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Department of Health and Human Services

OFFICE OF 

INSPECTOR GENERAL 

S R H
TATUS OF THE  URAL  EALTH 

C P
LINIC  ROGRAM

Daniel R. Levinson

Inspector General 

August 2005

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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 OIG's Office of Audit Services (OAS) provides all 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 in order to reduce waste, abuse, and 
mismanagement and to promote economy and efficiency throughout the department. 
Office of Evaluation and Inspections 
The OIG's Office of Evaluation and Inspections (OEI) conducts 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 the inspections reports generate rapid, accurate, and up-to-date information on the 
efficiency, vulnerability, and effectiveness of departmental programs.  The OEI also 
oversees State Medicaid fraud control units, which investigate and prosecute fraud and 
patient abuse in the Medicaid program. 
Office of Investigations 
The OIG's Office of Investigations (OI) 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 OI lead to criminal 
convictions, administrative sanctions, 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 in OIG's internal operations.  The OCIG imposes program exclusions and 
civil monetary penalties on health care providers and litigates those actions within the 
department.  The OCIG also represents OIG in the global settlement of cases arising 
under the Civil False Claims Act, develops and monitors corporate integrity agreements, 
develops compliance program guidances, renders advisory opinions on OIG sanctions to 
the health care community, and issues fraud alerts and other industry guidance.  Report Template Version  = 03-01-05_rev.07  
  E X E C U T I V E   S U M M A R Y  

OBJECTIVE 
To follow up on previous Office of Inspector General (OIG) 
recommendations concerning the appropriate location of Rural Health 
Clinics (RHC). 
BACKGROUND 
In 1996, OIG and the Government Accountability Office (GAO) issued 
reports that raised concerns about the inappropriate growth and 
location of RHCs.  Both offices recommended changes that would ensure 
that RHCs are located in areas that would otherwise be underserved. 
Because of these reports, Congress, as part of the Balanced Budget Act 
of 1997 (BBA), amended section 1861(aa)(2) the Social Security Act to 
remove the permanent designation of RHCs and require timely review 
of shortage-designation areas.  However, to date, the Centers for 
Medicare & Medicaid Services (CMS) has no regulations implementing 
the BBAs required changes. 
To be eligible for RHC status, a clinic must be located in a rural and 
underserved area. The Rural Health Clinic Services Act of 1977 (the 
Act) defines rural as an area that the Bureau of the Census (Census) 
categorizes as a nonurbanized area.  An underserved area is one that 
the Health Resources and Services Administration (HRSA) designated 
as medically underserved or experiencing a physician shortage. For 
shortage areas to be eligible under the RHC Program, the BBA required 
that HRSA review and update these areas every 3 years. 
Under Medicare and Medicaid, RHCs receive cost-based reimbursement 
or a capped amount that is normally higher than a typical physician 
office visit. Payments for RHC services continue to increase and 
exceeded $630 million in calendar year 2002.    
FINDINGS 
Two hundred seventy-nine RHCs are located in areas that HRSA has 
not designated as shortage areas or that Census has designated as 
urbanized areas.  Sixty-one percent (169) of these RHCs are located in 
areas that HRSA has not designated as shortage areas.  The remaining 
39 percent (110) are located in urbanized areas defined by Census. 
Under the BBA, these RHCs would no longer maintain their 
designations as RHCs unless they receive exceptions as essential 
providers. CMS issued final regulations for the exception process. 
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EE XX EE CC UU TT II VV EE    SS UU MM MM AA RR YY
However, because of a conflict with the Medicare Prescription Drug, 
Improvement, and Modernization Act of 2003, CMS withdrew the 
regulations. In the absence of regulations, it is unclear how many of 
these 279 RHCs would meet the essential provider exception. 
Another 946 RHCs are located in shortage-designated areas that 
HRSA has not reviewed or updated within a 3-year period. The BBA 
requires RHCs to be located in shortage areas that HRSA has 
designated or updated within the last 3 years. However, HRSA has not 
updated the shortage area designations for 26 percent of Health 
Professional Shortage Areas and 94 percent of the Medically 
Underserved Areas (MUA) where RHCs are located. As a result, 
28 percent (946) of all RHCs are located in areas that do not meet the 
3-year HRSA review requirement. 
Rural and shortage criteria do not effectively identify areas that are 
truly rural and medically underserved. Although most RHCs are 
located in areas that meet the RHC Acts definition of rural, 
approximately 39 percent of RHCs are located in areas that Census 
considers urban because Census uses a broader definition of urban 
areas that includes urban clusters.  HRSAs health care shortage-
designation methods do not adequately measure medical underservice 
in that they exclude certain primary care practitioners and rely on an 
Index of Medical Underservice that GAO identified as being unreliable. 
Current criteria result in RHC participation in areas with already 
existing health care delivery systems. RHCs are not required to 
demonstrate how they will improve access for Medicare and Medicaid 
beneficiaries. Consequently, RHCs can establish themselves near 
existing medical infrastructure with ease. For example, 90 percent of 
RHCs had three or more primary care provider sites within 25 miles of 
their locations. Two hundred sixteen RHCs (6 percent) are located in 
counties in metropolitan areas with populations over 1 million. 
RECOMMENDATIONS 
Over 7 years have passed since the enactment of the BBA and many of 
the problems identified in the previous OIG and GAO reports continue 
to exist. Attempts by CMS and HRSA to issue regulations to address 
the problems identified by these reports have not been successful. 
Because of the involvement by both HRSA and CMS with the RHC 
Program, OIG makes recommendations to both of these agencies. 
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E X E C U T I V E   S U M M A R Y  
Recommendations for HRSA 
HRSA should review shortage designations within the requisite  
3-year period. Because the RHC Programs success in providing care to 
the rural underserved depends on the timeliness of HRSAs 
designations, HRSA should review its designations made more than  
3 years ago to assess the need for continued designation. 
HRSA should publish regulations to revise its shortage-designation 
criteria.  HRSA should issue regulations that would improve its 
shortage-designation criteria.  These regulations should consider 
expanding the definition of a practitioner to appropriately account for 
the care that nurse practitioners and physician assistants provide.  
HRSA should also consider revising the MUAs Index of Medical 
Underservice to include more precise measures of health status. 
Recommendations for CMS 
CMS should issue regulations to ensure that RHCs determined to be 
essential providers remain certified as RHCs.  While we recognize 
that CMS did issue final regulations for the RHC Program and had to 
withdraw them, the lack of final regulations allows RHCs that no longer 
meet eligibility criteria to continue to receive cost-based reimbursement 
or a capped amount. 
CMS should seek legislative authority or administratively require 
RHC applicants to document need and impact on access to health 
care in rural underserved areas.  Because current law limits CMSs 
ability to define rural and shortage areas, CMS could better ensure 
access to care for Medicare and Medicaid beneficiaries by imposing 
access requirements in addition to location requirements.  In its 
comments to GAOs 1996 report, the Department of Health and Human 
Services agreed that the shortcomings of the RHC certification process 
would be best addressed by reviewing other factors, such as need and 
community impact, in addition to the shortage designation and rural 
location. 
AGENCY COMMENTS 
HRSA concurred with our recommendations that it should review 
underserved designations that it has not updated in the last 3 years and 
that HRSA should publish regulations to revise its shortage designation 
criteria.  HRSA also provided technical comments for which we made 
revisions where appropriate. 
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CMS concurred with the recommendation that it issue regulations to 
ensure that RHCs determined to be essential remain certified as RHCs.  
CMS is further considering our recommendation that CMS should seek 
legislative authority to require RHCs applicants to document need and 
impact on access to care as a requirement to receiving certification as an 
RHC. 
OFFICE OF INSPECTOR GENERAL RESPONSE 
We appreciate both HRSAs and CMSs response to our report.  It is 
important that HRSA is implementing an automated application and 
review process that will reduce the review time for determining whether 
areas meet the underserved criteria. It is also important that CMS is 
committed to reissuing proposed and final regulations that would allow 
it to terminate those clinics that do not meet the basic location 
requirements unless they demonstrate that the clinics are essential 
community providers for their service areas. 
We continue to believe that requiring current and prospective RHCs to 
provide additional evidence of community need would further the goal of 
assuring that RHCs are directed and maintained in rural communities 
with critical shortages of primary care providers.  The establishment of 
further criteria would help limit the creation of new RHCs in areas with 
a concentration of viable providers but, more importantly, it would 
encourage the establishment of RHCs in areas with unmet need. 
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  T A B L E   O F   C O N T E N T S  

EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
 i 
I N T RO DUC T IO N  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  1

F I N D IN G S  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  8

RHCs located in noneligible areas . . . . . . . . . . . . . . . . . . . . . . . . . .  8

Shortage designations are untimely. . . . . . . . . . . . . . . . . . . . . . . . .  8

Criteria continue to cause problems. . . . . . . . . . . . . . . . . . . . . . . . .  9

Currentcriteria result in RHC concentration . . . . . . . . . . . . . . . .  11

R E C O MMEN D A T ION S  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  14

E N D NO T ES  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  18

APPENDIXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  19

A:  RHCs by Rural-Urban Continuum Codes. . . . . . . . . . . . . . . . .  19

B:  AgencyComments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  20

A C K NO WL E D G M E N T S  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  24
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OBJECTIVE 
To follow up on previous Office of Inspector General (OIG) 
recommendations concerning the appropriate location of Rural Health 
Clinics (RHC). 
BACKGROUND 
In 1996, OIG issued a report that concluded that RHCs might not be 
located in appropriate locations.  Based on these findings, OIG 
recommended that RHCs be located in shortage areas with accurate and 
up-to-date designations and that RHCs no longer meeting these criteria 
should lose their certification.  Finally, OIG recommended that in 
addition to meeting the rural underserved designations, the Centers for 
Medicare & Medicaid Services (CMS) should require RHCs to document 
health care needs and anticipate how their establishment will impact 
this need in their community.  Because of this report and a report 
issued by the Government Accountability Office (GAO), Congress 
required, as part of the Balanced Budget Act of 1997 (BBA), several 
changes to improve the RHC Program, which is codified at section 
1861(aa) of the Social Security Act.  This inspection reviews the RHC 
Program since passage of this law. 
The Rural Health Clinic Program 
The Rural Health Clinic Services Act of 1977 (RHC Act), Public  
Law 95-210, authorized the RHC Program in 1977.  According to House 
Report No. 95-548(I), the purpose of the RHC Program was to address 
the problem of an inadequate supply of physicians serving Medicare and 
Medicaid beneficiaries in rural areas.  At the time, many rural 
communities were unable to attract or sustain primary care physicians, 
and had come to rely on mid-level practitioners, such as physicians 
assistants and nurse practitioners for primary care services.  However, 
Medicare and Medicaid did not generally reimburse the services 
delivered by these nonphysician practitioners. The RHC Act authorized 
Medicare and Medicaid reimbursement for services provided by 
nonphysician primary care practitioners in RHCs. 
For operating in rural underserved areas, the RHC Act provides clinics 
certified as RHCs a payment rate for the care of Medicare beneficiaries 
equal to the lower of their reported costs or a predetermined capped 
amount.  The capped amount in 2003 was $66.72 per encounter, 
compared to $51.13 for a typical office visit to a physician. 
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CMS is responsible for overseeing the RHC Program.  To be eligible, 
applicants must meet two criteria related to location.  First, the clinic 
must be located in an area that meets the RHC Acts definition of rural. 
Second, the RHC Act requires that the clinic be located in a Health 
Resources and Services Administration (HRSA) designated shortage 
area. 
As of May 2003, there were 3,340 RHCs located in 1,500 counties in 
44 States. The number of RHCs in the States ranged from Texas with 
the most RHCs at 336, to Rhode Island with only 1 RHC.  In calendar 
year 2002, Medicare spent approximately $312 million and Medicaid 
spent approximately $321 million on RHC services.1 
Definition of Rural 
Under the RHC Act, clinics applying for the RHC Program must not be 
located in an urbanized area as defined by the Bureau of the Census 
(Census).2  Census defines urbanized areas as those with a population 
of over 50,000; consequently, CMS considers all areas with populations 
under 50,000 as rural. 
For the 2000 Census, Census established a new designation for 
midsized areas to better distinguish the nations urban and rural areas. 
In March 2002, Census issued final regulations to expand its definition 
of urban to include all territory, population, and housing units located 
within an: 
o 	 urbanized area  areas with populations of 50,000 or more, or  
o 	 urban cluster  areas with populations of more than 2,500, but 
less than 49,999. 
These new, broader definitions do not apply to the RHC Program 
because the language of the RHC Act specifies that clinics cannot be 
located in an urbanized area and makes no mention of urban 
clusters. 
Definition of a Shortage Area 
The RHC Act also requires that clinics be located in a HRSA designated 
shortage area. HRSA is responsible for identifying areas with shortages 
of primary care physicians and health care services. HRSA designates 
shortage areas for the purpose of directing placement of providers or 
program funding for nearly 30 departmental programs focused on 
alleviating access problems in such locations. 
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For the RHC Program, CMS relies on two of HRSAs methods to identify 
shortage areas. One designates Health Professional Shortage Areas 
(HPSA), and the other designates Medically Underserved Areas (MUA). 
In applying the HPSA designation, HRSA identifies areas in which 
there is a shortage of medical professionals in relation to the population 
or which contains a population group that HRSA determines has such a 
shortage. HRSA developed the HPSA system in 1978 as a way to 
designate areas for placement of National Health Service Corps 
providers.  Section 332 of the Public Health Service Act requires HRSA 
to review HPSA designations annually.  HRSA implemented this 
requirement by requiring HPSAs to provide new data every 3 years. As 
a result, in any given year HRSA reviews new data for one-third of the 
HPSAs. 
In 2002, Congress passed the Health Care Safety Net Amendments of 
2002 (Public Law 107-251), which amended section 332 of the Public 
Health Service Act to provide an automatic HPSA designation for clinics 
meeting the charges for services requirements. To meet the charges 
for services requirements, a clinic must:  (1) prepare a fee schedule 
with adjustments made on the basis of the patients ability to pay, and 
(2) not deny health services to individuals because of inability to pay. 
For an RHC to obtain automatic HPSA designation, HRSA requires an 
RHC to submit a Certificate of Eligibility and reflect charges for 
services requirements in its Policies and Procedures Manual.  An 
automatic HPSA designation is valid for 6 years and is renewable for 
additional 6-year periods. 
The MUA method identifies areas not receiving adequate health 
services for a variety of reasons, including provider shortages.  
Developed in 1973, based on an amendment to the Public Health 
Service Act, HRSA uses the MUA designation primarily to identify 
areas eligible to participate in the Community Health Center program. 
HRSA calculates an Index of Medical Underservice using four factors. 
These four factors are:  (1) primary care physician-to-population ratio, 
(2) infant mortality rate, (3) percentage of population below the poverty 
level, and (4) percentage of the population aged 65 and older. 
In addition, HRSA may designate areas as underserved at the request 
of a States Governor.  The Governor can select these areas based on 
unusual local conditions.   
States are responsible for submitting a list of MUAs and Governor-
designated areas to HRSA for approval.  HRSA is responsible for 
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surveying and updating HPSAs.  Unlike HPSAs, MUAs and Governor-
designated areas are not subject to statutory requirements for regular 
review and update. 
In 1996, Congress passed the Health Centers Consolidation Act 
requiring HRSA to consolidate its HPSA and MUA definitions into one 
system known as medically underserved population.  On 
September 1, 1998, HRSA published in the Federal Register a Notice of 
Proposed Rulemaking [62 Federal Register 46537-46555], proposing 
updates to the HPSA and MUA designations.  This update would have 
required a 3-year review for all shortage area designations.  However, 
according to HRSA, due to the volume of comments received expressing 
concerns that the proposed new methods would eliminate many 
providers currently participating in departmental programs, it 
withdrew the proposed regulations. 
As of June 2005, HRSA has yet to issue final regulations on the 
shortage-designation process. HRSA has not issued any further 
guidance regarding shortage designations.  
Previous Assessments of the RHC Program 
In July 1996, OIG issued a report entitled Rural Health Clinics:  
Growth, Access, and Payment (OEI-05-94-00040).  The report 
concluded that RHCs might not be located in true shortage areas 
because some designations were outdated or inappropriate.  
Additionally, the report recognized that, as intended by the law, RHCs 
might provide increased access to care in some areas.  However, there 
were no reliable data to measure the effect of RHCs on access to care. 
Based on these findings, OIG recommended that CMS, along with 
HRSA, modify the certification process to increase State involvement 
and ensure the strategic placement of RHCs.  OIG also recommended 
that RHCs be located in shortage areas with accurate and up-to-date 
designations and that those no longer meeting the criteria lose their 
certification. Finally, OIG recommended that in addition to meeting the 
rural underserved designations, CMS should require RHCs to document 
the need for health care services and anticipate how their establishment 
will impact the communities need.  
CMS and HRSA agreed with most of OIGs recommendations.  CMS 
indicated that it would rely on HRSA to publish new regulations to 
revise the current shortage area designation system.  HRSA accepted 
this responsibility and stated that, in addition, it would collaborate with 
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CMS in determining how to increase State involvement in the 
certification process. 
In November 1996, GAO issued a report that echoed many of the OIGs 
findings and recommendations.  Rural Health Clinics:  Rising Program 
Expenditures Not Focused on Improving Care in Isolated Areas   
(HEHS-97-24) stated that the RHC Program had grown rapidly, but not 
in locations where Medicare and Medicaid populations were having 
difficulty obtaining primary care. GAO found the growth was 
concentrated in areas with established health care systems and RHCs 
were not decreasing the distance patients traveled to obtain health care.  
GAO concluded that broad eligibility criteria allowed RHCs to 
proliferate in areas where the need was minimal.   
As did OIG, GAO recommended a legislative change that would restrict 
RHC certification to clinics in areas either with no other Medicare or 
Medicaid providers or to clinics demonstrating that existing providers 
will not accept new Medicare or Medicaid patients and that the clinics 
will expand access to these patients. In response, the Secretary of the 
Department of Health and Human Services (HHS) stated that current 
RHC Program eligibility criteria for defining rural and underserved 
areas do not go far enough to ensure that the program is directed and 
maintained in rural communities with critical shortages of primary care 
providers. The Secretary requested that HRSA improve its designation 
process for HPSAs and MUAs and require clinics applying for RHC 
certification to provide documentation of the need for health care 
services in the target community. 
Improvements to the RHC Program:  The Balanced Budget Act of 1997 
Based on OIG and GAO work on the RHC Program, Congress amended 
the provision of the RHC Act that allowed RHCs to remain permanently 
designated (known as the grandfather provision) even if they no longer 
met the rural and shortage area criteria. This change required CMS to 
establish criteria to determine if those RHCs no longer meeting location 
requirements continue to be essential to the delivery of primary health 
care.  The BBA also required that RHCs be located in areas that HRSA 
has reviewed within the previous 3-year period. 
In December 2003, CMS issued regulations implementing the changes 
required by the BBA in its final regulations for RHC certification  
[68 Federal Register 74791-74818 (12/24/2003)].  CMS withdrew the 
final regulations based on a provision in the Medicare Prescription 
Drug, Improvement, and Modernization Act (MMA) of 2003 (Public Law 
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108-173), which required that regulations take no longer than 3 years 
from the time an agency proposes them until they are final.  CMS is 
planning to issue a new Notice of Proposed Rulemaking requesting 
public comments on regulations implementing the changes required by 
the BBA. 
METHODOLOGY 
Data Collection 
For our data collection, we pulled information on all certified RHCs 
active as of May 2003 using CMSs Online Survey Certification and 
Reporting (OSCAR) system. To determine an RHC location, we 
obtained address information from OSCAR for all active RHCs.  We also 
obtained address information for general short term hospitals, including 
Critical Access Hospitals (CAH) and Federally Qualified Health Centers 
(FQHC). FQHCs are clinics receiving grants under the Public Health 
Service Act or meeting the requirements for receiving a grant.  We also 
reviewed Medicares Participating Physician Directory for selected 
counties. 
From Census, we obtained files from the Topologically Integrated 
Geographic Encoding and Referencing system for each of the counties in 
which an RHC was located.  Using the Geographic Information System 
of SAS , we geographically encoded the physical location of RHCs, 

general short term hospitals (including CAHs), and FQHCs.  This 
encoding process determines the latitude and longitude of the location 
based on the street address, city, State, and zip code.  
Analysis 
To determine if RHCs meet the rural location requirement, we created 
county maps from the Topologically Integrated Geographic Encoding 
and Referencing files that displayed the urbanized areas.  We also 
plotted urban clusters for 1,500 counties in which RHCs are located.  
Using the geographically encoded information, we plotted the location of 
RHCs, general short term hospitals (including CAHs), and FQHCs 
relative to urbanized areas and urban clusters in a county. 
To determine whether RHCs are located within shortage-designation 
areas, we accessed HRSAs Geospatial Data Warehouse, which captures 
the designation of underserved areas.  Using this data warehouse, we 
were able to determine whether a clinic was located in a HPSA, MUA, 
Governor-designated area, or a combination of the three.  Also using 
HRSA data, we were able to determine the most recent certification of 
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the shortage area for HPSAs, MUAs, and Governor-designated areas.  
We also obtained the current list of RHCs that have received automatic 
HPSA designation based on the Health Care Safety Net Amendments of 
2002. 
To compare the location of RHCs in relation to other primary care 
providers in a service area, we plotted the addresses of our selected 
primary care provider types within a 25-mile radius.  We selected 
25 miles because it is one of the tests HRSA applies to determine a 
service area.  This mileage translates into approximately 30 minutes of 
travel time accessing interstates and primary roads.  Although HRSA 
also calculates 30 minutes travel time using other road conditions3, we 
selected the 25-mile test as a reasonable proxy for a service area.   
To understand the complexities of the RHC Programs location criteria, 
we reviewed all relevant laws and regulations.  We also interviewed 
staff in CMS central office, selected CMS regional and State officials, 
and HRSA officials about the RHC Program. 
Scope 
This inspection only reviewed RHC Program eligibility criteria related 
to the location of clinics.  We did not review other criteria RHCs must 
meet to receive RHC status.   
In our analysis of the number of primary health care sites within a    
25-mile service area, we only included short term hospitals (including 
CAHs), FQHCs, and RHCs to provide a conservative estimate of the 
types of primary care facilities available in the area.  Our estimates are 
conservative in that we did not analyze the number of primary care 
practitioners (i.e., doctors, nurse practitioners, or physician assistants) 
at each of the provider sites in an area.   
We did not attempt to measure the adequacy of service in an area or to 
evaluate how an areas service compared to HRSAs shortage-
designation criteria. Finally, we did not attempt to determine whether 
RHCs had an impact on access to health care in rural underserved 
areas, as it was beyond the scope of our study. 
Our review was conducted in accordance with the Quality Standards 
for Inspections issued by the Presidents Council on Integrity and 
Efficiency. 
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  F I N D I N G S

TTwwoo  hhuunnddrreedd  sseevveennttyy--nniinnee  RRHHCCss  aarree  llooccaatteedd  iinn  Sixty-one percent (169) of these 
aarreeaass  HHRRSSAA  hhaass  nnoott  ddeessiiggnnaatteedd  aass  sshhoorrttaaggee RHCs are located in areas that 
HRSA has not designated as 
aarreeaass  oorr  CCeennssuuss  hhaass  ddeessiiggnnaatteedd  aass  uurrbbaanniizzeedd 
shortage areas. The remaining 
areas 
39 percent (110) are located in 
urbanized areas defined by Census. 
While some of these RHCs will meet the eligibility criteria once HRSA 
reviews and continues the areas shortage designation, other RHCs will 
have to seek an exception for continued certification as an essential 
provider. CMS published regulations that would have allowed RHCs 
that no longer meet the eligibility criteria to apply for exceptions as 
essential providers. However, CMS withdrew these regulations because 
of a conflict with the MMA. 
Although the BBA requires that 
Another 946 are located in shortage-designated 
RHCs be located in shortage areas 
areas that HRSA has not reviewed or updated 
that are reviewed every 3 years, we 
within a 3-year period  found that 28 percent of RHCs are 
located in areas where status has 
not been reviewed within this timeframe. Since HRSAs designations 
for some areas have not been reviewed within a 3-year period, it is 
unknown whether these areas still satisfy criteria for a qualifying 
shortage designation for the RHC Program. 
HRSA has not reviewed 94 percent of the MUAs where RHCs are located 
within the previous 3-year period. 
Ninety-four percent of MUAs with RHCs do not meet the 3-year update 
requirement set forth in the BBA. HRSA does not have a required 
schedule for updating MUAs. 
HRSA has not reviewed 59 percent of all MUA designations with RHCs 
in over 25 years. The length of time since an areas original MUA 
designation raises questions about the areas continued need for such a 
designation. 
HRSA has not reviewed 26 percent of HPSA designations where RHCs are 
located within the required 3-year period. 
Since January 2001, HRSA has not established or reviewed 26 percent 
of the HPSAs wherein RHCs are located. HRSA fails to meet the BBAs 
requirement for HPSA updates and does not comply with its own HPSA-
specific requirement for 3-year updates. HRSA requires each HPSA to 
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submit an updated application every 3 years for review, yet 26 percent 
had not been reviewed during the required 3-year period. 
Problems with the RHC program 
Rural and shortage criteria do not effectively 
were noted in the past and 
measure the areas that are truly rural and 
unsuccessful attempts were made 
underserved 
by CMS and HRSA to correct them. 
Our recent work in this area indicates that these problems still exist. 
CMS is limited by the RHC Acts definition of rural. 
Although most RHC locations are appropriate given the RHC Acts 
limited definition of rural, approximately 39 percent of RHCs are 
located in areas that Census considers urban using its expanded 
definition of urban areas.  Only RHCs located in urbanized areas, as 
defined by Census, would not meet the statutory requirement to be 
certified as RHCs.  All other RHCs, including RHCs located in areas 
defined by Census as urban clusters, meet the statutory criteria to be 
certified. Census uses the term urbanized area as only one component 
of its definition of urban.  The Censuss complete definition of urban also 
includes urban clusters, which are areas with a population between 
2,500 and 49,999.4 
Applying other Federal criteria that measure urban influence reveals 
that RHCs are currently located in areas with significant urban 
influence. For example, in defining rural for the Medicare program, 
CMS has consistently used the definition of a Metropolitan Statistical 
Area as established by the Office of Management and Budget (OMB).    
Using OMBs definition, 25 percent of current RHCs are located in 
metropolitan areas that would not qualify as rural under OMBs 
criteria. 
Using the Department of Agricultures Rural-Urban continuum codes, 
we found 834 RHCs located in metropolitan areas.  Of these RHCs,    
216 are located in counties in metropolitan areas with populations in 
excess of 1 million, 317 are located in counties in metropolitan areas 
with populations between 250,000 and 1 million, and 301 are located in 
counties in metropolitan areas with populations under 250,000.  At the 
other end of the spectrum, we found only 413 RHCs, or 12 percent of all 
RHCs, located in completely rural counties not adjacent to a 
metropolitan county.  These codes distinguish metropolitan (metro) 
counties by the population size of their metro area, and nonmetropolitan 
(nonmetro) counties by degree of urbanization and adjacency to a metro 
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area or areas.5  See Appendix A for a complete breakdown of RHCs 
categorized by Rural-Urban continuum codes. 
CMS relies on HRSAs health care shortage-designation systems which do 
not adequately measure underservice. 
According to GAO, the accuracy of HRSAs shortage-designation 
systems used for RHC certification is questionable for two reasons.  
First, HRSAs systems do not consider all primary care resources when 
determining the need for additional practitioners.  Second, the MUAs 
Index of Medical Underservice does not yield current and effective 
information on an areas supply of health care services. 
HRSA has yet to revise the shortage-designation systems, despite the 
fact that both the Health Centers Consolidation Act of 1996 and the 
BBA require such improvements.  HRSAs 1998 proposed regulations 
would have implemented the required changes, but HRSA withdrew 
those proposed regulations and has yet to release a new rule.  As a 
result, the RHC Program is still relying on shortage-designation 
systems that do not accurately reflect the availability of health care 
professionals and medical services in an area. 
The ratio HRSA uses to measure physician shortages overstates them. 
Although the RHC Act expanded the definition of primary care provider 
to include nurse practitioners and physicians assistants, the current 
MUA and HPSA systems ratio of practitioners-to-population excludes 
these mid-level practitioners from its calculations.  Originally, HHS 
planned to include these practitioners as 0.5 equivalent of a full-time 
physician, but excluded them because the scope of practice varied so 
much by State.  GAOs 1995 report found that because HRSAs 
methodology omits nurse practitioners and physicians assistants, the 
measure might overstate the need for additional physicians in HPSAs 
by 50 percent or more.  In 1998, HRSA proposed once again to include 
these health care professionals as 0.5 of a full-time physician in the 
ratio, but as noted above, withdrew the proposed rule. 
HRSAs Index of Medical Underservice has been shown to be an ineffective 
measure of the availability of medical services.  According to GAOs   
1995 report, HRSAs Index of Medical Underservice used to designate 
MUAs is ineffective for two reasons. First, the methodology HRSA used 
to develop the index is not based on a clearly defined concept of medical 
underservice.6  Second, HRSAs system for designating an MUA 
compares an areas current conditions to a median score on an index of 
medical underservice set in 1975. The threshold score for the MUA 
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status has remained the same, except for minor changes made in 
1981 when HRSA adjusted the weights for the infant mortality rate and 
population-to-physician ratio. 
MUAs based on a score that uses standards from 1975 may not 
accurately reflect the availability of medical services in an area.  For 
example, an analysis done by GAO found that less than half of the 
counties designated by HRSA as MUAs would qualify as MUAs using 
1990 data. 
CMSs current eligibility 
Current eligibility criteria result in RHC 
criteria do not require 
participation in areas with already existing 
new RHCs applicants to 
health care delivery systems 
demonstrate how they 
will improve access for Medicare and Medicaid beneficiaries.  
Consequently, RHCs can easily establish themselves near existing 
medical infrastructure.  For example, 90 percent of RHCs had three or 
more primary care provider sites within 25 miles of their locations. Ten 
percent of RHCs had 21 or more primary care sites located within    
25 miles.  These primary care sites include general short term hospitals 
(including CAHs), FQHCs, or other RHCs.  We found that only 3 percent 
of RHCs have no other primary care within 25 miles of their locations. 
The following figure demonstrates an example of the concentration of 
RHCs and other primary care providers.   
Figure 1, representing an actual county, demonstrates an example of 
the concentration of short term hospitals (including CAHs), FQHCs, and 
RHCs.  In this example, there are 13 short term hospitals, 26 RHCs, 
and 12 FQHCs located in the county, which has an area of 
approximately 6,000 square miles.  All RHCs are located within 25 
miles of five or more primary care sites. 
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Figure 1 
Example of concentration of RHCs, FQHCs, 
and hospitals 
Source:  Office of Inspector General analysis of OSCAR and Census data, 2005 
Another example is a county that has a total population of 
approximately 62,000, with 7 primary cities ranging in population from 
700 to 8,000.  Approximately 10,000 of the total countys population are 
Medicare eligible and there are approximately 6,000 Medicaid 
beneficiaries. The county has seen a 15.5 percent increase in population 
from 1990 to 2000. HRSA designated the county as a HPSA that was 
last updated in September 2001.   
Using OSCAR data, we identified 13 RHCs located across the 
approximate 700 square miles of the county.  These clinics are in 
addition to 110 primary care physicians with 1 or more locations within 
the county and 4 general short-term hospitals.  The average distance 
between each RHC in the county is 15.5 miles considerably less distance 
than the traditional 25-mile or 30-minute travel time test HRSA 
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employs to determine appropriate service areas.  All 13 RHCs have at 
least 3 other RHCs located within 15 miles of their locations. 
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  R E C O M M E N D A T I O N S  

The RHC Programs criteria related to location are not specific enough 
to ensure that the programs outcomes coincide with its goal to provide 
increased access to care for those Medicare and Medicaid beneficiaries 
living in rural communities with a shortage of primary care providers.  
Congress specifically created the RHC Program to benefit areas where 
population densities were insufficient to attract and retain physicians.  
Yet, it appears the current rural and shortage definitions may not direct 
placement of RHCs to areas of greatest need or prevent the addition of 
RHCs in areas with sufficient care. 
Our analysis, as well as the 1996 OIG and GAO evaluations of the RHC 
Program, demonstrates that the RHC Programs basic eligibility 
requirements related to location may not address issues of Medicare and 
Medicaid beneficiaries underservice in the way Congress intended.  As 
it stands, CMS provides no quantifiable assurance that the Federal and 
State dollars spent each year on the RHC Program improve access to 
care in underserved areas.   
The efforts of Congress, CMS, and HRSA to improve the RHC eligibility 
criteria have been unsuccessful. There are still issues related to the 
effectiveness of the shortage and rural location criteria resulting in 
RHCs participation in some service areas with extensive networks of 
health care providers. 
Recommendations for HRSA 
HRSA should review the underserved designations for the areas that have 
not been updated in the last 3 years. 
The RHC Programs success in providing care to the rural underserved 
depends on HRSAs actions to review and update its shortage 
designations. Specifically, we recommend that HRSA review the areas 
with shortage designations more than 3 years old to assess the areas 
designations. 
HRSAs proposed rules of 1998 would have required a 3-year review of 
all shortage designations to ensure that programs using these 
designations receive accurate, updated information to make funding 
decisions.  Due to the importance of these designations to the RHC 
program as well as to other departmental programs, HRSA should give 
priority to the review of shortage areas older than 3 years. 
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HRSA should publish regulations to revise its shortage-designation criteria.   
To operate as effective eligibility criteria for the RHC Program, HRSAs 
shortage-designation methods need improvement.  We recommend that 
HRSA revise the designation methods criteria to improve the way it 
identifies shortage areas.  In this revision, HRSA should develop new 
measures of health status and new methodologies for the designation 
systems. Additionally, HRSA should implement the requirement to 
review all designations every 3 years for all the programs that use the 
HPSA and MUA criteria. 
Recommendations for CMS 
CMS should issue regulations to ensure that RHCs determined to be 
essential providers remain certified as RHCs.  
Over 7 years have passed since the enactment of the BBA and many of 
the problems identified in the previous OIG and GAO reports continue 
to exist. While we recognize that CMS published final regulations for 
the RHC Program and had to withdraw them, the lack of regulations 
may be allowing RHCs that no longer meet eligibility criteria to 
continue to receive cost-based reimbursement. 
CMS should seek legislative authority or administratively require RHC 
applicants to document need and impact on access to health care in rural 
underserved areas. 
We believe the apparent ease with which the RHCs meet current 
location criteria has created payment incentives to locate RHCs in 
service areas that already have extensive health care delivery systems 
for Medicare and Medicaid beneficiaries. Because current law limits 
CMSs ability to define rural and shortage areas, CMS could better 
ensure access to care for Medicare and Medicaid beneficiaries by 
requiring clinics to meet other RHC eligibility factors in addition to the 
location requirements. 
This recommendation is consistent with prior OIG and GAO 
recommendations.  In its comments to GAOs 1996 report, HHS agreed 
that the shortcomings of the RHC certification process would be best 
addressed by reviewing other factors, such as need and community 
impact, in addition to the shortage designation and rural location.  
Despite this statement, CMS has not added additional eligibility criteria 
for RHC certification. CMS has not developed any performance 
measures related to RHC Program goals, making it difficult to assess 
what impact, if any, RHCs have on improving beneficiaries access to 
care. 
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The final regulations that CMS withdrew indicated that the agency 
intended to implement our recommendation for some existing RHCs, 
but not for new applicants.  Section 4205(d) of the BBA requires CMS to 
terminate RHC status for clinics no longer located in rural or 
underserved areas, except for those RHCs that are determined to be 
essential to the delivery of primary care.  Under the regulations that 
CMS withdrew, clinics receiving essential provider status would have 
had to meet certain conditions designed to demonstrate how the clinics 
presence affects the health care of the community.  For example, an 
RHC would have had to show that it is the only participating primary 
care provider actively accepting and treating Medicare, Medicaid, and 
low-income beneficiaries within 30 minutes travel time, or that it treats 
a majority of these beneficiaries compared to other providers in close 
proximity, including other RHCs. 
We believe that requiring current and prospective RHCs to provide 
additional evidence of community need would further the goal of 
assuring that RHCs are directed and maintained in rural communities 
with critical shortages of primary care providers.  The establishment of 
further criteria would help limit the creation of new RHCs in areas with 
a concentration of viable providers, and more importantly, it would 
encourage the establishment of RHCs in areas with unmet need.  
AGENCY COMMENTS 
HRSA concurred with our recommendations that it should review 
underserved designations that it has not updated in the last 3 years and 
that HRSA should publish regulations to revise its shortage-designation 
criteria.  HRSA also provided technical comments for which we made 
revisions where appropriate. 
CMS concurred with the recommendation that they should issue 
regulations to ensure that RHCs determined to be essential remain 
certified as RHCs.  CMS is further considering our recommendation 
that it should seek legislative authority to require RHCs applicants to 
document need and impact on access to care as a requirement for 
receiving certification as a RHC. See Appendix B for the full text of the 
agency comments. 
OFFICE OF INSPECTOR GENERAL RESPONSE  
We appreciate both HRSAs and CMSs response to our report.  It is 
important that HRSA is implementing an automated application and 
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review process that will reduce the review time for determining whether 
areas meet the underservice criteria.  It is also important that CMS is 
committed to reissuing proposed and final regulations that would allow 
it to terminate those clinics that do not meet the basic location 
requirements unless they demonstrate that the clinics are essential 
community providers for their service areas. 
We continue to believe that requiring current and prospective RHCs to 
provide additional evidence of community need would further the goal of 
assuring that RHCs are directed and maintained in rural communities 
with critical shortages of primary care providers.  The establishment of 
further criteria would help limit the creation of new RHCs in areas with 
a concentration of viable providers, and more importantly, it would 
encourage the establishment of RHCs in areas with unmet need. 
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1  The reported Medicaid spending is underestimated because of 
incomplete data.   
2  Public Law 95-210. 
3  HRSA standard uses 20 miles to approximate 30 minutes of travel 
under normal conditions on primary roads and 15 miles for travel on 
flat terrain or interstate highways. 
4  An urban cluster consists of a contiguously settled core of census 
block groups and census blocks with populations between 2,500 and 
49,999. 
5  http://www.ers.usda.gov/briefing/rurality/RuralUrbCon. 
6  Health Care Shortage Areas: Designations Not a Useful Tool for 
Directing Resources to the Underserved (GAO/HEHS-95-200, 
September 1995), p. 50. 
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RHCs by Rural-Urban Continuum Codes 
Rural Health 
2003 Rural-Urban Continuum Codes  Clinics 
216 
County in metro area with 1 million population or more 
317 
County in metro area of 250,000 to 1 million population 
301 
County in metro area of fewer than 250,000 population 
Nonmetro county with urban population of 20,000 or more, 
281 
adjacent to a metro area 
Nonmetro county with urban population of 20,000 or more, 
153 
not adjacent to a metro area 
Nonmetro county with urban population of 2,500-19,999, 
823 
adjacent to a metro area 
Nonmetro county with urban population of 2,500-19,999, 
588 
not adjacent to a metro area 
Nonmetro county completely rural or less than 2,500 urban 
248 
population, adjacent to metro area 
Nonmetro county completely rural or less than 2,500 urban 
413 
population, not adjacent to metro area 
Overall Total  3,340 
Source:  Online Survey Certification and Reporting and Department of Agruculture Rural-Urban 
Continuum Codes, 2004 
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A G E N C Y   C O M M E N T S
  A C K N O W L E D G M E N T S  

This report was prepared under the direction of William C. Moran, 
Regional Inspector General for Evaluation and Inspections in the 
Chicago regional office, and Ann Maxwell, Assistant Regional Inspector 
General. Other principal Office of Evaluation and Inspections staff who 
contributed include: 
Thomas Komaniecki, Project Leader 
Madeline Francescatti, Program Analyst 
Anna Fleming, Program Analyst 
Natalie Coen, Program Analyst 
Rupal Patel, Intern 
Seema Dargar, Intern 
Bambi Straw, Program Specialist  
Tricia Davis, Director, Medicare & Medicaid Branch 
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