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Department of Health and Human Services


OFFICE OF 

INSPECTOR GENERAL 

STATUS OF THE RURAL HEALTH 


CLINIC PROGRAM


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. 
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Δ EXECUTIVE SUMMAR 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 BBA’s 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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EXE CUTIVE S U MMAR Y

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 Act’s 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. HRSA’s health care shortagedesignation 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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EXE CUTIVE S U MMAR Y 

Recommendations for HRSA 

HRSA should review shortage designations within the requisite 

3-year period. Because the RHC Program’s success in providing care to 

the rural underserved depends on the timeliness of HRSA’s 

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 MUA’s 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 CMS’s 

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 GAO’s 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. 

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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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EXE CUTIVE S U MMAR Y 

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 HRSA’s and CMS’s 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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i 

Δ T ABLE OF CONTENTS 

EXECUTIVE SUMMARY ....................................

INTR O D U C T I ON ........................................... 1

FINDI NGS ................................................. 8

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

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

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

Current criteria result in RHC concentration ................ 11

RECOM M E NDATI O NS ..................................... 14

ENDN OTE S ............................................... 18

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

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

B: Agency Comments ................................... 20

ACKN O W LEDGMENTS .................................... 24
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Δ INTRODU C TION 

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 physician’s 

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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INTROD UCT ION 

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 Act’s 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 nation’s 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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INTROD UCT ION 

For the RHC Program, CMS relies on two of HRSA’s 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 patient’s 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 State’s Governor. The Governor can select these areas based on 

unusual local conditions. 

States are responsible for submitting a list of MUAs and Governordesignated areas to HRSA for approval. HRSA is responsible for 

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INTROD UCT ION 

surveying and updating HPSAs. Unlike HPSAs, MUAs and Governordesignated 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 OIG’s 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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INTROD UCT ION 

CMS in determining how to increase State involvement in the 

certification process. 

In November 1996, GAO issued a report that echoed many of the OIG’s 

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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INTROD UCT ION 

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 CMS’s 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 Medicare’s 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 HRSA’s 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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INTROD UCT ION 

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 Program’s 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 area’s service compared to HRSA’s shortagedesignation 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 President’s Council on Integrity and 

Efficiency. 

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Δ FINDINGS

Two hundred seventy-nine RHCs are located in -nine RHCs are located in 

areas HRSA has not has not designated designated as short as shortage

areas or Census has designated as urbanized 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. 

While some of these RHCs will meet the eligibility criteria once HRSA 

reviews and continues the area’s 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 HRSA’s 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 area’s original MUA 

designation raises questions about the area’s 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 BBA’s 

requirement for HPSA updates and does not comply with its own HPSAspecific requirement for 3-year updates. HRSA requires each HPSA to 

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F I NDING S 

submit an updated application every 3 years for review, yet 26 percent 

had not been reviewed during the required 3-year period. 

Rural and shortage criteria do not effectively 

measure the areas that are truly rural and 

underserved 

Problems with the RHC program 

were noted in the past and 

unsuccessful attempts were made 

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 Act’s definition of rural. 

Although most RHC locations are appropriate given the RHC Act’s 

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 Census’s 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 OMB’s definition, 25 percent of current RHCs are located in 

metropolitan areas that would not qualify as rural under OMB’s 

criteria. 

Using the Department of Agriculture’s 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 HRSA’s health care shortage-designation systems which do 

not adequately measure underservice. 

According to GAO, the accuracy of HRSA’s shortage-designation 

systems used for RHC certification is questionable for two reasons. 

First, HRSA’s systems do not consider all primary care resources when 

determining the need for additional practitioners. Second, the MUA’s 

Index of Medical Underservice does not yield current and effective 

information on an area’s 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. HRSA’s 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 physician’s 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. GAO’s 1995 report found that because HRSA’s 

methodology omits nurse practitioners and physician’s 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. 

HRSA’s Index of Medical Underservice has been shown to be an ineffective 

measure of the availability of medical services. According to GAO’s 

1995 report, HRSA’s 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, HRSA’s system for designating an MUA 

compares an area’s 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. 

Current eligibility criteria result in RHC 

participation in areas with already existing 

health care delivery systems 

CMS’s current eligibility 

criteria do not require 

new RHCs applicants to 

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 county’s 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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Δ RECOMME NDA TIONS 

The RHC Program’s criteria related to location are not specific enough 

to ensure that the program’s 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 Program’s 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 Program’s success in providing care to the rural underserved 

depends on HRSA’s 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. 

HRSA’s 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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R E C O MMENDA T I O N S 

HRSA should publish regulations to revise its shortage-designation criteria. 

To operate as effective eligibility criteria for the RHC Program, HRSA’s 

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 

CMS’s 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 GAO’s 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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R E C O MMENDA T I O N S 

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 clinic’s 

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 HRSA’s and CMS’s 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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Δ ENDNOTE S 

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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APP E N D I X ~ A 

RHCs by Rural-Urban Continuum Codes 

2003 Rural-Urban Continuum Codes 

Rural Health 

Clinics 

County in metro area with 1 million population or more 

County in metro area of 250,000 to 1 million population 

County in metro area of fewer than 250,000 population 

Nonmetro county with urban population of 20,000 or more, 

adjacent to a metro area 

Nonmetro county with urban population of 20,000 or more, 

not adjacent to a metro area 

Nonmetro county with urban population of 2,500-19,999, 

adjacent to a metro area 

Nonmetro county with urban population of 2,500-19,999, 

not adjacent to a metro area 

Nonmetro county completely rural or less than 2,500 urban 

population, adjacent to metro area 

Nonmetro county completely rural or less than 2,500 urban 

population, not adjacent to metro area 

216 

317 

301 

281 

153 

823 

588 

248 

413 

Overall Total 3,340 

Source: Online Survey Certification and Reporting and Department of Agruculture Rural-Urban 

Continuum Codes, 2004 

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APP E N D I X ~ B 

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APP E N D I X ~ B 

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APP E N D I X ~ B 

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ΔA G E N C Y CO MMENT S ACKNOWLEDGMENTS 

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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