area or a Metropolitan 
division (in the case where a Metropolitan Statistical 
Area is divided into Metropolitan Divisions), as defined 
by the Executive Office of Management and Budget; or 
(B) For discharges occurring on or after 
October 1, 1983, and before October 1, 2007, the 
following New England counties are deemed to be parts 
of urban areas under section 601(g) of the Social 
Security Amendments of 1983 
(Pub. L. 98-21, 42 U.S.C. 1395ww (note); Litchfield 
County, Connecticut; York County, Maine; Sagadahoc 
County, Maine; Merrimack County, New Hampshire; 
and Newport County, Rhode Island.53  
(ii) The CAH has not been classified as an urban hospital 
for purposes of the standardized payment amount by the 
Centers for Medicare & Medicaid Services or the Medicare 
Geographic Classification Review Board under 
 412.230(e) of this chapter,  and is not among a group of 
 
52 42 CFR 485.610(b). 

53 42 CFR 412.64  (b)(ii). 

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hospitals that have been redesignated to an adjacent urban 
area under  412.232 of this chapter.54  
(2) The CAH is located within a Metropolitan Statistical Area 
(MSA), as defined by the Office of Management and Budget 
(OMB), but is being treated as being located in a rural area in 
accordance with  412.103 of this chapter.55  
 
 	  A prospective payment hospital that is located in an urban 
area (as defined in subpart D of this part) may be 
reclassified as a rural hospital if it submits an application in 
accordance with paragraph (b) of this section and meets 
any of the following conditions: 
 
(A) The hospital is located in a rural census tract of a MSA  
as determined under the most recent version of the 
Goldsmith Modification, the Rural-Urban Commuting Area 
codes, as determined by the Office of Rural Health Policy 
(ORHP) of the Health Resources and Services  
Administration, which is available via the ORHP  Web site 
at: http://www.ruralhealth.hrsa.gov or from the U.S. 
Department of Health and Human Services, Health 
Resources and Services Administration, Office of Rural 
Health Policy, 5600 Fishers Lane, Room 9A55, Rockville, 
MD 20857. 
 
(B) The hospital is located in an area designated by any law 
or regulation of the State in which it is located as a rural 
area, or the hospital is designated as a rural hospital by 
State law or regulation. 
 
(C) The hospital would qualify as a rural referral center as 
set forth in  412.96, or as a sole community hospital as set 
forth in  412.92, if the hospital were located in a rural 
area.  
 
(D) For any period after September 30, 2004 and before 
October 1, 2006, a CAH in a county that, in FY 2004, was 
not part of a MSA as defined by the Office of Management 
and Budget, but as of FY 2005 was included as part of an 
 
54 42 CFR 485.610(b). 

55 Ibid. 

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  22   
   
MSA as a result of the most recent census data and 
implementation of the new MSA definitions announced by 
OMB on June 6, 2003, may be reclassified as being located 
in a rural area for purposes of meeting the rural location 
requirement in  485.610(b) of this chapter if it meets any 
of the requirements in paragraphs (a)(1), (a)(2), or (a)(3) of 
this section.56  
 
(3) Effective for October 1, 2004 through September 30, 2006, the 
CAH does not meet the location requirements in either paragraph 
(b)(1) or (b)(2) of this section and is located in a county that, in 
FY 2004, was not part of a Metropolitan Statistical Area as defined 
by the Office of Management and Budget, but as of FY 2005 was 
included as part of such a Metropolitan Statistical Area as a result 
of the most recent census data and implementation of the new 
Metropolitan Statistical Area definitions announced by the Office 
of Management and Budget on June 3, 2003.57  
 
(4) Effective for October 1, 2009 through September 30, 2011, the 
CAH does not meet the location requirements in either paragraph 
(b)(1) or (b)(2) of this section and is located in a county that, in 
FY 2009, was not part of a Metropolitan Statistical Area as defined 
by the Office of Management and Budget, but, as of FY 2010, was 
included as part of such a Metropolitan Statistical Area as a result 
of the most recent census data and implementation of the new 
Metropolitan Statistical Area definitions announced by the Office 
of Management and Budget on November 20, 2008.58  
 
(c) Standard: Location relative to other facilities or necessary provider 
certification. The CAH is located more than a 35-mile drive (or, in the 
case of mountainous terrain or in areas with only secondary roads 
available, a 15-mile drive) from a hospital or another CAH, or before 
January 1, 2006, the CAH is certified by the State as being a necessary 
provider of health care services to residents in the area.  A CAH that is 
designated as a necessary provider on or before December 31, 2005, will 
maintain its necessary provider designation after January 1, 2006.59  
 
 
56 42 CFR 412.103. 

57 42 CFR 485.610(b). 

58  Ibid. 

59 42 CFR 485.610(c). 

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  23   
   
 	  Mountainous terrain is  
 
(A) Located in a mountain range; and  
(B)  Has either of the following characteristics: 
a. 	  Consists of extensive sections of roads with steep 
grades (i.e., greater than 5 percent), continuous 
abrupt and frequent changes in elevation or 
direction, or any combination of horizontal and 
vertical alignment that causes heavy vehicles to 
operate at crawl speeds for significant distances or 
at frequent intervals; or 
b. 	  The roads on the travel route are considered by the 
State Transportation or Highway agency to be 
located in mountainous terrain based on 
significantly more complicated than usual 
construction techniques required to achieve 
compatibility between the road alignment and 
surrounding rugged terrain. 
(C)  A letter from the State Transportation or Highway agency 
specific to the travel route(s) in question is required to 
support the claim of mountainous terrain.60  
 
 	  A primary road is -
 
(A) A numbered federal highway, including interstates, 
intrastates, expressways or any other numbered federal 
highway; or 
(B)  A numbered State highway with 2 or more lanes each way; 
or 
(C)  A road shown on a map prepared in accordance with the 
U.S. Geological Surveys Federal Geographic Data 
Committee (FGDC) Digital Cartographic Standard for 
Geologic Map Symbolization as a primary highway, 
divided by median strip.61   
   
 
60 CMS, Clarification of the Critical Access Hospital (CAH) Criteria for Rural Location 
and Mountainous Terrain Distance  Standard,  April 19, 2013 (S&C:  13-26-CAH).   
Accessed at http://cms.gov on  April 25, 2013. 
61 CMS, State Operations  Manual, Pub. No. 100-07, ch. 2,  2256A.  Accessed at 
http://cms.gov on  July 7,  2011. 
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  24   
   
APPENDIX B 
Detailed Methodology 
Determining Whether  CAHs Would Meet the Distance and Rural 
Requirements 
 
Critical Access Hospitals (CAH) would meet the distance requirement by 
being located: 
   a drive of more than 35 miles from a hospital or another CAH or 
	   a drive of more than 15 miles from a hospital or another CAH in 
areas of mountainous terrain or areas where only secondary roads 
are available. 
CAHs that would not meet the distance requirement are located: 
   a drive of 15 or fewer miles from a hospital or another CAH or 
   a drive of 35 or fewer miles from a hospital or another CAH, with 
15 or fewer miles of the drive through mountainous terrain or on 
secondary roads. 
CAHs would meet the rural requirements by: 
   being located outside Metropolitan Statistical Areas (MSA), 
   being located in rural census tracts of MSAs, 
	   being located in areas designated by State law or regulation as 
rural or by being designated as rural hospitals by State law or 
regulation, or 
	   qualifying as rural referral centers or sole community hospitals if 
they were located in rural areas.  
CAHs that would not meet the rural requirements are located in MSAs 
and: 
	   are not located in areas designated as rural by State law or 
regulation and are not designated as rural hospitals by State law or 
regulation or 
	   would not qualify as rural referral centers or sole community 
hospitals if they were located in rural areas.  
 
 
 
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  25   
   
Data Sources and Collection 
Rural requirement. 
1. 	  We identified MSAs using the U.S. Census Bureaus
  
2010 Topologically Integrated Geographic Encoding and 

Referencing systems (TIGER) MSA files.62   These files are 

available online at 

http://www.census.gov/geo/www/tiger/shp.html. 

2. 	  We identified rural census tracts using the U.S. Department of 
Agricultures Economics Research Services Rural-Urban 
Commuting Areas (RUCA) codes.  These codes are available 
online at  
http://www.ers.usda.gov/data/ruralurbancommutingareacodes/. 
3. 	  We identified areas or CAHs that are designated as rural because of 
State laws or regulations by surveying States Departments of 
Rural Health. 
4. 	  We identified CAHs that would meet the rural requirement by 
meeting the rural referral center or sole community hospital criteria 
by conducting structured interviews with States Departments of 
Rural Health. 
Data Analysis 
Hospital locations. We included 6,080 CAHs and hospitals in our 
analysis. Before plotting CAHs  and hospitals locations, we cleaned 
each address to remove redundant characters and typographical errors.  
When we encountered ambiguities in the addresses, we relied on CAHs  
and hospitals  Web sites to determine their correct addresses.  When we 
were unable to confirm CAHs or hospitals addresses online, we called 
them directly. 
To convert the CAHs and hospitals addresses into geographic 
coordinates, we used Texas A&M Geoservices geocoder.63 Geospatial 
software, like ArcGIS, does not recognize traditional street addresses.  
Instead, data must be entered into the software as geographic coordinates 
(i.e., latitude and longitude).     
The geocoder was not able to accurately geocode the addresses of 
363 CAHs and 820 hospitals, most of which are located in remote areas.  
We searched for these CAHs and hospitals names and addresses in 
 
62 TIGER files are digital spatial representations  of census data.  

63 Texas A&M University Geoservices, Geoservices Geocoder. Accessed at  

http://www.geoservices.tamu.edu/Services/Geocode/Default.aspx on October 23, 2012. 

Most Critical Access Hospitals Would Not Meet the Location Requirements (OEI-05-12-00080)    
  26   
   
Google Maps and then visually confirmed their locations on the satellite 
images.  Once we confirmed a CAHs or hospitals location, we recorded 
the geographic coordinates of its main entrance (or, if we could not 
identify the main entrance, what appeared to be the middle of the length of  
road in front of the CAH or hospital) as provided by Google Maps.   
Distance requirement. To find the driving distances between CAHs and 
their nearest hospitals or other CAHs, we used ArcGISs Network Analyst 
tool. We identified multiple routes from each CAH to its nearest hospitals  
or other CAHs.  For analysis purposes, we selected either the shortest  
route that caused a CAH to not meet the distance requirement or the 
shortest overall route if all of the routes showed that a CAH would meet 
the distance requirement.  
We used the North America Equidistant Conic coordinate system to 
conduct the analysis in ArcGIS.  North America Equidistant Conic was 
appropriate for our analysis because it reduces shape distortions far better 
than other geographic systems by accounting for the curvature of the earth.  
Limiting distortions is an important consideration when conducting a 
distance analysis, as they can lead to inaccuracies in distance 
measurements.  
Additionally, to differentiate between primary and secondary roads, we 
used Shield Codes. Shield Codes are numbers assigned to roadways that 
describe the type of road.  Because we defined secondary road as any 
road that is not a numbered Federal highway (including interstates, 
intrastates, expressways, or any other numbered Federal highway), we 
categorized primary roads as those roads with Shield Codes 1 or 2, which 
represent interstates and Federal highways.64    
To identify CAHs that have more than 15 miles of their routes through 
mountainous terrain, we surveyed States Departments of Transportation.  
We sent them detailed maps of all routes within their States that were more 
than 15 and up to 35 miles and had 15 or fewer miles on secondary roads.  
We asked States Departments of Transportation to inspect each route and 
to identify the number of miles that travel through mountainous terrain.   
Emergency services at hospitals near CAHs. To determine whether CAHs 
that would not meet the distance requirement were located near hospitals 
or other CAHs with emergency departments, we used the 2011 NCH 
inpatient and outpatient file to identify CAHs and hospitals that had been 
 
64 Tom Tom, Data and Maps for ArcGIS, U.S. and Canada  Detailed Streets  Metadata, 
2012. 
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paid for claims submitted under an emergency department revenue center 
(0450, 0451, 0452, 0456, and 0459). 
Rural requirement. To identify CAHs that are located in rural census 
tracts, we identified the census tract that each CAH is located in using 
Texas A&M Geoservices geocoder.   We then matched census tracts to 
RUCA codes to identify CAHs located in rural census tracts.  Any census 
tract with a RUCA code between 4 and 10 is classified as rural.65  
Finally, we identified CAHs that:  (1) are located in areas designated as 
rural by State law or regulation,  (2) are designated as rural hospitals by 
State law or regulation, or (3) were granted the certification because they 
proved that they would qualify as rural referral centers or sole community 
hospitals if they were located in rural areas.  We used the results from our 
surveys and structured interviews with States Departments of Rural 
Health to identify CAHs that would meet one of these criteria. 
Potential savings. We removed all professional services from the CAH 
outpatient claims.66   To do this, we removed all services with revenue 
center codes in the 095X, 096X, 097X, and 098X series.  We were not 
able to remove professional services from the CAH inpatient claims, as 
payment amounts for individual services are not available on the claims.  
Approximately 31 percent of CAHs that would not meet the location 
requirements had professional claims in their outpatient, and therefore 
presumably inpatient, claims. 
We used status indicator codes to identify outpatient clinic or emergency 
department visits, significant procedures, services that were provided 
along with significant procedures, imaging services, and services paid 
under a fee schedule or payment system other than the outpatient 
prospective payment system (OPPS).67  Specifically, we analyzed all 
outpatient services with status indicators V, S, T, N, X, Q3, and A.68  
The Centers for Medicare & Medicaid Services (CMS) pays outpatient 
services with status indicator T at half of their regular rate when provided 
 
65 University of  Washington, Rural Health Research Center, RUCA Data. Accessed at 
http://www.depts.washington.edu/uwruca/ruca-codes.php on  October 23, 2012. 
66  We  removed professional services from  CAH outpatient claims to allow for more 
accurate comparisons to the base rates for outpatient services.  Payments made under the  
OPPS do  not  include professional services.  
67 Most of the services paid under a fee schedule or payment system other than the OPPS 
were paid  under the physicians fee schedule.  We excluded any services that were  
subject to carrier judgment (i.e., for which the Healthcare Common Procedure Coding  
System coverage code was C). 
68 CMS, Medicare Claims Processing Manual, Pub. No. 100-04, ch. 4,   10.1 and 10.4.  
Accessed at http://cms.gov on  January 3,  2011. 
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with other significant procedures (status indicators S or T) under the 
OPPS.69   To account for this in our analysis, we identified all services with 
a status indicator T that were part of a claim that included another 
significant procedure. For claims that included services with status 
indicators S and T, we reduced the base rates by 50 percent for all services 
with status indicator  T.  For claims that included only multiple services  
with status indicator T, we reduced the base rates by 50 percent for all 
services except the service with the highest reimbursements.  For this 
service, the base rate was not adjusted. 
CMS pays outpatient services with status indicator Q3 either at the regular  
base rate or at a composite base rate, depending on the other services 
provided during the visit.70  For claims that had only one Q3 claim, we 
included them in our analysis at their regular base rates.  For claims that 
had more than one Q3 claim, when feasible, we applied the appropriate 
grouping logic to determine the composite base rate for those claims. 
We used Current Procedural Terminology codes to identify outpatient 
laboratory services.71  
Finally, when estimating the savings that Medicare and beneficiaries 
would have realized if Medicare had decertified half of all CAHs that 
would not meet the location requirements in 2011, we selected a random  
sample of 425 CAHs to include in the analysis. 
   
 
69 CMS, Medicare Claims Processing Manual, Pub. No. 100-04, ch. 4,   10.410.5.  
Accessed at http://cms.gov on  January 3,  2011. 

70 CMS, Medicare Claims Processing Manual, Pub. No. 100-04, ch. 4,  10.2.1.  

Accessed at http://cms.gov on  January 3,  2011. 

71 Current Procedural Terminology codes describe medical services and procedures.  
 
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APPENDIX C 
Example of Critical Access Hospital Locations Relative to 
Those of Other Hospitals  
We selected one representative region of the country to provide a visual 
example of critical access hospitals  (CAH) location relative to those of 
other hospitals. The map below identifies all CAHs and hospitals in 
Missouri and surrounding States. Missouri has 36 CAHs; 69 percent of 
them would not meet the location requirements if required to re-enroll in 
Medicare. CAHs that would meet the location requirements are shown on 
the map as green checkmarks.  CAHs that would not meet the location 
requirements are shown as red X symbols.  Non-CAH hospitals are 
shown as black dots. 
 
 
Source:  Office of Inspector General analysis of CAHs  and hospitals locations, 2012.  
   
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  30  APPENDIX D 
Agency Comments 
DEPARTMENT OF HEALTH & HUMAN SERVICES    Centers for Medicare & Medicaid Services 
JUN  1 7 2013  Administrator
Washington, DC 20201 
TO: 	 Daniel R. Levinson 
Inspecto;; General 
FROM: 	 Ma~nT:n<enner 
Administnltot 
SUBJECT: 	 Office oflnspector General (OIG) Draft Report: "Most Critical Access Hospitals 
Would Not Meet the Location Requirements" (OEI-05-12-00080) 
Thank you for the opportunity to review and comment on the above-subject draft report. Tne 
OIG conducted an analysis of whether or not facilities currently certified as CAHs meet the 
location requirements specified in Section 1820 of the Social Security Act. OlG found that 849 
CAHs, or 64 percent ofall CAHs, would not meet the current location requirements if required 
to re-enroll. Eighty-eight percent ofthese 849 CAHs are necessary provider (NP), CAHs; (i.e., 
CAHs that were exempted from meeting the distance requirements on the basis of designation by 
their state as an NP). The NP designation was removed by law effective January I, 2006 by the 
Medicare Prescription Drug, Improvement, and Modernization Act of2003 (MMA). However, 
the MMA allowed existing NP CAHs to retain their NP designations indefinitely, as long as they 
continue to meet all other CAH requirements. OIG's report also notes that the President, in his 
September 2011 Plan for Economic Growth and Deficit Reduction proposed eliminating the 
critical access certification for CAHs fewer than I 0 miles from another hospital, and the 
President's proposed budget for FY 2014 includes this proposal . 
The OIG estimated savings that the Medicare program and beneficiaries would realize if CAH 
status were removed for all CAHs, including NP CAHs, which do not meet the statutory location 
criteria. Basing its estimate on a review of2011 Medicare claims data, the OIG estimates that 
Medicare and beneficiaries could have saved on average over $1.3 million per de-certified CAH 
in 2011 if payments were based on the inpatient and outpatient prospective payment systems fee 
schedules rather than the CAH payment methodology, which is based on I 0I percent ofa CAH's 
reasonable costs. 
It also examined the availability ofemergency services in the hospitals and CAHs nearest to 
those CAHs which would not satisfy the location requirements.  It found that emergency services 
were available in 93 percent of these other facilities. 
The OIG recommendations and CMS's responses to those recommendations are discussed 
below. 
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ACKNOWLEDGMENTS 
This report was prepared under the direction of Ann Maxwell, Regional 
Inspector General for Evaluation and Inspections in the Chicago regional 
office; Thomas Komaniecki, Deputy Regional Inspector General; and 
Laura Kordish, Deputy Regional Inspector General.  
Lisa Minich served as the team leader for this study, and Elliot Curry and 
Brian Jordan served as the lead analysts.  Central office staff who provided 
support include Clarence Arnold, Meghan Kearns, Christine Moritz, and 
Tasha Trusty.  
 
 
 
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  34   
Office of Inspector General

http://oig.hhs.gov  
 
The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, as  
amended, is  to protect the integrity of the Department of  Health and Human Services  
(HHS)  programs, as well as the health and welfare of beneficiaries  served by those 
programs.  This statutory mission  is  carried  out through  a nationwide network  of  audits, 
investigations, and inspections conducted by the  following operating components: 
Office of Audit Services 
The Office  of  Audit Services  (OAS) provides auditing services  for HHS, either by  conducting  
audits  with its own audit resources or by  overseeing  audit work done by others.  Audits  
examine the performance of HHS programs and/or its grantees and contractors in carrying  
out their respective responsibilities and are intended  to provide independent assessments of 
HHS programs and operations.  These assessments help reduce waste, abuse, and  
mismanagement and promote economy and efficiency  throughout  HHS. 
Office of Evaluation and Inspections 
The Office  of  Evaluation and Inspections (OEI)  conducts national evaluations to  provide 
HHS, Congress, and the public with timely, useful, and reliable information on significant 
issues.  These evaluations focus on preventing fraud,  waste, or abuse  and promoting  
economy, efficiency, and effectiveness of departmental programs.  To promote impact, OEI 
reports also present practical recommendations for improving program operations.  
Office of Investigations 
The Office of Investigations (OI) conducts criminal, civil, and administrative investigations  
of  fraud and misconduct  related to HHS programs, operations, and beneficiaries.  With 
investigators working in all 50 States and the District of Columbia, OI  utilizes its resources 
by actively  coordinating with the Department  of Justice  and other Federal, State, and local 
law enforcement authorities.  The investigative efforts of OI often lead to  criminal 
convictions, administrative sanctions,  and/or  civil monetary  penalties.  
Office of Counsel to the Inspector General 
The Office of Counsel to the  Inspector  General (OCIG) provides general legal services to 
OIG, rendering  advice and opinions on HHS programs and operations and  providing all  
legal support for OIGs  internal operations.  OCIG represents  OIG in all civil and 
administrative fraud and abuse cases involving HHS programs,  including False Claims Act, 
program exclusion, and civil monetary penalty cases.  In  connection with these cases, OCIG 
also negotiates and monitors corporate integrity agreements.  OCIG renders advisory 
opinions, issues compliance program  guidance, publishes fraud alerts, and provides other  
guidance  to  the health care industry concerning the anti-kickback statute and other  OIG  
enforcement authorities.