Department  of  Health and Human  Services 
OFFICE  OF 
INSPECTOR  GENERAL 
RURAL  HEALTH  CLINICS:

GROWTH,  ACCESS,  AND  PAYMENT 
SEWIQ3
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JUNE  GIBBS  BROWN 
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JULY  1996 
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OEI-0WM40040  OFFICE  OF INSPECrOR  GENERAL 
The missionof 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 Semites (HHS) 
programs as well as the health and welfare of beneficiaries served by those programs.  This 
statutoty mission is carried out through a nationwide network of audits, investigations, and 
inspections conducted by three OIG operating components:  the Office of Audit Services, the 
Office of Investigations, and the Office of Evaluation and Inspections.  The OIG also informs 
the Secretary of HHS of program and management problems and recommends courses to 
correct them. 
OFFICE  OF AUDIT  SERVICES 
The OIGS Office of Audit Semites (OAS) provides all auditing semices 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 in order to reduce waste, abuse, and 
mismanagement and to promote economy and efficiency throughout  the Department. 
OFFICE  OF  INVESTIGATIONS 
The OIGS Office of Investigations (01) conducts criminal, civil, and administrative 
investigations of allegations of wrongdoing in HHS programs or to HHS beneficiaries and of 
unjust enrichment by providers.  The investigative efforts of 01 lead to criminal convictions, 
administrative sanctions, or civil money penalties.  The 01 also oversees State Medicaid fraud 
control units which investigate and prosecute fraud and patient abuse in the Medicaid program. 
OFFICE  OF  EVALUATION  AND  INSPECHONS 
The OIGS Office of Evaluation and Inspections (OEI) conducts short-term management and 
program evaluations (called inspections) that focus on issues of concern to the Department, 
the Congress, and the public.  The findings and recommendations contained in these inspection 
reports generate  rapid, accurate, and up-to-date information on the efficiency, vulnerability, 
and effectiveness of departmental  programs. 
This report was prepared under the direction of William Moran, the Regional Inspector 
General for the Office of Evaluation and Inspections, and Natalie Coen, Deputy Regional 
Inspector General, Office of Evaluation and Inspections, Region V.  Participating in this 
project were the following people: 
Rezion V  Headquarters 
Barbara Butq Team Leader  Wynethea Walker 
Joseph Penkrot  Alan Levine 
To obtain a copy of this report, call the Chicago Regional Office at 312/353-4124.  EXECUTIVE  SUMMARY 
PURPOSE 
Analyze  the recent  growth  of rural  health  clinics and  its implications  for the  Federal 
Government  and  States. 
BACKGROUND 
The  Rural  Health  Clinic program,  createdin  1977 by Public  L.aw95-210,  is intended 
to increase  access  to health  care  for rural  medically  underserved  areas  and  expand  the 
use  of midlevel  practitioners  (nurse  practitioners,  physician  assistants  and  certified 
nurse  midwives)  in rural  communities.  Rural  health  clinics (RHCS)  receive  cost-based 
reimbursement  from  Medicare  and  Medicaid.  The  Health  Care  Financing 
Administration  (HCFA)  is responsible  for certification  and  oversight  of RHCS. 
Recently,  several  States  have  expressed  concern  about  the  growth  of RHCS  in their 
States  and  the  associated  Medicaid  costs.  They  have  asked  for written  guidance 
and/or  the  authority  to regulate  RHCS with regard  to a number  of aspects. 
This  report  is intended  to refine  our  general  understanding  of the  extent,  location,  and 
impact  of the  growth  of rural  health  clinics, and  to identify  vulnerabilities  for 
immediate  attention  and  issues for further  investigation.  It is based  on quantitative 
data  from  several  sources,  comments  from  States,  and  conversations  with  over  200 
people  at  27 rural  health  clinics in 3 States,  State  and  local  government  agencies,  the 
National  Association  of Rural  Health  Clinics, and  a HCFA  workgroup  on RHCS. 
FINDINGS 
RECENT  GROWTH.  Rural health clinks  and associated  Medicare  and Medicaid 
expenditures  have grown substantially since  1990. 
Rural health  clinics grew 650 percent  from  the  end  of 1990 to October  1995.

Projected  growth  for  1994 and  1995 could  be  150 percent.  Expansion  in 30 States

could  be  100 percent  or more  in that  2-year  period;  in  13 States,  RHCS  could  increase

by over  200 percent.

Medicare  and  Medicaid  expenditures  for rural  health  clinics have  more  than  doubled

since  1991.  In fiscal year  (FY)  1995, Medicare  expenditures  increased  from  $78

million  to $125 million,  and  Medicaid  expenditures,  from  $325 million  to $439 million.

Medicaid  outlays  for FY  1992 through  1995 ($876 million)  were  about  three  times

Medicare  outlays  ($296 million).  Forty  percent  of States  with RHCS  reported

increases  of 50 percent  or more  in RHC  Medicaid  expenditures  in a  l-year  period.

i  REASONS  FOR  GROWTH.  Four interrelated  factors appear to be driving the 
recent growth of rural health clinics: providing access to care, reimbursemen~ 
managed  care, and the certification process. 
Our  respondents  mentioned  the  first three  factors  most  often  when  describing  the 
reasons  they  established  an RHC.  We  conclude  that  the  certification  process  also is 
driving RHC  growth  because  it operates  similarly  to that  of an entitlement  program, 
where  any entity  meeting  certain  broad  criteria  is automatically  certified. 
We cannot  be  certain  of whether  the  recent  spurt  of growth  in RHCS  represents  a 
positive  development,  in terms  of opening  access  to care,  or a negative  one,  in terms 
of cost or excess capacity.  However,  we do have  reason  to raise  some  concerns  for 
immediate  action  or further  study. 
ACCESS TO CARE.  Rural health clinics maybe  increasing access  to care in some 
areas but not in others.  We found no reliable  data quantifying the impact of RHCS 
on access  to care. 
We visited  some  RHCS  that  appear  to be increasing  access  to care  as the  law 
intended.  However  we also believe  that  RHCS in some  areas  are  not  increasing 
access,  for several  reasons.  They  may not be  located  in true  medically  underserved 
areas  because  undersexed  designations  are  outdated  or inappropriate.  Or, providers 
currently  serving  the  medically  undersexed  population  may simply convert  to RHC 
status  when  no additional  incentives  were  needed  to retain  them.  Rural  health  clinics 
may be  concentrated  together  or in areas  with  other  providers  serving  a similar 
population,  thereby  duplicating  services  already  amply  available. 
REIMBURSEMENT.  Rural health clinics are paid based on their costs, which may 
be inflated or inappropriate  but are diflkult  and sometimes  impossl%le to verify or 
audit without significant resource  expenditure by the Government. 
Vulnerabilities  inherent  in the  cost reimbursement  system  are  apparent  in the  rural 
health  clinic program.  There  is little  or no incentive  for efficiency,  there  are 
opportunities  for inflated  and  inappropriate  payments  (especially  given the  lack  of 
itemized  billing  for most  independent  RHCS),  and  the  process  overall  is cumbersome, 
comple~  and  difficult  and  expensive  to oversee.  Federal  and  State  oversight  of RHCS 
is sorely  lacking. 
RECOMMENDATIONS 
CERTIFICATION  PROCESS.  The HCF~  with the Health  Resources  and Services 
Administratio~  should modi@ the RHC  certification  process to increase  State 
involvement  and ensure more strategic placement  of rural health clinks. 
This  responds  to State  concerns  and  promotes  a more  rational  and  strategic  placement 
ii  of RHCS  to ensure  that  government  dollars  translate  into  increased  access.  We 
suggest  a variety  of ways in which  HCFA  could  implement  the  recommendation. 
REGULATIONS.  The  HCFA  should expedite  the issuance of regulations now under 
development. 
This responds  to States  requests  for guidance,  in such matters  as commingling  and 
provider-based  reimbursement,  to assist them  in monitoring  and  evaluating  RHCS. 
REIMBURSEMENT  METHODOLOGY.  The  HCFA  should take intermediate  steps 
to improve  the oversight and functioning of the current cost reimbursement  systerq 
with the long term goal of implementing  a different payment method. 
This addresses  problems we identify relative to the current cost reimbursement  system 
for RHCS, both  now and  in the  long term.  It would  lead  to the  implementation  of a 
new payment  method  which would  provide  an incentive  for primary  care  in rural  areas 
and  eliminate  the vulnerabilities  inherent  in cost reimbursement. 
COMMENTS 
The  Health  Care  Financing  Administration,  the  Health  Resources  and  Services 
Administration  (HRSA),  and  the  Assistant  Secretary  for Planning  and  Evaluation 
(ASPE)  submitted  written  comments  on the  draft  report.  Copies  of the  comments  are 
in Appendix  A.  They  all concur  generally  with the  recommendations,  but  expressed 
concerns  and  suggestions  regarding  various  aspects  of the  steps  proposed  to carry 
them  out.  We  look  forward  to future  discussions  with HCFA  and  HRSA  concerning 
their  action  plans  for implementing  the  recommendations. 
Comments  from  ASPE  also posed  questions  related  to the  nature  of RHC  growth,  the 
relationship  between  RHCS  and  access  to care,  and  how RHCS might  be  affected  by 
the  growing  involvement  of Medicare  and  Medicaid  in managed  care.  These  are 
important  issues, but  unfortunately  are  beyond  the  scope  of this study.  We  hope  that 
these  issues will be  addressed  in future  studies  of the  rural  health  clinic program  by 
ASPE,  HCF~  or others. 
The  National  Association  of Rural  Health  Clinics and  the  National  Rural  Health 
Association  also submitted  extensive  comments.  They  view the  report  as unduly 
critical  of RHC  growth  and  stress  the  continuing  need  for incentives  to retain  and 
attract  primary  care  to underserved  rural  areas.  However,  they  also  recognize  that 
many  of the  problems  raised  in the  report  merit  attention.  Like  HCF~  HRS~  and 
ASPE,  they  support  our  recommendations  while  disagreeing  with  some  of the  steps 
proposed  to implement  them.  We have  provided  copies  of their  comments  to HCF~ 
HRS~  and  ASPE. 
We  thank  everyone  for their  comments  on this report.  We  have  made  changes  in the 
text in response. 
... 
111  TABLE  OF  CONTENTS

PAGE

EXECUTIVE  suMMARY

INTRODUCTION  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  1

FINDINGS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...4


Recent  Program  Growth  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  4

 Reasons  for Growth..  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..8

 Access  to Care....  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  10

 Reimbursement  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  13

RECOMMENDATIONS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  17

 Certification  Process  . . . . . . . . . . . ..O  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  17


Regulations  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  18


Reimbursement  Methodology  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  18

 Comments  . ..oo...  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  19

APPENDIX  A  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..  A-1
 INTRODUCTION

PURPOSE 
Analyze  the  recent  growth  of rural  health  clinics and  its implications  for the  Federal 
Government  and  States. 
BACKGROUND 
Nationally,  rural  health  clinics (RHCS)  grew from  29 in 1978 to 2,199 in March  1995,

when  this study was initiated.  Half  of all RHCS in the  U.S. were  certified  in the  18

months  between  October  1993 and  March  1995.

Public  Law  95-210 created  the  Rural  Health  Clinic program  in 1977.  The  program  is

intended  to increase  access  to health  care  for rural  medically  underserved  areas  and  to

expand  the  use  of midlevel  practitioners  (nurse  practitioners,  physician  assistants  and

certified  nurse  midwives)  in rural  communities.  The  law created  cost-based  Medicare

and  Medicaid  reimbursement  for RHCS.  Between  1987 and  1993, Congress  passed

several  amendments  to the  Act intended  to overcome  various  obstacles  to

participation  in the  program.

The  Health  Care  Financing  Administration  (HCFA)  is responsible  for  certification  and

oversight  of RHCS.  Following  a State  survey funded  by HCF~  an RHC  is certified  as

Medicare-eligible  by HCFA.  Medicaid  certification  follows automatically.

An RHC  must  be  engaged  primarily  in providing  outpatient  prima~  medical  care.

Covered  (core)  services  are:  services  provided  by a physician,  physician  assistant,  nurse

practitioner/midwife,  clinical  psychologist,  or clinical  social worker;  semices  and

supplies  incident  to the  semices  of these  providers;  pneumococcal  and  influenza

vaccines  and  their  administration;  and  visiting nurse  home  health  services  (in specially

designated  areas).  An RHC  maybe  independent  (owned  by a physician,  nurse

practitioner,  physicians  assistant,  or private  company),  or provider-based  (an  integral

part  of a hospital,  nursing  home  or home  health  agency).

An RHC  must  be  located  in a rural  areal  that  is medically  underserved.  A medically

underserved  area  is an area  designated  as medically  underserved  by a Public  Health

Sexvice formula,  a health  professional  shortage  area,  or a shortage  area  designated  by

a governor.  Also eligible  are  areas  including  a population  group  which  has  a health

professional  shortage,  and  high migrant  impact  areas.  Rural  health  clinics retain  their

RHC  status  even  if their  location  is subsequently  determined  to no longer  be  rural  or

medically  underserved.

1 For purposes  of this program,  rural is defined  as non-urbanized,  that is, lying outside  of urbanized areas. 
The U.S. Bureau  of the Census defines an urbanized  area as a central city (or cities) and its contiguous  closely 
settled  territory  with a combined  population  of at least 50,000. 
1  Rural  health  clinics receive  cost-based  reimbursement  for the  core  sewices  listed 
previously.  Independent  RHCS receive  Medicare  and  Medicaid  reimbursement  limited 
to their  actual  costs, not  to exceed  $55.53 per  visit (a face to face  encounter between 
a patient  and  a covered  service  health  care  practitioner)  in 1995.  This  cap  is 
adjusted  annually  according  to the  Medicare  Economic  Index.  Provider-based  RHCS 
receive  the  lower  of reasonable  costs or charges,  and  unlike  independent  RHCS, are 
not  subject  to either  a reimbursement  cap  or productivity  standard  (a minimum 
number  of visits per  year  physician  or midlevel  practitioner). 
In addition,  RHCS  may bill fee-for-semice  for certain  State-specific  Medicaid  non-core 
ambulatory  services  (such  as dental  services  or pharmaceuticals).  Also,  a practice  is 
allowed  to operate  part  of the  time  as an RHC  and  part  as a fee-for-sexvice  practice. 
In connection  with  expressing  concerns  about  the  rapid  growth  of RHCS  and  their 
associated  Medicaid  costs, some  States  have  asked  for written  guidance  and/or  the 
authority  to regulate  RHCS with regard  to a number  of aspects.  In response  to these 
concerns  and  questions,  HCFA  established  a rural  health  clinic workgroup  in 1994. 
This group  has been  involved,  among  other  things,  in the  development  of regulations 
for the  program. 
SCOPE AND  METHODOLOGY 
This  report  provides  an analysis  of the  growth  of rural  health  clinics.  It identifies 
vulnerabilities  for immediate  attention  and  broader  issues for further  investigation.  It 
is based  on data  from  several  sources. 
The  HCFAS On Line  Survey,  Certification  and  Reporting  System  provided  data  on 
the  number  of RHCS by State.  The  HCFA  regional  offices  and  States  provided  us the 
number  of RHC  applications  pending.  State  Medicaid  agencies  gave  us data  on 
Medicaid  expenditures  for RHCS, sometimes  with  additional  comments  about  RHC 
growth  and  its impact. 
We also conducted  a case  study of three  States  (Illinois,  Mississippi,  and  Texas)  where 
RHC  growth  has been  high, visiting State  agencies  and  27 RHCS in these  States, 
located  in counties  where  RHCS have  proliferated.  We  sought  a cross-section  of each 
countys RHCS  in terms  of type  (independent  versus  provider-based;  general  practice 
versus  specialty),  ownership,  operation  by a physician  versus  a midlevel  practitioner, 
size of practice,  location,  and  years  of operation.  Thus  the  sample  included  RHCS  as 
varied  as large  group  practices  with many  physicians  and  midlevel  practitioners  and 
over  50,000 visits a year,  and  clinics operated  by solo midlevel  practitioners  with 
remote  physician  supervision  and  as little  as  1,277 visits a year.  We  also analyzed  25 
cost reports  for these  RHCS. 
Field  visits included  discussions  with  clinic owners and  staff, review  of data,  and 
personal  observation.  Clinic tours  gave  a sense  of general  clinic atmosphere,  patient 
2  flow, personal  characteristics  of staff and  patients,  and  administrative  procedures  at

the  RHCS.  Additionally,  for a sense  of the  geographic  and  demographic

characteristics  of each  area,  we drove  around  each  county  in our  sample  to view every

RHC  - their  size and  appearance,  whether  they  appeared  busy, the  general  setting,

and  the  proximity  of other  medical  facilities,  especially  hospitals,  clinics, and  physician

offices.  In some  cases where  primary  care  appeared  to us to be  readily  available,  we

supplemented  our  observations  and  conversations  with  a review  of the  Yellow  Pages

of the  telephone  book  (Physicians).  We  sometimes  talked  to local  staff  of welfare,

public  health  or other  agencies  for a sense  of how the  RHCS in our  sample  were

viewed,  and  a description  of health  care  availability  and  access  in the  area.

In addition  to our  observations  on site, formal  data  collection,  and  interviews,  we read

or heard  unsolicited  comments  about  RHC  growth  from  a number  of sources:  letters

to HCFA  from  States,  comments  volunteered  to us by States  submitting  Medicaid

data,  comments  by States  on our  design  questions,  and  even  discussions  and  questions

at a national  conference  on rural  health.  In all, we spoke  or heard  in writing  from

over  200 individuals,  by telephone  and  in person,  about  RHC  proliferation  and  its

implications.  These  include  people2  at the  27 RHCS in the  case  study,  officials  of

State  and  local  government  agencies,  consultants,  representatives  of the  National

Association  of Rural  Health  Clinics, and  HCFAS workgroup  on rural  health  clinics.

2 owners,  medieal directors,  physicians, midlevel practitioners,  and others. 
3  FINDINGS

RECENT  GROWITI.  Rural  health  clinics and associated  Medicare  and 
Medicaid  expenditures  have grown substantially since  1990. 
Growthof RHO  began to accelerate rapidly in 1990.  The national growth rate for 1994 
and 1995 cornbihed could be abnost  150 pmenti 
Most  of the  growth  of RHCS nationally

has  occurred  since  1991.  Eighty-seven  NationalGrowth of Rural Health Clinics

percent  of the  RHCS operating  in  m.  Iwo-lw& 
October  1995 were  certified  after  1991. 
m. 
Figure  1 shows national  growth  from 
the  end  of 1990, when  there  were  314 
1s00

RHCS,  to October  1995, when  there 
la 
were  2,350.  This  is an increase  of about 
650 percent. 
Soo 
Growth  accelerated  notably  in  1994 and  o 
t2/m 
12/91  U/W  12/93  12/94  1W9S 
continues  at a fast pace  today.3 Figure 
Ykd  Smummdy 
2 on the  next  page  shows projected 
RHC  growth,  broken  down by State,  in  Figure1 
calendar  years  1994 and  1995 combined. 
Nationally,  RHCS  more  than  doubled  (103 percent)  in the  15 months  from  January 
1994 through  October  1995.  This  increase  will be  nearly  150 percent  if the  580 
applicants  awaiting  certification  as of October  1995 are  certified  by years  end. 
The  projected  RHC  growth  rate4 varies  widely by State.  However,  30 States  could 
experience  growth  of 100 percent  or more  in the  2-year  period,  and  13 States  could 
see  expansion  exceed  200 percent.  Ten  States  will likely have  at least  100 RHCS by 
the  end  of 1995.  These  10 States  would  then  comprise  more  than  half  (56 percent)  of 
the  RHCs  in the  U.S.  Between  January  1, 1994 and  December  31, 1995, the  average 
growth  rate  of RHCS  in these  States  is projected  to be  161 percent;  7 States  may 
experience  growth  of 170 percent  or more.  Texas,  with by far  the  highest  number  of 
RHCS  (almost  three  times  more  than  California,  the  next  highest  State),  could  see 
growth  of 181 percent  in that  period. 
3 There  is no difference  in the growth of independent  versus provider-based  RHCs  nationally, although 
differenceascrossStates  undoubtedly  exjst. 
4 Projected  growth equals  the number  of RHCs  certified  from January  1994 to October  1995, plus the number 
of applications  pending  as of October  1995. 
4  Figure 2 
ACTUAL AND PROJECTED GROWTH OF RURAL HEALTH CUNICS: 1994 AND 1995 
(D.soonding order by total projected as of 12/95) 
ACTUAL  ACTUAL  APPUCATIONS  PROJECTED  PROJECTED 
AS OF  AS OF  PENDING  AS OF  GROWTH 
STATE  1/94  10/95  10195  12195  1/94 TO 12/95 
._- ...._---__  -... .------ ............. .. ----------------------- ---------------- ------------------------
TEXAS  193  367  175  542  181% 
CAUFORNIA
 93  146  44  190  104% 
ILUNOIS
 48  113  41  154  221% 
KANSAS
 77  133  16  149  94% 
MISSISSIPPI
 49  139  6  145  196% 
MISSOURI
 46  115  14  129  180% 
IOWA
 33  98  16  114  245% 
NORTH CAROUNA
 66  105  5  110  62% 
SOUTH CAROUNA
 22  52  53  105  377% 
FLORIDA
 37  98  2  100  170% 
ARKANSAS
 41  95  0  95  132% 
GEORGIA
 40  90  1  91  128% 
OKIAHOMA
 28  78  12  90  221% 
MICHIGAN
 38  82  7  89  134% 
LOUISIANA
 7  49  35  64  1100% 
NORTH DAKOTA
 47  69  6  75  60% 
ALABAMA
 23  61  12  73  217% 
TENNESSEE
 36  70  2  72  100% 
NEBRASKA
 26  57  8  65  150% 
WISCONSIN
 18  33  29  62  244% 
SOUTH DAKOTA
 37  44  6  50  35% 
PENNSYLVANIA
 20  33  10  43  115% 
WASHINGTON
 22  32  10  42  91% 
WEST VIRGINIA
 30  41  0  41  37% 
MINNESOTA
 17  36  4  40  135% 
COLORADO
 16  26  13  39  144% 
KENTUCKY
 15  34  3  37  147% 
VIRGINIA
 7  27  6  35  400% 
UTAH
 12  14  18  32  167% 
MONTANA
 20  24  5  29  45% 
MAINE
 10  26  0  26  160% 
IDAHO
 16  22  1  23  44% 
OREGON
 20  21  0  21  5% 
INDIANA
 2  12  5  17  750% 
WYOMING
 5  13  4  17  240% 
VERMONT
 5  16  0  16  220% 
NEW HAMPSHIRE
 1  14  0  14  1300% 
NEW MEXICO
 6  10  4  14  75% 
AW3KA
 6  9  4  13  117% 
NEW YORK
 0  11  0  11  NA 
ARIZONA
 2  7  not avail.  7  250% 
OHIO
 4  4  1  5  25% 
HAWAII
 2  2  0  2  o% 
RHODE ISIAND
 0  1  0  1  NA 
NEVADA
 0  1  not avail.  1,  NA 
TOTAL
 1,247  2,530  580  3,110  149% 
 CT, DE, MA, MD, NJ, WASHINGTON  D.C.: O RHCS 
. i Cornbihed Mkdicare and Medicaid  qvenditures  for nual health clinics have more than 
doubled  since 1991. 
Figure  3 shows the  increase  in combined  Medicare  and  Medicaid  expenditures  for 
RHCS  for fiscal years  1992 through  1995 from  HCFA  data. 
Readers  should  be  aware  that  the  Medicaid  data  is not  complete.  Several  States  with 
RHCS  (most  notably  Texas,  the  State  with by far  the  most  RHCS)  are  not  included  in 
HCFA  data.  Also, FY  1995 data  is preliminary  only.  Despite  gaps,  however,  these 
figures  give some  notion  of the  rate  at which Medicaid  expenditures  on RHCS have 
increased. 
MEDICARE  AND  MEDICAID  EXPENDITURES  ON RHCS

Fiscal Years  1992-1995

($1.1 billion)

. 
Fiscal  Medicare  Percent  Medicaid  Percent  Total  Total Percent 
Year  Expend.  Increase  Expend.  Increase  Expend. ~Increase 
1992  $37M  - $ 122M  - $ 159M .-
1993  $ 56M  51%  $ 193M  58Ya  $ 249M  57% 
1994  $ 78M  39%  $ 247M  28%  $ 325M  31% 
1!395  $ 125M  60%  $ 314M  2790  $ 439M  35% 
Percent  23870  157%  176?Z0 
Increase 
* Preliminary/incomplete 
Figure3 
Growth  in RHC  expenditures  exceeded  200 percent  for Medicare  and  150 percent  for 
Medicaid  in this period.  Annual  Medicaid  outlays  were  about  three  times  greater  than 
Medicare  outlays  in every year.  For  the  4 years  combined,  Medicare  expenditures 
were  $296 million  and  Medicaid,  $876 million,  for a total  outlay  of $1.1 billion. 
Fo~  pement  of States with RlK3  Reprxt Si~~cant  l-Year  Growth in Mdicaid 
Thirty-two  of the  46 States  that  have  RHCS submitted  data  to us enabling  the 
calculation  of a l-year  change  in their  RHC  Medicaid  expenditures,  shown  in Figure  4. 
Most  States  provided  a comparison  of their  fiscal years  1994 and  1995. 
6
 Figure 4

ONE YEAR CHANGE IN RHC MEDICAID EXPENDlmRES  REPORTED BY 32 STATES

(Descending Order by percent change) 
CHANGE FROM 
STATE  YEAR  PAYMENTS  PREVIOUS YEAR  COMMENT 
..  - --- --  ---    ---------
LOUISIANA  1995  1,977,798  1146% 
ALABAMA  1995  3,379,349  194% 
OKLAHOMA  19%  2,711,269  163% 
IOWA  19s5  2,621,060  130% 
VERMONT  1994  1,340,923  116%  Jan-Sapt 95 only: $1,737,592 
MISSISSIPPI  12,0S9,000  107% 
SOUTH CAROUNA  1995  3,756,620  101%  Stat.  projects $8M for 96 
MISSOURI  1995  7,633,525  93% 
ARKANSAS  1995  2,622,341  90% 
KENTUCKY  4,415,551  63% 
WISCONSIN  1,060,875  80% 
MICHIGAN  1994  5,593,656  75% 
FLORIDA  4,954,580  74% 
GEORGIA  2,816,400  67% 
AIASKA  %,541  62% 
MINNESOTA  1,403,133  61% 
COLORADO  1994  673,161  60% 
KANSAS  3,196,324  51% 
TENNESSEE  1994  1,435,050  50%  RHCS now in Steta managed care program 
TEXAS  1994  22,130,101  47% 
NORTH CAROUNA  8,400,346  31% 
WASHINGTON  19s4  1,143,771  30% 
NORTH DAKOTA  1995  2,346,032  29% 
VIRGINIA  1994  375,059  21%  Jan-Sept 95 only $1 ,96M (up 400%+) 
CAUFORNIA  43,639,997  21% 
ILLINOIS  6,300,000  17% 
IDAHO  1994  3s0,563  16%  Jan-June 95 only: $429,158 
UTAH  199,128  8% 
MAINE  718,591  1% 
NEW YORK  944,521  1%  Extrapolated from State date 
WEST VIRGINIA  19s4  9,949,346  -20% 
OHIO  1995  1,163,329  -26%  5 of 12 RHCS converted to FQHCS 
Nineteen  of the 32 States experienced  an increase  of 50 percent  or more in RHC 
expenditures,  and 3 are close  to 50 percent  or well on their way to large increases  for 
1995.  Eight States saw increases  of more than 100 percent  in 1 year. 
Only two States reported  a decline  in RHC  expenditures;  in one,  almost  half  of the 
RHCS  converted  to federally  qualified  health  center  status,  which  in essence  only shifts 
costs from  one  category  to another  since  those  entities  are  also reimbursed  at  cost.5 
5 Medicaid  expenditures  in a third State, Tennessee,  may also decline as a distinct provider  group  since all RI-Ks 
there have been  folded into the States managed  care system. 
7  Certain  examples  of recent  growth  stand  out. 
	 In Kansas  (133 RHCS  at present),  expenditures  jumped  50 percent  in  1995, 
and  according  to the  State,  are  headed  for another  increase  of at least  30 
percent  in 1996. 
In Virginia  (27 RHCS),  expenditures  rose  only 21 percent  in 1994, but  the 
State  reported  expenditures  of nearly  $2 million  for the  first 9 months  of 
1995 alone,  an increase  of over  400 percent. 
	 Louisiana  (49 RHCS)  is experiencing  spectacular  growth,  with a 63 percent 
increase  in RHCS from  May to October  1995, 35 applications  pending,  and  a 
l-year  rise in expenditures  from  some  $159,000 to almost  $2 million. 
	 In South  Carolina  (52 RHCS),  expenditures  increased  101 percent  to about 
$3.7 million  in 1995, and  the  State  projects  expenditures  of $8 million  for 
1996, another  potential  l-year  increase  of 116 percent. 
Some  States,  both  those  on this chart  and  others,  may see  a significant  increase  in FY 
1996 because  many  of their  RHCS are  newly certified  and just  beginning  to bill. 
REASONS  FOR  GROWTH.  Four  interrelated  factors  appear  to be 
driving the recent  growth of rural health  clinics: access  to  care, 
reimbursement,  managed  care,  and the certification  process. 
Several  factors  appear  to be  driving the  growth  of RHCS.  The  first three  are 
marketplace  forces  that,  for many  RHCS we visited,  appear  to have  interacted  to drive 
their  creation.  For  example,  a physician  practice  struggling  financially  with a high 
proportion  of Medicare  and  Medicaid  patients  maybe  driven  to become  an RHC 
primarily  for enhanced  reimbursement,  but  may also be  genuinely  interested  in serving 
more  patients  by adding  a midlevel  practitioner.  Similarly,  a rural  hospital  maybe 
primarily  concerned  with surviving under  managed  care,  but  also be  motivated  by a 
desire  to create  an outpatient  care  presence  in their  area. 
Desire to create, expand, or maintain  access to primay  care in rural areas.  The  next 
finding  in this report  describes  RHCS we visited  that  appear  to have  enhanced  access 
to care  in various  ways.  Respondents  at practices  that  had  converted  to RHC  status 
said it enabled  them  to remain  in their  communities,  to serve  (more)  Medicaid 
patients,  or to serve  more  people  by adding  a midlevel  practitioner.  A few 
freestanding  practices  had  been  set up initially  in areas  with  no other  care. 
Respondents  at provider-based  RHCS tended  to give other  answers  first when  asked 
why they  established  the  RHC. 
We believe  that  the  creation  of the  Office  of Rural  Health  Policy, within  the  Public 
Health  Service,  in  1990 has  also helped  publicize  and  promote  the  potential  for 
increasing  access  through  the  rural  health  clinic program.  In some  States,  changes  in 
8  State  laws governing  the  utilization  of midlevel  practitioners  have  also facilitated  RHC 
growth. 
I?ornke  of enhanced  revenue through cos~reimbursement.  This is the  main  reason  given 
to us at physician  practices  that  converted  to RHC  status.  Our  respondents  told  us 
that  enhanced  reimbursement  has also led  companies  to buy and  convert  physician 
practices,  and  induced  hospitals  to establish  new RHCS, either  to compensate  for 
reduced  in-patient  revenue  or to divert  emergency  room  patients  to more  appropriate 
(i.e., outpatient)  care. 
Approach  of managed  care.  Managed  care  was of considerable  interest  or concern  for 
many  of our  case  study respondents,  although  few had  any concrete  notion  of how it 
might  arrive  in their  area,  what  form  it might  take,  or how they  might  be  affected. 
Nine  of the  10 provider-based  (mostly  hospitals)  RHCS in our  sample  said that 
positioning  for managed  care  was a major  reason  for their  establishing  an RHC,  and 
most  were  part  of a network  of several  RHCS in an area.  Two of the  largest 
independent  RHCS  (group  practices)  and  a company  that  owns  11 RHCS in one  State 
also mentioned  this.  Respondents  said they  expected  their  RHCS to help  establish 
market  share,  create  a referral  base  or network,  or enhance  community  visibility of the 
parent  provider  generally. 
The  strength  of managed  care  as a force  behind  creating  an RI-IC may explain  why 
the  owner-representatives  of 8 of the  10 provider-based  RHCS said  they  are 
maintaining  the  RHCS  despite  losing money,  in part  due  to low patient  load. 
Certification process.  We view the  RHC  certification  process  itself  as another  factor  in 
RHC  growth.  It is similar  to that  of an entitlement  program,  in that  an  applicant  that 
meets  certain  location  requirements  (in this case,  is in a rural  federally  or governor-
designated  medically  underserved  area)  as well as certain  federal  health  and  safety 
requirements,  is approved  to participate  in the  Medicare  and  Medicaid  programs. 
Applicants  are  not  required  to document  the  potential  impact  of establishing  an RHC. 
No requirements  exist that  RHCS be  created  in areas  of greatest  need  and  no limits 
exist cm the  number  of clinics that  may be  established  in an area.  Also,  an RHC 
retains  its status,  including  cost-reimbursement,  even  if its location  is subsequently 
determined  to no longer  be  rural  or medically  underserved.  The  next  finding  describes 
questionable  situations  that  can  arise  as a result  of failing  to limit  RHC  growth  in an 
area  or target  RHCS in a more  strategic  manner  generally. 
We cannot  be  certain  of whether  the  recent  spurt  of growth  in RHCS  is a positive 
development,  in terms  of opening  access  to care,  or negative,  in terms  of cost  or 
excess capacity.  However,  as the  next  section  of the  report  shows, a lack  of good  data, 
our  observations  on site,  and  feedback  from  some  States  all point  to concerns  for 
immediate  action  or further  study. 
9  ACCESS  TO  CARE.  RuraI  heakh  clinics may be increasing  access  to 
care  as intended by law in some areas,  but not in others.  We  found no 
reliable data  quantifying the impact of RHCS on access  to care. 
Some IWK3  we virited ap~ar  to be filling a need for primmy  care in mral areas. 
In all three  case-study  States,  we visited  RHCS which  appear  to have  retained  or 
expanded  primary  care  in rural  areas.  Some  were  the  only source  of primary  care  in 
their  areas  - or had  been  at the  time  they were  established.  They  were  located  in very 
small  towns  in sparsely  populated  areas,  many  of them  staffed  by a lone  midlevel 
practitioner.  We visited  specialty  clinics (pediatrics;  obstetrics  and  gynecology)  which 
are  the  only providers  of such care  for miles  around.  We visited  clinics where 
respondents  said that  hiring  a midlevel  practitioner  had  enabled  them  to expand  office 
hours  or services.  We  met  midlevel  practitioners  who impressed  us with  their  ties to 
the  community,  One  such individual  is a physician  assistant  who recently  returned 
home  after  20 years  in the  Air Force  to staff a small  RHC  by himself,  making 
occasional  home  visits to homebound  patients  and  conducting  health  education 
campaigns  at local  football  games,  where  he serves  as the  team  medic. 
Respondents  gave  several  examples  of how they  think  their  RHCS have  increased 
access  to care.  Their  presence  in the  community  alone  has widened  access.  The 
enhanced  reimbursement  has  kept  them  in business  or enabled  them  to seine  more 
Medicaid  patients  (specifically).  They  provide  an alternative  to inappropriate  and 
more-expensive  emergency  room  care  (noted  by provider-based  RHCS).  Midlevel 
practitioners  at RHCS have  increased  the  number  of patients  seen  in existing  practices 
and  brought  excellent  primary  care  to rural  areas,  including  preventive  care  and  health 
education.  Rural  health  clinics have  resulted  in increased  acceptance  of midlevel 
practitioners  by patients  and  physicians  alike. 
While  we believe  that  some  of the  RHCS we visited  have  increased  access  to care,  we 
found  no reliable  documentation  that  quantified  such increases. 
Howeve~  we ako  belkve  that RHCS may not always be increasing access to primury care 
as the kbw intended 
Our visits and data analysis also revealed  RHCS whose  impact  on access  to care  is 
questionable.  We  have  identified  four  reasons  why we believe  that  RHCS may not 
always be increasing  access  to care  as intended:  (1) They  may not  be  located  in true 
medically  underserved  areas,  because  designations  are  outdated  or inappropriate;  (2) 
Providers  currently  serving  the  medically  undersexed  population  may simply convert 
to RHC  status  when  no additional  incentives  were  needed  to retain  them;  (3) RHCS 
may be  concentrated  together,  or in areas  with  other  providers  serving  a similar 
population,  thereby  duplicating  services  already  amply  available;  and  (4) RHCS  may 
actually  have  a negative  impact  by driving out  other  providers  from  the  area  - either 
public  health  providers  with greater  accountability  for serving  the  medically 
underserved,  or primary  care  physicians.  Each  of these  reasons  is discussed  below. 
10  Medicallv  Underserved  Decimations

Medically  undersexed  designations  may be  outdated  and we question  their  validity  in

some  areas.  The  Federal  designations  for many  counties  in our  case  study had  not

been  updated  for years.  Two counties  with 8 and  10 RHCS had  only a governor

designation,  created  years  ago at the  request  of an individual  (a different  person  in

each  case)  desiring  to establish  an RHC.  We  also visited  areas  that  appeared  to have

a more  than  adequate  supply  of both  primary  and  specialty  care:  a city (3 RHCS)  with

a major  university  and  medical  school,  and  another  (5 RHCS)  with two hospitals  and

10 yellow pages  in the  telephone  book  listing clinics and  physicians,  including

numerous  specialties  (from  cardiology  to sports  medicine.)

A General  Accounting  Office  (GAO)  report  entitled  Health  Care  Shortage  Areas:

Designations  Not  a Useful  Tool  for Directing  Resources  to the  Undersexed,  released

in September  1995, recommends  that  the  current  designation  process  be  abandoned  in

favor  of program-specific  criteria  to be  developed  by the  Public  Health  Service  (PHS).

The  Health  Resources  and  Services  Administration,  in PHS,  has  commented  to GAO

disagreeing  with  their  conclusions  and  recommendations  and  describing  measures  they

are  taking  to strengthen  the  existing  designation  process.  They  also disagree  in its

comments  with  GAOs  statement  that  the  RHC  program  was created  for isolated  rural

communities  unable  to support  a physicians  practice.  Their  view is that  congress

more  broadly  intended  the  program  to sustain  and  increase  the  number  of primary

care  providers,  including  midlevel  practitioners,  in rural  underserved  areas.

Conversions

Physician  practices  (solo  and  group  practices,  large  and  small  practices)  are  converting

to RHC  status  but  do not  need  to demonstrate  whether  they  increase  access  to care  as

a result.  Two  of the  freestanding  RHCS in our  sample  were  established  in areas  with

no other  primary  care;  the  rest  were  existing  practices  that  converted,  many

respondents  noting  that  the  promise  of enhanced  reimbursement  was the  driving force

for conversion.

Conversion to RHC  status  for existing  practices  is not  necessarily  a bad  thing.  As

noted  previously,  it may preserve  or expand  a financially  shaky  practice  or bring

additional  care  through  midlevel  practitioners.  However,  we found  no  documentation

or indication  of any kind,  at the  RHC  or the  State  level, of how or the  extent  to which

conversions  have  increased  access  to care.

Concentration  of Providers

Concentrations  of RHCS  have  grown  up in some  places  adjacent  to or within  large

towns  rather  than  rural  areas.  For  example,  we visited  a small  city of 44,000 with an

RHC  with  12 physicians  and  4 midlevel  practitioners,  and  4 other  smaller  RHCS.  Five

more  RHCS  serve  the  other  35,000 people  in the  surroundingcounty.

Al  States  described,  and  we observed,  other  situations  that  raise  questions  about  whether 
additional  access  is needed  or provided:  RHCS located  next  door  to or across  the 
street  from  each  other;  single providers  who establish  multiple  sites in one  community; 
an RHC  located  inside  a hos  ital  or next  to an emergency  roomG; and  three  RHCS 
? 
licensed  at the  same  address. 
ImDact on Other  Providers 
Enhanced  reimbursement  was meant  to be an inducement  to providers  to come  to, or 
remain  in, communities  with  a lack of primary  care.  However,  in communities  with 
more  than  one  prima~  care  provider,  it gives the  RHCS  (whether  independent  or 
provider-based,  new in the  community  or conversions  of existing  practices)  a 
competitive  advantage  over  the  non-RHC  practices.8  Also, in some  places  we visited 
the  clustering  or concentration  of RHCS  appears  to increase  competition  for the  same 
patients  more  than  demonstrably  increase  access  for new patients. 
The  provider-based  reimbursement  mechanism,  specifically,  confers  a significant 
financial  advantage  to this type  of RHC  compared  to physician  practices,  whether 
RHCS  or not.  For  example,  demand  has driven  the  salaries  of midlevel  practitioners 
very high in some  areas;  not  subject  to a reimbursement  cap,  provider-based  RHCS 
can  absorb  these  salaries  more  easily than  independent  RHCS.  Also, provider-based 
RHCS which  capture  a significant  share  of Medicare  and  Medicaid  patients  may drive 
physician  practices  out  of business,  seriously  reducing  access  to primary  medical  care. 
This  concern  is expressed  by the  National  Association  of Rural  Health  Clinics  as well 
as some  States. 
In some  areas,  RHCS  are  being  established  very close to community  health  centers 
and  federally  qualified  health  centers.  The  concern  we heard  here  is that  RHCS may 
drive  these  entities  out  of business  in the  competition  for patients,  leaving  uninsured 
and  indigent  patients  without  a critical  source  of care.  Community  health  centers  and 
federally  qualified  health  centers  are  mandated  to seine  this population,  but  rural 
health  clinics are  not.  One  State  sent  us a map  showing  the  clustering  of these  entities 
there,  to illustrate  this concern. 
In two communities,  competing  hospital-based  RHCS  operate  seeing just  10-12 
patients  a day because  the  population  of the  area  is so sparse  (1,700).  Unlike 
6 One question  k%Is an in-house  RHC,  per se, any more  likely to expand access than an outpatient  department 
operating  on a fee-for-service  basis? 
7 The concern  here  is that a patient  could be sent to all three  clinics in one day for slightly different  seMces,  each 
visit paid at the encounter  rate. 
8 Data  we found  from three  States shows the comparison  there  between  average  Medicaid  reimbursement  per 
visit for RHCS versus  physician oftkes  $53.2S versus $3% $51.99 (independent)  and $76.84 (provider-based)  versus 
$2S.3% and $55.50 versus  $21.50.  Another  State  reported  that RHC  reimbursement  per visit there  is about double 
fee-for-service  reimbursement. 
12
 independent  RHCS,  they  can survive  despite  this low volume  because  they  are  not 
subject  to a productivity  standard  or a reimbursement  cap.  Each  RHC  naturally  tries 
to steer  patients  towards  its owner-hospital  and  away from  other  community  hospitals 
in the  area  which  may have  been  seining  them.  If this loss of business  led  one 
hospital  to close,  this might  deprive  the  area  of both  primaxy  and  tertiary  care. 
We found  no reliable duta quunh~ing the impact  of RHCk on access to care. 
All RHCS  are  required  to conduct  an annual  self-evaluation,  including  a review  of the 
utilization  of services,  including  the  number  of patients  sewed  and  volume  of services. 
However,  we found  that  many  of those  we visited  were  either  not  aware  of or did not 
understand  the  requirement,  did not  keep  all of the  data  required,  or lacked  detailed 
data.  Thus  we could  not  accurately  determine,  from  interviews  or review  of RHC 
records,  how many  patients  were  seen  in a year,  their  payor  status  (including  what 
proportion  are  uninsured/charity  care),  where  patients  lived in relation  to the  RHC,  or 
what  services  they  received  and  how often .9  Neither  could  we make  meaningful  year-
to-year  comparisons. 
State  officials  in our  three  case-study  States  also lack  data  on access  and,  like us, are 
eager  to know what  affect  RHCS have  had  on access.  One  State  public  health  agency 
had  funded  a study to document  access,  but  the  contractor  was unable  to proceed  due 
to the  nature  and  format  of the  Medicaid  data  available. 
This  program  has never  been  evaluated,  thus  no national  data  is available  on access. 
Recognizing  this important  information  gap,  both  HCFA  and  the  General  Accounting 
Office  (GAO)  have  begun  studies  of the  RHC  program  focused  on the  issue of access. 
REIMBURSEMENT.  Rural  health  clinics are  paid based  on their  costs, 
which may be inflated or inappropriate  but are  difficult and sometimes 
impossible to ve~  or audit without significant resource  expenditure  by 
the government. 
Cost  reimbursement  is well understood  as an extremely  vulnerable  mechanism  by 
which  to pay providers  of service.  It contains  little  or no incentive  for efficiency, 
provides  opportunities  for inflated  and  inappropriate  payments,  is cumbersome  and 
comple~  and  is difficult  and  expensive  to oversee.  Each  of these  vulnerabilities  is 
discussed  below  as it pertains  to the  RHC  program. 
9Availabldea ta,oftenincompleteu,s uallyshowedthenumberofannualvisibtysp ayotry per,a thetrhanan 
unduplicated  count  of patients.  We learned  earty on that this might not be an accurate  reflection  of who the clinic is 
serving when the physician-owner  of an RHC  told us that Medicaid  patients  were 65 percent  of all puhentsat his 
RHC,  but constituted  SO percent  of ail visits. 
13  Little  or No Incentive  for Efficiency

In the  three  case-study  States,  from  two-thirds  to  100 percent  of the  independent

RHCS  are  reimbursed  at the  capped  rate.  In one  State,  only 1 out  of 28 independent

RHCS in the  4 counties  we visited  received  less than  the  cap.  Also,  15 of the  17 cost

reports  for independent  RHCS in our  sample  showed  the  RHCS receiving  the  capped

rate,  with their  costs exceeding  the  cap;  the  other  2 reports  show costs just  under  the

cap.  This  comment  by a State  official  echoed  several  others  we heard:  There  seems

little  incentive  for RHCS to control  their  costs.  As the  Medicare  cap  increases  each

year,  so do their  costs.

Some  States  view cost reimbursement  as inflationary.  We  heard  of a few that  are

trying  to control  RHC  costs in different  ways.  At least  two States  have  imposed

interim  caps  on provider-based  Medicaid  reimbursement  and  five have  placed  limits

on the  number  of Medicaid  visits per  year  to RHCS.  We  know of two States  that

require  itemized  billing  (listing  of services  provided)  from  independent  RHCS.

(Provider-based  RHCS  reimbursed  on charges  already  itemize  their  bills).  Other

States,  via letters  to HCFA  or in conversations  with us, seek  increased  authority  to

impose  administrative  and  financial  controls  on RHCS generally.

We  heard  concerns  that  (uncapped)  billing by provider-based  RHCS, especially,  is

causing  rapid  increases  in Medicaid  costs in some  places.  In this light, one  State

reported  that  it may have  to implement  rate  reductions  for physicians  and  other

provider  groups  in order  to reimburse  these  types  of RHCS;  another  State  said that  it

may reduce  prescription  coverage  or the  number  of allowable  visits to  a physician  per

year,  or perhaps  delete  prescription  coverage  for the  disabled  and  elderly.  The  eight

cost reports  we reviewed  for provider-based  RHCS in our  sample  showed  costs higher

than  charges,  meaning  that  the  RHCS  are  reimbursed  on charges.

Inflated  or Inamxomiate  Costs

We  are  concerned  about  the  broad  definition  in the  law of an RHC  visit: a face-to-

face  encounter  between  a patient  and  a health  care  practitioner.  Some  RHCS we

visited  bill for some  encounters  where  they  only hand  out  prescription  refills  or test

results.  A Medicaid  fraud control unit in one State uncovered  such practices in a

preliminary investigation  of a few RHCS.  The  Medicaid  agency  there  was developing

a revised  definition  of an encounter  to make  sure  that  encounters  are  billed  only when

a patient  is assessed  by a health  care  professional.

The  States  where  we made  site visits and  a few others  express  concerns  about

potential  fraud  and  abuse  by RHCS:  manipulation  of cost  reports  (cost-loading,  cost-

shifting,  padding),  double-billing,  ping-ponging  clients  between  related  RHCS  for

unnecessary  visits, billing for unnecessa~  visits, making  unlimited  or unnecessary  visits

to patients  homes  or nursing  homes,  and  duplicate  billing  (encounter  plus fee-for

sexvice).  One  State  requested  a written  policy from  HCFA  on commingling,  where  a

practice  operates  part  of the  time  as an RHC  and  part  of the  time  as a fee-for-service

14  practice.l  Another  wrote  HCFA  expressing  concern  that  clinics there  are  padding 
cost reports  and  billing fee-for-sexvice  for core  RHC  services  (services  meant  to be 
covered  within  the  encounter  rate).  A third  State  wrote  to us noting  cases where 
several  RHCS were  licensed  at the  same  address,  which they  said  could  lead  to abuse 
by sending  a beneficiary  to all three  clinics on the  same  day for slightly different 
senfices. 
Monitoring  RHCS for these  kinds  of abuses  in a cost-reimbursement  system  is 
extremely  difficult  from  a practical  standpoint  given scarce  oversight  resources  at local, 
State  and  Federal  levels. 
The  lack  of a reimbursement  cap  is reportedly  driving  the  creation  of provider-based 
RHCS in a number  of ways.  Small hospitals  are  establishing  RHCS to shift costs in 
order  to stay financially  afloat.  Hospitals  are  buying  up  and  converting  physician 
practices  with  promises  of higher  salaries.  One  State  reported  that  in place  of an 
emergency  room,  a hospital  now has  a 24-hour  rural  health  clinic.  In another  case, 
the  physician-owner  of an independent  RHC  asked  a local  hospital  to buy him  out  so 
that  he  could  convert  to provider-based  status  for  enhanced  revenue. 
In our  sample  of cost reports  from  independent  RHCS,  annual  salaries  reported  for 
midlevel  practitioners  ranged  from  $18,983 to $112,996.  One  example  of questionable 
salary  was brought  to our  attention  by a State  official where  a physician  assistant  who 
owns two RHCS submitted  a cost report  showing  his salary  at $140,000 for  7 months 
of work;  an average  annual  salary  for midlevel  practitioners  in the  State  is reportedly 
$40-50,000.  The  official  said  that  the  $140,000 was approved  by the  intermediary 
without  an audit,  but  that  the  State  views $140,000  as excessive  and  has  refused  to 
pay, asking  for HCFA  guidance  on reasonable  reimbursement  in the  absence  of 
regulations. 
As noted  previously,  almost  all the  25 cost reports  for our  sampled  RHCS  showed  the 
costs of the  RHC  exceeding  the  capped  rate  (independent)  or charges  (provider-
based).  This  could  mean  that  the  RHC  is losing money  treating  Medicare  and 
Medicaid  patients,  despite  rapidly  escalating  Medicare  and  Medicaid  costs.  Or,  costs 
might not be  reported  accurately,  might  be  inflated  to maintain  a basis  for higher 
billing, or could  be  shifted  to the  RHC  portion  of a practice  that  operates  some  of the 
time  fee-for-sexvice.  Possibly, private-pay  reimbursement  is subsidizing  treatment  for 
Medicare  and  Medicaid  patients.  Whatever  the  reason(s),  only a thorough  audit  of 
the  cost reports  would  reveal  why costs so often  exceed  charges. 
Independent  RHCS  are  not  required  to itemize  billing.  Also, if an RHC  physician  bills 
fee-for-service  as well as the  encounter  rate,  we cannot  be  sure  that  billing  is 
10A  physician we vished operates  a pediatric  practice as an RHC  and a fee-for-service  aller~  practice  in the 
same building.  Commingling refers  to the commingling  of the assets, staff, records,  and resources  between  the 
RHC  and fee-for-service  portions  of such a practice,  acknowledged  by HCFA  to hold potential  for abuse.  We 
understand  that consultants  sometimes  advise physicians to maximize revenue  by operating  in this way. 
15  appropriate  and  not  duplicative.  Only a medical  record  review  and/or  audit  will 
identify  what  services  these  RHCS are  providing,  for what  cost.  Yet,  reviews  and 
audits  are  time-consuming  and  costly. 
Complexity  of the  Svstem 
Cost  reports  are  complex  and  the  cost reporting  process  cumbersome,  especially  for

small  independent  RHCS, either  newly established  or conversions,  which  lack  prior

experience  with  cost reporting  and  do not  contract  with an accounting  firm for this

purpose.  Some  respondents  in our  case  study reported  difficulties  understanding  and

correctly  completing  the  reports,  especially  the  first time  they  submitted  them.  An

employee  of a Medicare  intermediary  told  us that  many  of the  RHC  cost  reports  he

reviews  are  prepared  by people  who do not  understand  the  requirements.  We

ourselves  reviewed  cost reports  that  were  unsigned  or where  essential  schedules

needed  to calculate  reimbursement  were  incomplete.  One  report  had  been  rejected

by the  intermediary.  In order  to settle  RHC  cost reports,  it appears  that

intermediaries  must  often  spend  considerable  time  providing  technical  assistance  to

providers.

Lack  of oversight

Some  States,  viewing Federal  regulation,  oversight,  and  evaluation  of RHCS  as lacking,

have  asked  HCFA  for written  policy or administrative  guidance  on a number  of issues

such  as reimbursement  of provider-based  RHCsll  and  commingling,  noted

previously.

No site visits are  made  by HCFA  to an RHC  after  it has been  certified.  States  may

conduct  resurveys,  although  this appears  to be  rare  unless  a State  has  questions  about

a specific  provider.

It appears  that  none  of the  cost reports  we reviewed  had  been  thoroughly  audited  by

the  Medicare  intermediary.  Higher  priorities  (hospital,  nursing  home,  or home  health

agency  reviews,  for example),  plus the  expense  of full-scale  audits,  lead  intermediaries

to opt  for  desk-reviews  of most  RHC  cost reports,  where  they generally  compare  costs

from  year  to year  to determine  the  percent  of increase  and  request  additional

information,  if needed,  to document  questionable  costs.  This  is not  necessarily  a bad

technique  if the  first  cost report  submitted  has been  thoroughly  audited  and  base-line

costs established.  However,  we understand  that  this is rarely  done.

As for State  oversight,  it appears  that  most  State  Medicaid  agencies  rely heavily  on

Medicares  determination  of the  reimbursement  rate,  rarely  reviewing  cost reports

themselves  unless  they  receive  complaints  or have  particular  concerns  about  a specific

provider.

11TheAmerieanAcademyofFamilyPhysicianaslso called upon HCFA  to establish  an equitable  application  of 
Medieare  and Medicaid  payment  rules for independent  and provider-based  RHCS. 
16  RECOMMENDATIONS

Rural  health  clinics and  related  Medicare  and  Medicaid  expenditures  are  growing  at a

rapid  pace.  However,  given the  lack  of data  on the  program,  we do not  know what

we are  paying  for.  This  study reveals  systemic weaknesses  that  lead  to questions  about

whether  the  program  is expanding  access  to primary  care  as the  law intended,  and

whether  cost  reimbursement  remains  the  best  way to bring  primary  care  to

undersexed  rural  areas.  We make  three  recommendations  to HCFA  to address  our

concerns,  some  with  suggestions  of steps  that  could  be  taken  to implement  them.

Some  actions  are  administrative,  others  could  require  legislative  changes.  In any case,

we hope  they  provide  a focus  for discussion  about  how this program  can be

strengthened.

Since the GAO  and HCFA  are  now mounting  studies  on RHCS and  the  issue  of

access,  we have  not  made  a recommendation  in this area.  The  Assistant  Secretary  for

Planning  and  Evaluation  might  also be  interested  in funding  more  structured,

longitudinal  evaluations  looking  at this issue in the  future.

CERTIFICATION  PROCESS.  The HCF~  with the Health  Resources  and Sefices 
Adrninistratio~  should modify the certification process  to increase  State involvement 
and ensure more strategic placement  of rural health clinics. 
We recognize  that  some  States  have  actively  encouraged  RHC  growth  or express  no 
concerns  about  the  program  at this time,  and  we also believe  that  RHCS  are  needed 
in some  places.  However,  our  findings  also convince  us that  greater  effort  is needed 
in this program  to ensure  that  Government  dollars  translate  into  increased  access. 
Growth  should  be  a more  rational  and  strategic  process.  Also, giving States  more  of a 
voice  and  increased  control  over  RHC  certification  is consistent  with the  trend  toward 
greater  State  flexibility in administering  the  Medicaid  program  generally.  Some  ways 
to implement  this recommendation  are: 
 Implement  the  GAO  recommendation  to create  specific  undersexed 
designation  criteria  for this program.  Or,  refine  and  oversee  the  existing 
system  to ensure  that  designations  are  accurate  and  up-to-date  and  that 
areas  are  redesignated  as appropriate  and  in a timely  manner. 
 Find  ways to expand  the  involvement  of State  officials  (Medicaid  and  public 
health)  in the  certification  process. 
 Establish  new criteria,  in addition  to rural,  undersexed  designations,  that  will 
document  need  and  impact  on access  of new RHCS. 
. Require  applicants  to submit  a plan  documenting  need  and  projected 
impact. 
. Create  geographic  limits to eliminate  concentrations  of RHCS. 
17
 . Remind  States  that  they may implement  their  own criteria  via a certificate 
of need  or similar  process  they  create. 
  Require  recertification  of RHCS within  a specific  time  limit  (for  example,  5 
years),  applying  new criteria. 
REGULATIONS.  The HCFA  should expedite  the issuance of the regulations now 
under development. 
This  recommendation  responds  to States  requests  for guidance  in such matters  as 
commingling  and  provider-based  reimbursement.  This will assist them  in oversight  of 
rural  health  clinics. 
REIMBURSEMENT  METHODOLOGY.  The HCFA  should take intermediate  steps 
to improve the oversight and functioning of the current cost reimbursement  system, 
with the long term goal of implementing  a different method. 
Intermediate  steps  could  include: 
Require  itemized  Medicare  billing for independent  RHCS  and  encourage 
E	
States  to do the  same  for Medicaid  billing.  This  allows HCFA  to use 
payment  safeguards  currently  in place  for all fee-for-sexvice  billing.  It would 
be  useful  in identifying  fraud  and  abuse,  and  provide  data  on individual 
client  sefices  for evaluation  at both  the  national  and  State  level.  Existing 
codes  should  be  used,  with a new code  added  to capture  preventive  and 
health  education  activities. 
  Require  RHCS to provide  certified  financial  statements. 
 Implement  caps  on provider-based  RHCS,  and  allow States  to do so.  Or, 
find other  ways to make  reimbursement  between  provider-based  and 
independent  RHCS more  equitable. 
 Require  provider-based  RHCS to submit  cost report  worksheets  providing 
the  same  data  now required  of independent  RHCS. 
F	 Implement  controls  such as a clearer  definition  of an encounter,  itemized 
billing,  and  limits  on visits per  patient  per  year.  Remind  States  that  they 
may take  such measures  also. 
 To institute  consistency  and  uniformity  in claims  review,  designate  one 
Medicare  fiscal agent,  or one  per  region,  to process  all RHC  bills 
(independent  and  provider-based). 
Long  term steps could include: 
 Once  itemized  billing is instituted,  conduct  focused  audits  of RHCS  to 
identify  true  costs as a basis  for developing  a new reimbursement 
mechanism. 
 Ascertain  what  proportion  of independent  RHCS are  reimbursed  at the 
capped  rate.  If a strong  majority,  then  consider  proposing  the  elimination  of 
18
 cost reimbursement  and  reimburse  all independent  RHCS at a flat  rate, 
requiring  itemized  billing.  Increase  the  flat  rate  yearly  as appropriate. 
  Or, using data  collected  from  itemized  Medicare  and  Medicaid  RHC  bills, 
develop  an enhanced  fee  schedule  or a prospective  payment  system  to 
reimburse  all RHCS. 
COMMENTS 
The Health Care Financing Administration, the Health Resources and Semites Administration 
(HRSA), and the Assistant Secretary for Planning and Evaluation (ASPE) submitted written 
comments on the draft report.  Copies of the comments are in Appendix A- They all concur 
generally with the recommendations, but expressed concerns and suggestions regarding various 
aspects of the steps proposed to carry them out.  We look forward to future discussions with 
HCFA and HRSA concerning their action plans for implementing the recommendations. 
Commentsfrom ASPE also posed questions  related to the nature of RHC growth, the 
relationship between RHCS and access to care, and how RHCS might be affected by the 
growing involvement of Medicare and Medicaid in managed care.  These are important issues, 
but unfortunately are beyond the scope of this study.  We hope that these issues will be 
addressed in future studies of the rural health clinic program by ASPE, HCF~  or others. 
The National Association  of Rural Health Clinics and the National Rural Health Association 
also submitted extensive comments.  They view the report as unduly critical of RHC growth 
and stress the continuing need for incentives to retain and attract primary care to underserved 
rural areas.  However,  they also recognize that many of the problems raised in the report merit 
attention.  Like HCF~  HRS~  and ASPE,  they support our recommendations while 
disagreeing with some of the steps proposed  to implement them.  We have provided copies of 
their comments to HCF~  HRS~  and ASPE. 
We thank everyone for their comments on this report.  We have made changes in the text in 
response. 
19
 APPENDIX  A 
AGENCY CQMMENTS 
A-1  , -/-% 
4	
[  DEPARTMENT  OF HEALTH  ta HUMAN  SERVICES  t+edthCareFlnantingAdm{n{strntion 
\w
Tha Admlnigtrmw 
W88hlnfton, DC.  20208 
996 
JNIO!
DATE 
TO:	 June Gibbs Brown 
Inspeomr General 
*N 
FROM:	 Bruce C. Vladcc
Administrator 
suBJEcn  Office  ofInspectoGr eneraDl raflReport  Rural HealthClinics: GrowtlL 
Access, aad l%ymen~(OEL05-94-00040) 
We reviewed the above-referenced&aft reportwhich analyzes the r-t  growthofrursl 
healthclinics  ad  its implications for the Fedeml govemrnentandSbtiS,  Our COftUIICli~ 
an  attachedforyour oonsideratiou. 
Thankyou for the opportunityto revkw andcommcut  on this draftreport. 
Atfichmem 
A- 2  ~ 
Cutifkation Process. TheHCF& withtheHealthResourcesandServices 
Administrati~  should modifi the certilioationprocess to hwrease State involvement and 
ensuremom strategicplacementof ruralhcaitholinics (RHC). 
Q	 Implementthe GAO mommdaa  onto createspecific underserved designation 
criteriafm this prqram.  Or, refine andoveGec theexisting SYstcm to ensure that 
deaigmuions are acourate andup-to-dateandti  areasarede-designatedas 
appropriataen
 din tidy  manner. 
w FA IbsDonse

We concur. The currentshortageareadesignationsystmnneeds to be revised to

ensurethatdesignationsof shottagcareasareaccurateandup-todate @  that

areasareredesignated asappropriateandina tidy  manner.  It is our

understdbg  thatthe Hea!th Resouroes andSezvkes Administration

(HRSA) will be publishingrcgulatimtsto revise the cuffent dcsignafions

system.  WC will continue  to monitmthisregulatoryactivity andprovide

appropriatecommenrtse gardintgheimpactof the regulationsoaatheRHC 
hcnefit. 
o	 Findways to expandtheinvolvementof stateofficials (MedicaidandpubJic 
health) in the certificationproecss. 
HCFA ResDQIJSS

We concur. State Medic&dandpublichealthof5ciak  shouldtake8moreactive

role inensuringthatRHCsarelocatedm approprialblydesignatedshmtageareas.

 
States curredy  have the  uthodty to review areasfosappfopdatdee signationssn~ 
d4cs@ationa.  Iftstatebelieves  thatanaresnoloagerma  the criteriaf~ 
designationass  shortagearc~thestatecanrequestthatHRSA de-kignate  the 
area  WewiUnot@  states to bemorea@iwhti~sq  andwevdlas,k 
wes  in monitoriq  ~lZWt9 to HRSA to de-designatean area. 
o	 EstablishH_  in additiontoruraLd=  servedde~tions,  thatwill 
documentSKJcadndimpacton acecss Ofncw RHcs.  Requireapplicants10submit 
aplandocundng  needandprojectedimpaot. - ~aphlo  limitsto 
Cunirutc Goncemmtionsof RHcs.  Remindstatesthasthey may impklnent dleir 
owncriteriaviaacedkate  ofnccd orcreate8similarprocess. 
A  -3  Page 2 
Wedisagree. Webelieve thatwiththeimplementationof theIiRSA regulations to 
revise the designationsystem andmoreactive stateinvolvementin requestingthe 
redesignation  of ueas,  RHCSwill be finishing  services to mral medically 
undcrsmmdresidentsconsistentwith thestatutoryintent of the RHCbenefit. 
o	 Requirerecedficationof RHCSwithin a specific time limit (for example, 5 years), 
appiyiq  new criteria. 
We disagree.Congressintendedthatonce8 RHC was approved endcontinuedto 
paticipatc in the Mcdican#Mcdioaidprogramit could oontinue to do so even if 
thearealost itsruralshorlageareastatus. (See responsetopreviouspoint.) 
Regulations.  HCFA shouldexpeditetheissuanceof theregulationsnow under 
development 
ReimbursemeMnte thodologyH. CFAshouldtake rntennediatesteps to improve the
oversight and functioning of the currentcost reimbursementsystem, with the long term 
goal of implementing a diffkrentmethod. 
We concur with the above two recommendationsandbeliew they are usefd  md 
meaningful  suggestions  fa  improvementof the RHC progranL 
Page L last paragraph-An areawitht rnethlly  undersexed populationgroupis notan 
eligibleem  forRHO.  Also, additionalmas  thateraeligible butnotmentionedinthe 
pwtu@  are amaa which  idnde   popdatim  group whichhas a heahh professional 
_  andhi~  migmntimpaot~, 
Page 9, certification prooesq 2rd sentence - shouldreed. ~. tlmtmees oetin  broad 
Iooationmquinmnts mdcertainFederalheahhandsafetyrequirementsis approvedto 
pmcipate in the MedioareandMedicaidprograms. 
A -4  ,, 
,lW* 
4	
t %  DEPARTM~T  OF HEALTH & HUMAN  SERVXCES  PubIii Heekh SOrvlce 
[ 
L
Heeifh Re-soums and 
SmcQSAdrnhktration 
Rockvilk MD  20657 
MAY 241996 
Tb  :  Inspector  General, OS, DHHS 
FROM ;  Deputy  Admi.n~strator 
SUBJECT  :	 Office  of  Inspector  General  (OIG)  Draft  Report
llRural  Health  clinics:  Growth,  ~ccesS~  and  pawen~ 
OE1-05-94-00040 
Attached,  in  accordance  with  your  March  29  request,  are HRSA6 
comments  to  the  subjec~  draft  report. 
Staff  questions  may  be  referred  to  Paul  Clark  on 
(301)  443-5255, 
A 
~Jj
1 
iThii
yi , Mahoney 
A  5
 ~etration  conuaeAtg 
gn  the Office  Of  IIlaDOCtO  r  Qenezal  (OIGI  DmafQ 
~rt  Rural  Health  Clin  i cat  arowth.  JLeees8, 
pavlllant W (OEI-05-94-00040) 
QENERA.LCOMMEWTS 
HRSA agrees with  the  01~s  premise that Rural Health Clinics 
(RHCS) should increase access to care.  As stated by the OIG, 
RHCS are intended to increase access to health care for the 
rural medically Undeserved.  We recognize that RHCS receive 
cost  related reimbursement only for  Medicaid and Medicare 
patients.  Given the intent to increase access, RHCS should be

expected  to  provide  care  for  the  uninsured  and  underinsured  to 
the  best  of  their  abilitiee. 
CERTIFICATION PROCESQ

It should be understood that the ways in which the  RHC

certification  process is  modified  will  be determined in part by

resource constraints,  All units of government charged  with

certification  or other monitoring responsibilities need

adequate program support resources.

We have concerns  with  some  of  the  strategies  identified  by  the

OIG  for implementing the  certification  recommendation.  For

example,  we  do  not  concur  with  the  cxeati,on  of  specific

underaerved  designation  criteria  for  the  RHC program.  The

current designation system can work for the RHC program as well

as other programs.  We believe it would be inefficient to

administer  an  additional  designation  system.

HRSA endorses several of the strategies identified by the OIG. 
We agree  with the option to ensure that designations are 
accurate and up-to-date, and HRSA is currently working on that

option.  We also ,agreethat there should be stronger methods of

incorporating need and impact on access in the certification 
proce88.  Certainly, need is a critical factor in determining 
where providers should be  located.  It  should  be  recognized
that  the  presence  of  other  providers, in addition to a 
particular RHC, does not necessarily indicate an ade~ate 
primary care capacity.  One aspect of  determining need is a 
provider to population ratio analysis.  We further concur with

the OIG that consideration should be given to development of a

recertification process.  If a recertification process  isI  not  a 
viable alternative, other ways to monitor RHCS should be 
examined.

A-6
 -2-

REQULATIONS

We understand that Stakes have requested guidance from HCFA 
regarding  such  matters  as  provider-based  reimbursement  and 
commingling  in  a  practice  thak  operates part of the time as an 
RHC and part of the time  ae  a  fee-for-senice  practice, 
However,  the  statement  on  page iii of the report that the 
States requests for guidance have been  Ito  assist  them in 
monitoring and evaluating RHCSN is too limited to sufficiently 
explain why States have requested guidance.  It  implies  more 
consistency  and  rigor by States In monitoring and evaluating 
RHCS than currently exists.  Furthermore, States requests for

guidance are related to their desire to limit RHC

certifications and to curtail their rising RHC costs.

~IMBURSEMENT  METHODOLOGY

In the report,  the 01(3briefly discussed, but did not evaluate, 
cost related reimbursement.  HRSA believes that the current 
cost reimbursement system should be improved.  The current

reimbursement cap for independent RHCS should be examined for

reasonableness,  Consideration should also be given to the use

of  a  cap for provider-based RHCS.  We believe HCFA should 
consider whether the cap for provider-based RHCS should be the 
same or different from that used  for independent RHCS.

The OIG statement on page ii that the Vulnerabilitiea inherent

in the cost  reimbursement  system  are apparent in the RHC

program implies that implementation of cost related

reimbursement will always have certain problems.  The problems

that the OIG cites are as follows~ 1) no incentive for primary

care in undersezved areas, 2) little or no incentive for

efficiency, 3) providing opportunities for inflated and

inappropriate payments, and 4) an overall process which i.a

cumbersome, complex, and difficult and  expensive  to  oversee. 
As evidenced by MIX Associates, Inc. 1995 study, llImpactof 
Federally Qualified Health Centers Implementation of Community

Health Centers Revenue and Utilizationtt,the problems cited by

the 01(3are not inherent.  This study provides evidence

indicating that cost related reimbursement can be associated

with improved access to care for  Medicaid recipients and the 
uninsured.  Furthermore, the study shows that there are 
A-7
 -3-
incentives  to  control  co8ts  and  ways  to  guard  against  inflated 
and  inappropriate  payments.  A means  to  address the 
vulnerabilities of cost related reimbursement is the use of 
tests of reasonableness of costs such as caps and productivity 
screens.  There are various  ways  to  implement  cost  related 
reimbursement with te8kS  of  reasonableness,  including  such 
options as prospective  all-inclusive  per  visit  rates without 
reconciliation and cost-related cavitation rates,  We believe 
that any change from  cost  related  reimbursement  should  include 
a  thorough  analysis  of  potential  effects  on  the  RHCS  ability 
to  remain  in  operation,  and  the  impact on access to primary 
health care in undersexed  rural communities. 
We also have concerns with  the  OIG  suggestion  to  institute 
itemized  billing  because  it  is  potentially  in  conflict  with  the 
desire  to  implement  a  proces6  which  is  less cumbersome, 
complex, and difficult and expensive to oversee. 
OIG  RECO~ 
The Eealth Care Financing Administration (HCFA),with the HRSA, 
should modify the  certification proce-s to increaso State 
involvement and enmmo  more strategic plaeemont of RHCS. 
4 co-
V?e concur.  This recommendation is consistent with HRSA goals 
and objectives  related to increasing access to primary care, 
This should result in more rigorous assessment of  need  and 
community  impact  and  help  prevent inappropriate proliferation 
of RHc6m  Therefore,  HRSA  will collaborate with HCFA in 
determining how to increase State involvement in the 
certification process of RHCS and ensure more strategic

placement of RHCS, giving appropriate consideration to the

OIGS suggestions for implementing the recommendation,

A-8
 ,,wc,,, 
5:  # ,, &,  J+ 3  DEPARTMENT  OF HEALTH  & HUMAN  sERVICES  OffIce Of the Secretary
:

- . 
~..\

kvastV@On.  D,G,  xnm 
JUN I2 Ijx

TO:  June Gibbs Brown 
Inspector  General 
FROM:  Assistant Secretary  for Planning and Evaluation 
SUBJECT:  OIG Draft Report:  Rural Health Clinics:  Growth, Access and Payment;  OEI-
05-94-00040  -- COMMENTS 
Thank you for giving us the opportunity  to comment on this report which identifies structural 
and oversight  diff~culties associated  with rural health clinics (RHCs).  The report  is timely  and 
touches on issues State officials and others have raised regarding the proliferation  of RHCS. 
We agree with the general direction  of the reports recommendations  and the topic areas they 
address,  although not with every action which is proposed.  It is disappointing  that this report 
was umble  to address the effect the growth in number of  RHCS has had on access to care 
other than anecdotally.  If information  on the impact of RHCS on access becomes available, 
perhaps  through the current  HCFA evaluation,  the reports recommendations,  particularly 
those related to certification,  should be revisited. 
While we believe this report  raises important  questions,  we believe it could be strengthened. 
Our specific comments  follow: 
BACKGROUND 
	 On page 2, it is mentioned  that independent  RHCS are subject to a productivity 
standard.  We recommend  that this term be defined. 
FINDINGS 
  ~U   The report consistently uses the phrase  growth of RHCS to refer 
to an increase  in the -of  RHCS, and various comparisons  are made among States 
about increases  in numbers and corresponding  rates of growth.   We recommend  that 
a discussion  be added indicating  that there is significant variety in the types of RHCS, 
and therefore  that not all RHCS are interchangeable  units.  Nowhere does the report 
address trends in the number of Medicare and Medicaid patients using RHCS which 
would be an important  and perhaps more significant component of  growth.  
Similarly,  while the report on page 6 explores increases in Medicare  and Medicaid 
expenditures  for RHCS, it does not shed light on the degree to which these increases 
are tied to the increase  in number of RHCS, as opposed to increases  in expenditures 
among existing  RHCS,  While there are footnotes addressing the lack of reliable  data 
on users and visits,  some acknowledgment  should be made of the limitations  of using 
raw numbers  of RHCs as the primary  unit of amlysis. 
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 Page 2- June Gibbs Brown 
In the discussion  of recent growth on pages 4-7 much information  is provided  which is 
lacking in context.  For example,  the fact that more than half the RHCS in the Nation 
are projected  to be located in 10 States is not of itself significant.  (More than half the 
Nations population  resides  in the Nations  10 most populous States.)  What is 
important  is that the number of rural  residents  (or, more to the point,  rural  residents 
living in undersexed  areas) in these States is not proportionate  to their number  of 
RHCS.  In another example,  on page 6, it is observed  that Medicaid  expenditures  for 
RHCS are approximately  three times those of Medicare,  but there  is no indication  as to 
why this is important. 
  orv versus DlSC@JMUUVRe~  It would be helpful for the report,  and in 
particular  its recommendations  on certification  and reimbursement  methodology,  to 
identifi  more specifically  which program  flaws are the result of statutory  requirements 
(which would require  legislative  changes)  and which can be addressed  through 
regulatory  or policy changes. 
 
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-- Pages  12-13.  In the example  of two competing  RHCS, it is suggested  that 
closing one of two hospitals  in a rural  area is clearly  a negative outcome because  it will 
reduce access to primary  and tertiary  care.  This is not necessarily  true,  particularly  in 
areas where there is overcapacity,  as is suggested  in this example.  We recommend  that 
this example be revised  to take this issue into account. 
RECOMMENDATIONS 
	 _  to C=  The introductory paragraph  to this section notes that questions  have 
been raised as to whether  the intent of the law to expand access to care is being met. 
While the topic areas included  in the recommendations  should be pursued  immediately, 
major redesign  of RHC requirements  would benefit from better  information  about their 
effect on access.  The report  should contain a recommendation  addressing  this point. 
  ProcS  We agree that the certiilcation  process can be improved  and that 
expanded  involvement  of State officials  in the process  would be beneficial.  We would 
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 Page 3- June Gibbs Brown 
prefer refinement and improvement of the existing system of designations rather than 
create of a new system to avoid duplication of effort, both at the Federal and State 
levels.  Confusion that would result from two similar processes; and the time and 
StaII
up costs inherent in developing  and implementing  a new system need to be considered. 
	 ~  An estimated date for publication  would be helpfid,  if HCFA can provide 
this. 
	 ~  We applaud the attempts to create greater  fmncial 
accountability  and narrow the differences  in payment and reporting  requirements 
treatment  between provider-based  and independent  RHCS that are spelled out in the list 
of intermediate  steps.  However,  we do not endorse the suggestion of capping visits per 
year.  Finally,  we do not understand  the logic behind the last intermediate  step 
recommendation.  Specifically,  why can Medicare  use payment safeguards if there is 
only one fiscal agent per region or country,  but not if there are more than one? 
The long term steps are directed  toward exploring  the need for and structure  of a new 
reimbursement  structure.  These possible changes need to be considered  against 
Medicaids,  and increasingly,  Medicares,  growing  involvement  in managed care and 
the participation  of RHCS in mamged  care plans.  Flat rate reimbursement  and 
enhanced  fee schedules may well become increasingly  inappropriate  in this changing 
environment. 
@Q-4--
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Peter B. Edel~ 
A  -11