Department of Health and Human Services 

OFFICE OF 

INSPECTOR GENERAL 

RURAL HEALTH CLINICS:


GROWTH, ACCESS, AND PAYMENT 

N+SEWIQ3“&* 

*+ 

#

$ 

s

% ~ ‘4$’* 

%taa > 

JUNE GIBBS BROWN 

Inspector General 

JULY 1996 

OEI-0WM40040 
OFFICE OF INSPEC’rOR GENERAL 

The missionof the Office of Inspector General (OIG), as mandated by Public Law 95-452, as 

amended, is to protect the integrity of the Department of Health and Human Semites’ (HHS) 

programs as well as the health and welfare of beneficiaries served by those programs. This 

statutoty mission is carried out through a nationwide network of audits, investigations, and 

inspections conducted by three OIG operating components: the Office of Audit Services, the 

Office of Investigations, and the Office of Evaluation and Inspections. The OIG also informs 

the Secretary of HHS of program and management problems and recommends courses to 

correct them. 

OFFICE OF AUDIT SERVICES 

The OIGS Office of Audit Semites (OAS) provides all auditing semices for HHS, either by 

conducting audits with its own audit resources or by overseeing audit work done by others. 

Audits examine the performance of HHS programs and/or its grantees and contractors in 

carrying out their respective responsibilities and are intended to provide independent 

assessments of HHS programs and operations in order to reduce waste, abuse, and 

mismanagement and to promote economy and efficiency throughout the Department. 

OFFICE OF INVESTIGATIONS 

The OIG’S Office of Investigations (01) conducts criminal, civil, and administrative 

investigations of allegations of wrongdoing in HHS programs or to HHS beneficiaries and of 

unjust enrichment by providers. The investigative efforts of 01 lead to criminal convictions, 

administrative sanctions, or civil money penalties. The 01 also oversees State Medicaid fraud 

control units which investigate and prosecute fraud and patient abuse in the Medicaid program. 

OFFICE OF EVALUATION AND INSPECHONS 

The OIGS Office of Evaluation and Inspections (OEI) conducts short-term management and 

program evaluations (called inspections) that focus on issues of concern to the Department, 

the Congress, and the public. The findings and recommendations contained in these inspection 

reports generate rapid, accurate, and up-to-date information on the efficiency, vulnerability, 

and effectiveness of departmental programs. 

This report was prepared under the direction of William Moran, the Regional Inspector 

General for the Office of Evaluation and Inspections, and Natalie Coen, Deputy Regional 

Inspector General, Office of Evaluation and Inspections, Region V. Participating in this 

project were the following people: 

Rezion V Headquarters 

Barbara Butq Team Leader Wynethea Walker 

Joseph Penkrot Alan Levine 

To obtain a copy of this report, call the Chicago Regional Office at 312/353-4124. 
EXECUTIVE SUMMARY 

PURPOSE 

Analyze the recent growth of rural health clinics and its implications for the Federal 

Government and States. 

BACKGROUND 

The Rural Health Clinic program, createdin 1977 by Public L.aw95-210, is intended 

to increase access to health care for rural medically underserved areas and expand the 

use of midlevel practitioners (nurse practitioners, physician assistants and certified 

nurse midwives) in rural communities. Rural health clinics (RHCS) receive cost-based 

reimbursement from Medicare and Medicaid. The Health Care Financing 

Administration (HCFA) is responsible for certification and oversight of RHCS. 

Recently, several States have expressed concern about the growth of RHCS in their 

States and the associated Medicaid costs. They have asked for written guidance 

and/or the authority to regulate RHCS with regard to a number of aspects. 

This report is intended to refine our general understanding of the extent, location, and 

impact of the growth of rural health clinics, and to identify vulnerabilities for 

immediate attention and issues for further investigation. It is based on quantitative 

data from several sources, comments from States, and conversations with over 200 

people at 27 rural health clinics in 3 States, State and local government agencies, the 

National Association of Rural Health Clinics, and a HCFA workgroup on RHCS. 

FINDINGS 

RECENT GROWTH. Rural health clinks and associated Medicare and Medicaid 

expenditures have grown substantially since 1990. 

Rural health clinics grew 650 percent from the end of 1990 to October 1995.


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


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


by over 200 percent.


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


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


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


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


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


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


i 
REASONS FOR GROWTH. Four interrelated factors appear to be driving the 

recent growth of rural health clinics: providing access to care, reimbursemen~ 

managed care, and the certification process. 

Our respondents mentioned the first three factors most often when describing the 

reasons they established an RHC. We conclude that the certification process also is 

driving RHC growth because it operates similarly to that of an entitlement program, 

where any entity meeting certain broad criteria is automatically certified. 

We cannot be certain of whether the recent spurt of growth in RHCS represents a 

positive development, in terms of opening access to care, or a negative one, in terms 

of cost or excess capacity. However, we do have reason to raise some concerns for 

immediate action or further study. 

ACCESS TO CARE. Rural health clinics maybe increasing access to care in some 

areas but not in others. We found no reliable data quantifying the impact of RHCS 

on access to care. 

We visited some RHCS that appear to be increasing access to care as the law 

intended. However we also believe that RHCS in some areas are not increasing 

access, for several reasons. They may not be located in true medically underserved 

areas because undersexed designations are outdated or inappropriate. Or, providers 

currently serving the medically undersexed population may simply convert to RHC 

status when no additional incentives were needed to retain them. Rural health clinics 

may be concentrated together or in areas with other providers serving a similar 

population, thereby duplicating services already amply available. 

REIMBURSEMENT. Rural health clinics are paid based on their costs, which may 

be inflated or inappropriate but are diflkult and sometimes impossl%le to verify or 

audit without significant resource expenditure by the Government. 

Vulnerabilities inherent in the cost reimbursement system are apparent in the rural 

health clinic program. There is little or no incentive for efficiency, there are 

opportunities for inflated and inappropriate payments (especially given the lack of 

itemized billing for most independent RHCS), and the process overall is cumbersome, 

comple~ and difficult and expensive to oversee. Federal and State oversight of RHCS 

is sorely lacking. 

RECOMMENDATIONS 

CERTIFICATION PROCESS. The HCF~ with the Health Resources and Services 

Administratio~ should modi@ the RHC certification process to increase State 

involvement and ensure more strategic placement of rural health clinks. 

This responds to State concerns and promotes a more rational and strategic placement 

ii 
of RHCS to ensure that government dollars translate into increased access. We 

suggest a variety of ways in which HCFA could implement the recommendation. 

REGULATIONS. The HCFA should expedite the issuance of regulations now under 

development. 

This responds to States’ requests for guidance, in such matters as commingling and 

provider-based reimbursement, to assist them in monitoring and evaluating RHCS. 

REIMBURSEMENT METHODOLOGY. The HCFA should take intermediate steps 

to improve the oversight and functioning of the current cost reimbursement systerq 

with the long term goal of implementing a different payment method. 

This addresses problems we identify relative to the current cost reimbursement system 

for RHCS, both now and in the long term. It would lead to the implementation of a 

new payment method which would provide an incentive for primary care in rural areas 

and eliminate the vulnerabilities inherent in cost reimbursement. 

COMMENTS 

The Health Care Financing Administration, the Health Resources and Services 

Administration (HRSA), and the Assistant Secretary for Planning and Evaluation 

(ASPE) submitted written comments on the draft report. Copies of the comments are 

in Appendix A. They all concur generally with the recommendations, but expressed 

concerns and suggestions regarding various aspects of the steps proposed to carry 

them out. We look forward to future discussions with HCFA and HRSA concerning 

their action plans for implementing the recommendations. 

Comments from ASPE also posed questions related to the nature of RHC growth, the 

relationship between RHCS and access to care, and how RHCS might be affected by 

the growing involvement of Medicare and Medicaid in managed care. These are 

important issues, but unfortunately are beyond the scope of this study. We hope that 

these issues will be addressed in future studies of the rural health clinic program by 

ASPE, HCF~ or others. 

The National Association of Rural Health Clinics and the National Rural Health 

Association also submitted extensive comments. They view the report as unduly 

critical of RHC growth and stress the continuing need for incentives to retain and 

attract primary care to underserved rural areas. However, they also recognize that 

many of the problems raised in the report merit attention. Like HCF~ HRS~ and 

ASPE, they support our recommendations while disagreeing with some of the steps 

proposed to implement them. We have provided copies of their comments to HCF~ 

HRS~ and ASPE. 

We thank everyone for their comments on this report. We have made changes in the 

text in response. 

... 

111 
TABLE OF CONTENTS


PAGE


EXECUTIVE suMMARY


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


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


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


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


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


�Reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13


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


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


�Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18


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


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


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

INTRODUCTION


PURPOSE 

Analyze the recent growth of rural health clinics and its implications for the Federal 

Government and States. 

BACKGROUND 

Nationally, rural health clinics (RHCS) grew from 29 in 1978 to 2,199 in March 1995,


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


months between October 1993 and March 1995.


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


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


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


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


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


several amendments to the Act intended to overcome various obstacles to


participation in the program.


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


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


Medicare-eligible by HCFA. Medicaid certification follows automatically.


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


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


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


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


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


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


practitioner, physician’s assistant, or private company), or provider-based (an integral


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


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


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


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


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


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


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


medically underserved.


1 For purposes of this program, “rural” is defined as “non-urbanized,” that is, lying outside of “urbanized” areas. 

The U.S. Bureau of the Census defines an urbanized area as a “central city (or cities) and its contiguous closely 

settled territory with a combined population of at least 50,000.” 

1 
Rural health clinics receive cost-based reimbursement for the core sewices listed 

previously. Independent RHCS receive Medicare and Medicaid reimbursement limited 

to their actual costs, not to exceed $55.53 per visit (a “face to face encounter” between 

a patient and a “covered service health care practitioner”) in 1995. This cap is 

adjusted annually according to the Medicare Economic Index. Provider-based RHCS 

receive the lower of reasonable costs or charges, and unlike independent RHCS, are 

not subject to either a reimbursement cap or productivity standard (a minimum 

number of visits per year physician or midlevel practitioner). 

In addition, RHCS may bill fee-for-semice for certain State-specific Medicaid non-core 

ambulatory services (such as dental services or pharmaceuticals). Also, a practice is 

allowed to operate part of the time as an RHC and part as a fee-for-sexvice practice. 

In connection with expressing concerns about the rapid growth of RHCS and their 

associated Medicaid costs, some States have asked for written guidance and/or the 

authority to regulate RHCS with regard to 

concerns and questions, HCFA established 

This group has been involved, among other 

for the program. 

SCOPE AND METHODOLOGY 

a number of aspects. In response to these 

a rural health clinic workgroup in 1994. 

things, in the development of regulations 

This report provides an analysis of the growth of rural health clinics. It identifies 

vulnerabilities for immediate attention and broader issues for further investigation. It 

is based on data from several sources. 

The HCFA’S On Line Survey, Certification and Reporting System provided data on 

the number of RHCS by State. The HCFA regional offices and States provided us the 

number of RHC applications pending. State Medicaid agencies gave us data on 

Medicaid expenditures for RHCS, sometimes with additional comments about RHC 

growth and its impact. 

We also conducted a case study of three States (Illinois, Mississippi, and Texas) where 

RHC growth has been high, visiting State agencies and 27 RHCS in these States, 

located in counties where RHCS have proliferated. We sought a cross-section of each 

county’s RHCS in terms of type (independent versus provider-based; general practice 

versus specialty), ownership, operation by a physician versus a midlevel practitioner, 

size of practice, location, and years of operation. Thus the sample included RHCS as 

varied as large group practices with many physicians and midlevel practitioners and 

over 50,000 visits a year, and clinics operated by solo midlevel practitioners with 

remote physician supervision and as little as 1,277 visits a year. We also analyzed 25 

cost reports for these RHCS. 

Field visits included discussions with clinic owners” and staff, review of data, and 

personal observation. Clinic tours gave a sense of general clinic atmosphere, patient 

2 
flow, personal characteristics of staff and patients, and administrative procedures at


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


Association of Rural Health Clinics, and HCFA’S workgroup on rural health clinics.


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

3 
FINDINGS


RECENT GROWITI. Rural health clinics and associated Medicare and 

Medicaid expenditures have grown substantially since 1990. 

Growthof RHO began to accelerate rapidly in 1990. The national growth rate for 1994 

and 1995 cornbihed could be abnost 150 pmenti 

Most of the growth of RHCS nationally


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


percent of the RHCS operating in 

October 1995 were certified after 1991. 

Figure 1 shows national growth from 

the end of 1990, when there were 314 

RHCS, to October 1995, when there 

were 2,350. This is an increase of about 

650 percent. 

Growth accelerated notably in 1994 and 

continues at a fast pace today.3 Figure 

m. Iwo-lw& 

m. 

1s00


la 

Soo 

o t2/m 12/91 U/W 12/93 12/94 1W9S 

Ykd Smummdy 

2 on the next page shows projected 

RHC growth, broken down by State, in Figure1 

calendar years 1994 and 1995 combined. 

Nationally, RHCS more than doubled (103 percent) in the 15 months from January 

1994 through October 1995. This increase will be nearly 150 percent if the 580 

applicants awaiting certification as of October 1995 are certified by year’s end. 

The projected RHC growth rate4 varies widely by State. However, 30 States could 

experience growth of 100 percent or more in the 2-year period, and 13 States could 

see expansion exceed 200 percent. Ten States will likely have at least 100 RHCS by 

the end of 1995. These 10 States would then comprise more than half (56 percent) of 

the RHCs in the U.S. Between January 1, 1994 and December 31, 1995, the average 

growth rate of RHCS in these States is projected to be 161 percent; 7 States may 

experience growth of 170 percent or more. Texas, with by far the highest number of 

RHCS (almost three times more than California, the next highest State), could see 

growth of 181 percent in that period. 

3 There is no difference in the growth of independent versus provider-based RHCs nationally, although 

differencesacrossStates undoubtedly exjst. 

4 Projected growth equals the number of RHCs certified from January 1994 to October 1995, plus the number 

of applications pending as of October 1995. 

4 
----------------------- ---------------- ------------------------

Figure 2 

ACTUAL AND PROJECTED GROWTH OF RURAL HEALTH CUNICS: 1994 AND 1995 

(D.soonding order by total projected as of 12/95) 

ACTUAL ACTUAL APPUCATIONS 

AS OF AS OF PENDING 

STATE 1/94 10/95 10195 

._- ...._---__ -... .-—----- ............. .. 

TEXAS 

CAUFORNIA


ILUNOIS


KANSAS


MISSISSIPPI


MISSOURI


IOWA


NORTH CAROUNA


SOUTH CAROUNA


FLORIDA


ARKANSAS


GEORGIA


OKIAHOMA


MICHIGAN


LOUISIANA


NORTH DAKOTA


ALABAMA


TENNESSEE


NEBRASKA


WISCONSIN


SOUTH DAKOTA


PENNSYLVANIA


WASHINGTON


WEST VIRGINIA


MINNESOTA


COLORADO


KENTUCKY


VIRGINIA


UTAH


MONTANA


MAINE


IDAHO


OREGON


INDIANA


WYOMING


VERMONT


NEW HAMPSHIRE


NEW MEXICO


AW3KA


NEW YORK


ARIZONA


OHIO


HAWAII


RHODE ISIAND


NEVADA


TOTAL


193 367 175 

93 146 44 

48 113 41 

77 133 16 

49 139 6 

46 115 14 

33 98 16 

66 105 5 

22 52 53 

37 98 2 

41 95 0 

40 90 1 

28 78 12 

38 82 7 

7 49 35 

47 69 6 

23 61 12 

36 70 2 

26 57 8 

18 33 29 

37 44 6 

20 33 10 

22 32 10 

30 41 0 

17 36 4 

16 26 13 

15 34 3 

7 27 6 

12 14 18 

20 24 5 

10 26 0 

16 22 1 

20 21 0 

2 12 5 

5 13 4 

5 16 0 

1 14 0 

6 10 4 

6 9 4 

0 11 0 

2 7 not avail. 

4 4 1 

2 2 0 

0 1 0 

0 1 not avail. 

1,247 2,530 580 

PROJECTED PROJECTED 

AS OF GROWTH 

12195 1/94 TO 12/95 

542 181% 

190 104% 

154 221% 

149 94% 

145 196% 

129 180% 

114 245% 

110 62% 

105 377% 

100 170% 

95 132% 

91 128% 

90 221% 

89 134% 

64 1100% 

75 60% 

73 217% 

72 100% 

65 150% 

62 244% 

50 35% 

43 115% 

42 91% 

41 37% 

40 135% 

39 144% 

37 147% 

35 400% 

32 167% 

29 45% 

26 160% 

23 44% 

21 5% 

17 750% 

17 240% 

16 220% 

14 1300% 

14 75% 

13 117% 

11 NA 

7 250% 

5 25% 

2 o% 

1 NA 

1, NA 

3,110 149% 

�CT, DE, MA, MD, NJ, WASHINGTON D.C.: O RHCS 

‘i

. 
Cornbihed Mkdicare and Medicaid qvenditures for nual health clinics have more than 

doubled since 1991. 

Figure 3 shows the increase in combined Medicare and Medicaid expenditures for 

RHCS for fiscal years 1992 through 1995 from HCFA data. 

Readers should be aware that the Medicaid data is not complete. Several States with 

RHCS (most notably Texas, the State with by far the most RHCS) are not included in 

HCFA data. Also, FY 1995 data is preliminary only. Despite gaps, however, these 

figures give some notion of the rate at which Medicaid expenditures on RHCS have 

increased. 

MEDICARE AND MEDICAID EXPENDITURES ON RHC’S


Fiscal Years 1992-1995


($1.1 billion)
 . 

Fiscal Medicare Percent Medicaid Percent Total Total Percent 

Year Expend. Increase Expend. Increase Expend. ~Increase 

1992 $ 37M - $ 122M - $ 159M .-

1993 $ 56M 51% $ 193M 58Ya $ 249M 57% 

1994 $ 78M 39% $ 247M 28% $ 325M 31% 

1!395” $ 125M 60% $ 314M 2790 $ 439M 35% 

Percent 23870 157% 176?Z0 

Increase 

* Preliminary/incomplete 

Figure3 

Growth in RHC expenditures exceeded 200 percent for Medicare and 150 percent for 

Medicaid in this period. Annual Medicaid outlays were about three times greater than 

Medicare outlays in every year. For the 4 years combined, Medicare expenditures 

were $296 million and Medicaid, $876 million, for a total outlay of $1.1 billion. 

Fo~ pement of States with RlK3 Reprxt Si~~cant l-Year Growth in Mdicaid 

Thirty-two of the 46 States that have RHCS submitted data to us enabling the 

calculation of a l-year change in their RHC Medicaid expenditures, shown in Figure 4. 

Most States provided a comparison of their fiscal years 1994 and 1995. 

6

---------

Figure 4


ONE YEAR CHANGE IN RHC MEDICAID EXPENDlmRES REPORTED BY 32 STATES


(Descending Order by percent change) 

CHANGE FROM 

STATE YEAR PAYMENTS PREVIOUS YEAR 

—..——— —- —--———- —-—- ——

LOUISIANA 1995 1,977,798 1146% 

ALABAMA 1995 3,379,349 194% 

OKLAHOMA 19% 2,711,269 163% 

IOWA 19s5 2,621,060 130% 

VERMONT 1994 1,340,923 116% 

MISSISSIPPI 12,0S9,000 107% 

SOUTH CAROUNA 1995 3,756,620 101% 

MISSOURI 1995 7,633,525 93% 

ARKANSAS 1995 2,622,341 90% 

KENTUCKY 4,415,551 63% 

WISCONSIN 1,060,875 80% 

MICHIGAN 1994 5,593,656 75% 

FLORIDA 4,954,580 74% 

GEORGIA 2,816,400 67% 

AIASKA %,541 62% 

MINNESOTA 1,403,133 61% 

COLORADO 1994 673,161 60% 

KANSAS 3,196,324 51% 

TENNESSEE 1994 1,435,050 50% 

TEXAS 1994 22,130,101 47% 

NORTH CAROUNA 8,400,346 31% 

WASHINGTON 19s4 1,143,771 30% 

NORTH DAKOTA 1995 2,346,032 29% 

VIRGINIA 1994 375,059 21% 

CAUFORNIA 43,639,997 21% 

ILLINOIS 6,300,000 17% 

IDAHO 1994 3s0,563 16% 

UTAH 199,128 8% 

MAINE 718,591 1% 

NEW YORK 944,521 1% 

WEST VIRGINIA 19s4 9,949,346 -20% 

OHIO 1995 1,163,329 -26% 

COMMENT 

———---— ———— 

Jan-Sapt ’95 only: $1,737,592 

Stat. projects $8M for ’96 

RHCS now in Steta managed care program 

Jan-Sept ’95 only $1 ,96M (up 400%+) 

Jan-June ’95 only: $429,158 

Extrapolated from State date 

5 of 12 RHCS converted to FQHCS 

Nineteen of the 32 States experienced an increase of 50 percent or more in RHC 

expenditures, and 3 are close to 50 percent or well on their way to large increases for 

1995. Eight States saw increases of more than 100 percent in 1 year. 

Only two States reported a decline in RHC expenditures; in one, almost half of the 

RHCS converted to federally qualified health center status, which in essence only shifts 

costs from one category to another since those entities are also reimbursed at cost.5 

5 Medicaid expenditures in a third State, Tennessee, may also decline as a distinct provider group since all RI-Ks 

there have been folded into the State’s managed care system. 

7 
Certain examples of recent growth stand out. 

�	 In Kansas (133 RHCS at present), expenditures jumped 50 percent in 1995, 

and according to the State, are headed for another increase of at least 30 

percent in 1996. 

In Virginia (27 RHCS), expenditures rose only 21 percent in 1994, but the 

State reported expenditures of nearly $2 million for the first 9 months of 

1995 alone, an increase of over 400 percent. 

�	 Louisiana (49 RHCS) is experiencing spectacular growth, with a 63 percent 

increase in RHCS from May to October 1995, 35 applications pending, and a 

l-year rise in expenditures from some $159,000 to almost $2 million. 

�	 In South Carolina (52 RHCS), expenditures increased 101 percent to about 

$3.7 million in 1995, and the State projects expenditures of $8 million for 

1996, another potential l-year increase of 116 percent. 

Some States, both those on this chart and others, may see a significant increase in FY 

1996 because many of their RHCS are newly certified and just beginning to bill. 

REASONS FOR GROWTH. Four interrelated factors appear to be 

driving the recent growth of rural health clinics: access to care, 

reimbursement, managed care, and the certification process. 

Several factors appear to be driving the growth of RHCS. The first three are 

marketplace forces that, for many RHCS we visited, appear to have interacted to drive 

their creation. For example, a physician practice struggling financially with a high 

proportion of Medicare and Medicaid patients maybe driven to become an RHC 

primarily for enhanced reimbursement, but may also be genuinely interested in serving 

more patients by adding a midlevel practitioner. Similarly, a rural hospital maybe 

primarily concerned with surviving under managed care, but also be motivated by a 

desire to create an outpatient care presence in their area. 

Desire to create, expand, or maintain access to primay care in rural areas. The next 

finding in this report describes RHCS we visited that appear to have enhanced access 

to care in various ways. Respondents at practices that had converted to RHC status 

said it enabled them to remain in their communities, to serve (more) Medicaid 

patients, or to serve more people by adding a midlevel practitioner. A few 

freestanding practices had been set up initially in areas with no other care. 

Respondents at provider-based RHCS tended to give other answers first when asked 

why they established the RHC. 

We believe that the creation of the Office of Rural Health Policy, within the Public 

Health Service, in 1990 has also helped publicize and promote the potential for 

increasing access through the rural health clinic program. In some States, changes in 

8 
State laws governing the utilization of midlevel practitioners have also facilitated RHC 

growth. 

I?ornke of enhanced revenue through cos~reimbursement. This is the main reason given 

to us at physician practices that converted to RHC status. Our respondents told us 

that enhanced reimbursement has also led companies to buy and convert physician 

practices, and induced hospitals to establish new RHCS, either to compensate for 

reduced in-patient revenue or to divert emergency room patients to more appropriate 

(i.e., outpatient) care. 

Approach of managed care. Managed care was of considerable interest or concern for 

many of our case study respondents, although few had any concrete notion of how it 

might arrive in their area, what form it might take, or how they might be affected. 

Nine of the 10 provider-based (mostly hospitals) RHCS in our sample said that 

positioning for managed care was a major reason for their establishing an RHC, and 

most were part of a network of several RHCS in an area. Two of the largest 

independent RHCS (group practices) and a company that owns 11 RHCS in one State 

also mentioned this. Respondents said they expected their RHCS to help establish 

market share, create a referral base or network, or enhance community visibility of the 

parent provider generally. 

The strength of managed care as a force behind creating an RI-IC may explain why 

the owner-representatives of 8 of the 10 provider-based RHCS said they are 

maintaining the RHCS despite losing money, in part due to low patient load. 

Certification process. We view the RHC certification process itself as another factor in 

RHC growth. It is similar to that of an entitlement program, in that an applicant that 

meets certain location requirements (in this case, is in a rural federally or governordesignated medically underserved area) as well as certain federal health and safety 

requirements, is approved to participate in the Medicare and Medicaid programs. 

Applicants are not required to document the potential impact of establishing an RHC. 

No requirements exist that RHCS be created in areas of greatest need and no limits 

exist cm the number of clinics that may be established in an area. Also, an RHC 

retains its status, including cost-reimbursement, even if its location is subsequently 

determined to no longer be rural or medically underserved. The next finding describes 

questionable situations that can arise as a result of failing to limit RHC growth in an 

area or target RHCS in a more strategic manner generally. 

We cannot be certain of whether the recent spurt of growth in RHCS is a positive 

development, in terms of opening access to care, or negative, in terms of cost or 

excess capacity. However, as the next section of the report shows, a lack of good data, 

our observations on site, and feedback from some States all point to concerns for 

immediate action or further study. 

9 
ACCESS TO CARE. RuraI heakh clinics may be increasing access to 

care as intended by law in some areas, but not in others. We found no 

reliable data quantifying the impact of RHCS on access to care. 

Some IWK3 we virited ap~ar to be filling a need for primmy care in mral areas. 

In all three case-study States, we visited RHCS which appear to have retained or 

expanded primary care in rural areas. Some were the only source of primary care in 

their areas - or had been at the time they were established. They were located in very 

small towns in sparsely populated areas, many of them staffed by a lone midlevel 

practitioner. We visited specialty clinics (pediatrics; obstetrics and gynecology) which 

are the only providers of such care for miles around. We visited clinics where 

respondents said that hiring a midlevel practitioner had enabled them to expand office 

hours or services. We met midlevel practitioners who impressed us with their ties to 

the community, One such individual is a physician assistant who recently returned 

home after 20 years in the Air Force to staff a small RHC by himself, making 

occasional home visits to homebound patients and conducting health education 

campaigns at local football games, where he serves as the team medic. 

Respondents gave several examples of how they think their RHCS have increased 

access to care. Their presence in the community alone has widened access. The 

enhanced reimbursement has kept them in business or enabled them to seine more 

Medicaid patients (specifically). They provide an alternative to inappropriate and 

more-expensive emergency room care (noted by provider-based RHCS). Midlevel 

practitioners at RHCS have increased the number of patients seen in existing practices 

and brought excellent primary care to rural areas, including preventive care and health 

education. Rural health clinics have resulted in increased acceptance of midlevel 

practitioners by patients and physicians alike. 

While we believe that some of the RHCS we visited have increased access to care, we 

found no reliable documentation that quantified such increases. 

Howeve~ we ako belkve that RHCS may not always be increasing access to primury care 

as the kbw intended 

Our visits and data analysis also revealed RHCS whose impact on access to care is 

questionable. We have identified four reasons why we believe that RHCS may not 

always be increasing access to care as intended: (1) They may not be located in true 

medically underserved areas, because designations are outdated or inappropriate; (2) 

Providers currently serving the medically undersexed population may simply convert 

to RHC status when no additional incentives were needed to retain them; (3) RHCS 

may be concentrated together, or in areas with other providers serving a similar 

population, thereby duplicating services already amply available; and (4) RHCS may 

actually have a negative impact by driving out other providers from the area - either 

public health providers with greater accountability for serving the medically 

underserved, or primary care physicians. Each of these reasons is discussed below. 

10 
Medicallv Underserved Decimations


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


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


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


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


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


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


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


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


numerous specialties (from cardiology to sports medicine.)


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


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


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


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


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


disagreeing with their conclusions and recommendations and describing measures they


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


comments with GAO’s statement that the RHC program was created for isolated rural


communities unable to support a physician’s practice. Their view is that congress


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


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


Conversions


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


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


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


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


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


for conversion.


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


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


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


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


conversions have increased access to care.


Concentration of Providers


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


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


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


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


Al 
States described, and we observed, other situations that raise questions about whether 

additional access is needed or provided: RHCS located next door to or across the 

street from each other; single providers who establish multiple sites in one community; 

an RHC located inside a hos ital or next to an emergency roomG; and three RHCS 

licensed at the same address. ? 

ImDact on Other Providers 

Enhanced reimbursement was meant to be an inducement to providers to come to, or 

remain in, communities with a lack of primary care. However, in communities with 

more than one prima~ care provider, it gives the RHCS (whether independent or 

provider-based, new in the community or conversions of existing practices) a 

competitive advantage over the non-RHC practices.8 Also, in some places we visited 

the clustering or concentration of RHCS appears to increase competition for the same 

patients more than demonstrably increase access for new patients. 

The provider-based reimbursement mechanism, specifically, confers a significant 

financial advantage to this type of RHC compared to physician practices, whether 

RHCS or not. For example, demand has driven the salaries of midlevel practitioners 

very high in some areas; not subject to a reimbursement cap, provider-based RHCS 

can absorb these salaries more easily than independent RHCS. Also, provider-based 

RHCS which capture a significant share of Medicare and Medicaid patients may drive 

physician practices out of business, seriously reducing access to primary medical care. 

This concern is expressed by the National Association of Rural Health Clinics as well 

as some States. 

In some areas, RHCS are being established very close to community health centers 

and federally qualified health centers. The concern we heard here is that RHCS may 

drive these entities out of business in the competition for patients, leaving uninsured 

and indigent patients without a critical source of care. Community health centers and 

federally qualified health centers are mandated to seine this population, but rural 

health clinics are not. One State sent us a map showing the clustering of these entities 

there, to illustrate this concern. 

In two communities, competing hospital-based RHCS operate seeing just 10-12 

patients a day because the population of the area is so sparse (1,700). Unlike 

6 One question k%Is an in-house RHC, per se, any more likely to expand access than an outpatient department 

operating on a fee-for-service basis? 

7 The concern here is that a patient could be sent to all three clinics in one day for slightly different seMces, each 

visit paid at the encounter rate. 

8 Data we found from three States shows the comparison there between average Medicaid reimbursement per 

visit for RHCS versus physician oftkes $53.2S versus $3% $51.99 (independent) and $76.84 (provider-based) versus 

$2S.3% and $55.50 versus $21.50. Another State reported that RHC reimbursement per visit there is “about double” 

fee-for-service reimbursement. 

12

independent RHCS, they can survive despite this low volume because they are not 

subject to a productivity standard or a reimbursement cap. Each RHC naturally tries 

to steer patients towards its owner-hospital and away from other community hospitals 

in the area which may have been seining them. If this loss of business led one 

hospital to close, this might deprive the area of both primaxy and tertiary care. 

We found no reliable duta quunh~ing the impact of RHCk on access to care. 

All RHCS are required to conduct an annual self-evaluation, including a review of the 

utilization of services, including the number of patients sewed and volume of services. 

However, we found that many of those we visited were either not aware of or did not 

understand the requirement, did not keep all of the data required, or lacked detailed 

data. Thus we could not accurately determine, from interviews or review of RHC 

records, how many patients were seen in a year, their payor status (including what 

proportion are uninsured/charity care), where patients lived in relation to the RHC, or 

what services they received and how often .9 Neither could we make meaningful yearto-year comparisons. 

State officials in our three case-study States also lack data on access and, like us, are 

eager to know what affect RHCS have had on access. One State public health agency 

had funded a study to document access, but the contractor was unable to proceed due 

to the nature and format of the Medicaid data available. 

This program has never been evaluated, thus no national data is available on access. 

Recognizing this important information gap, both HCFA and the General Accounting 

Office (GAO) have begun studies of the RHC program focused on the issue of access. 

REIMBURSEMENT. Rural health clinics are paid based on their costs, 

which may be inflated or inappropriate but are difficult and sometimes 

impossible to ve~ or audit without significant resource expenditure by 

the government. 

Cost reimbursement is well understood as an extremely vulnerable mechanism by 

which to pay providers of service. It contains little or no incentive for efficiency, 

provides opportunities for inflated and inappropriate payments, is cumbersome and 

comple~ and is difficult and expensive to oversee. Each of these vulnerabilities is 

discussed below as it pertains to the RHC program. 

9 Available data,oftenincomplete, usuallyshowedthenumberofannualvisits bypayor type, ratherthanan 

unduplicated count of patients. We learned earty on that this might not be an accurate reflection of who the clinic is 

serving when the physician-owner of an RHC told us that Medicaid patients were 65 percent of all puh”entsat his 

RHC, but constituted SO percent of ail visits. 

13 
Little or No Incentive for Efficiency


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


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


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


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


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


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


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


year, so do their costs.”


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


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


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


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


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


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


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


impose administrative and financial controls on RHCS generally.


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


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


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


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


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


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


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


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


Inflated or Inamxomiate Costs


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


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


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


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


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


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


a patient is assessed by a health care professional.


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


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


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


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


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


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


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


14 
practice.l” Another wrote HCFA expressing concern that clinics there are padding 

cost reports and billing fee-for-sexvice for core RHC services (services meant to be 

covered within the encounter rate). A third State wrote to us noting cases where 

several RHCS were licensed at the same address, which they said could lead to abuse 

by sending a beneficiary to all three clinics on the same day for slightly different 

senfices. 

Monitoring RHCS for these kinds of abuses in a cost-reimbursement system is 

extremely difficult from a practical standpoint given scarce oversight resources at local, 

State and Federal levels. 

The lack of a reimbursement cap is reportedly driving the creation of provider-based 

RHCS in a number of ways. Small hospitals are establishing RHCS to shift costs in 

order to stay financially afloat. Hospitals are buying up and converting physician 

practices with promises of higher salaries. One State reported that in place of an 

emergency room, a hospital now has a 24-hour rural health clinic. In another case, 

the physician-owner of an independent RHC asked a local hospital to buy him out so 

that he could convert to provider-based status for enhanced revenue. 

In our sample of cost reports from independent RHCS, annual salaries reported for 

midlevel practitioners ranged from $18,983 to $112,996. One example of questionable 

salary was brought to our attention by a State official where a physician assistant who 

owns two RHCS submitted a cost report showing his salary at $140,000 for 7 months 

of work; an average annual salary for midlevel practitioners in the State is reportedly 

$40-50,000. The official said that the $140,000 was approved by the intermediary 

without an audit, but that the State views $140,000 as excessive and has refused to 

pay, asking for HCFA guidance on “reasonable reimbursement” in the absence of 

regulations. 

As noted previously, almost all the 25 cost reports for our sampled RHCS showed the 

costs of the RHC exceeding the capped rate (independent) or charges (providerbased). This could mean that the RHC is losing money treating Medicare and 

Medicaid patients, despite rapidly escalating Medicare and Medicaid costs. Or, costs 

might ‘not be reported accurately, might be inflated to maintain a basis for higher 

billing, or could be shifted to the RHC portion of a practice that operates some of the 

time fee-for-sexvice. Possibly, private-pay reimbursement is subsidizing treatment for 

Medicare and Medicaid patients. Whatever the reason(s), only a thorough audit of 

the cost reports would reveal why costs so often exceed charges. 

Independent RHCS are not required to itemize billing. Also, if an RHC physician bills 

fee-for-service as well as the encounter rate, we cannot be sure that billing is 

10A physician we vished operates a pediatric practice as an RHC and a fee-for-service aller~ practice in the 

same building. “Commingling” refers to the commingling of the assets, staff, records, and resources between the 

RHC and fee-for-service portions of such a practice, acknowledged by HCFA to hold potential for abuse. We 

understand that consultants sometimes advise physicians to maximize revenue by operating in this way. 

15 
and/or audit will 

Yet, reviews and 

appropriate and not duplicative. Only a medical record review 

identify what services these RHCS are providing, for what cost. 

audits are time-consuming and costly. 

Complexity of the Svstem 

Cost reports are complex and the cost reporting process cumbersome, especially for


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


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


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


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


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


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


ourselves reviewed cost reports that were unsigned or where essential schedules


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


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


intermediaries must often spend considerable time providing technical assistance to


providers.


Lack of oversight


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


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


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


previously.


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


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


a specific provider.


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


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


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


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


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


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


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


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


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


Medicare’s determination of the reimbursement rate, rarely reviewing cost reports


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


provider.


11TheAmerieanAcademyofFamilyPhysiciansalso called upon’ HCFA to establish an equitable application of 

Medieare and Medicaid payment rules for independent and provider-based RHCS. 

16 
RECOMMENDATIONS


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


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


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


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


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


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


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


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


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


strengthened.


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


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


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


longitudinal evaluations looking at this issue in the future.


CERTIFICATION PROCESS. The HCF~ with the Health Resources and Sefices 

Adrninistratio~ should modify the certification process to increase State involvement 

and ensure more strategic placement of rural health clinics. 

We recognize that some States have actively encouraged RHC growth or express no 

concerns about the program at this time, and we also believe that RHCS are needed 

in some places. However, our findings also convince us that greater effort is needed 

in this program to ensure that Government dollars translate into increased access. 

Growth should be a more rational and strategic process. Also, giving States more of a 

voice and increased control over RHC certification is consistent with the trend toward 

greater State flexibility in administering the Medicaid program generally. Some ways 

to implement this recommendation are: 

�� Implement the GAO recommendation to create specific undersexed 

designation criteria for this program. Or, refine and oversee the existing 

system to ensure that designations are accurate and up-to-date and that 

areas are redesignated as appropriate and in a timely manner. 

�� Find ways to expand the involvement of State officials (Medicaid and public 

health) in the certification process. 

�� Establish new criteria, in addition to rural, undersexed designations, that will 

document need and impact on access of new RHCS. 

. Require applicants to submit a plan documenting need and projected 

impact. 

. Create geographic limits to eliminate concentrations of RHCS. 

17

. Remind States that they may implement their own criteria via a certificate 

of need or similar process they create. 

� Require recertification of RHCS within a specific time limit (for example, 5 

years), applying new criteria. 

REGULATIONS. The HCFA should expedite the issuance of the regulations now 

under development. 

This recommendation responds to States’ requests for guidance in such matters as 

commingling and provider-based reimbursement. This will assist them in oversight of 

rural health clinics. 

REIMBURSEMENT METHODOLOGY. The HCFA should take intermediate steps 

to improve the oversight and functioning of the current cost reimbursement system, 

with the long term goal of implementing a different method. 

Intermediate steps could include: 

E	 Require itemized Medicare billing for independent RHCS and encourage 

States to do the same for Medicaid billing. This allows HCFA to use 

payment safeguards currently in place for all fee-for-sexvice billing. It would 

be useful in identifying fraud and abuse, and provide data on individual 

client sefices for evaluation at both the national and State level. Existing 

codes should be used, with a new code added to capture preventive and 

health education activities. 

� Require RHCS to provide certified financial statements. 

�� Implement caps on provider-based RHCS, and allow States to do so. Or, 

find other ways to make reimbursement between provider-based and 

independent RHCS more equitable. 

�� Require provider-based RHCS to submit cost report worksheets providing 

the same data now required of independent RHCS. 

F	 Implement controls such as a clearer definition of an encounter, itemized 

billing, and limits on visits per patient per year. Remind States that they 

may take such measures also. 

�� To institute consistency and uniformity in claims review, designate one 

Medicare fiscal agent, or one per region, to process all RHC bills 

(independent and provider-based). 

Long term steps could include: 

�� Once itemized billing is instituted, conduct focused audits of RHCS to 

identify true costs as a basis for developing a new reimbursement 

mechanism. 

�� Ascertain what proportion of independent RHCS are reimbursed at the 

capped rate. If a strong majority, then consider proposing the elimination of 

18

cost reimbursement and reimburse all independent RHCS at a flat rate, 

requiring itemized billing. Increase the flat rate yearly as appropriate. 

� Or, using data collected from itemized Medicare and Medicaid RHC bills, 

develop an enhanced fee schedule or a prospective payment system to 

reimburse all RHCS. 

COMMENTS 

The Health Care Financing Administration, the Health Resources and Semites Administration 

(HRSA), and the Assistant Secretary for Planning and Evaluation (ASPE) submitted written 

comments on the draft report. Copies of the comments are in Appendix A- They all concur 

generally with the recommendations, but expressed concerns and suggestions regarding various 

aspects of the steps proposed to carry them out. We look forward to future discussions with 

HCFA and HRSA concerning their action plans for implementing the recommendations. 

Commentsfrom ASPE also posed questions related to the nature of RHC growth, the 

relationship between RHCS and access to care, and how RHCS might be affected by the 

growing involvement of Medicare and Medicaid in managed care. These are important issues, 

but unfortunately are beyond the scope of this study. We hope that these issues will be 

addressed in future studies of the rural health clinic program by ASPE, HCF~ or others. 

The National Association of Rural Health Clinics and the National Rural Health Association 

also submitted extensive comments. They view the report as unduly critical of RHC growth 

and stress the continuing need for incentives to retain and attract primary care to underserved 

rural areas. However, they also recognize that many of the problems raised in the report merit 

attention. Like HCF~ HRS~ and ASPE, they support our recommendations while 

disagreeing with some of the steps proposed to implement them. We have provided copies of 

their comments to HCF~ HRS~ and ASPE. 

We thank everyone for their comments on this report. We have made changes in the text in 

response. 

19

APPENDIX A 

AGENCY CQMMENTS 

A-1 
, -/’-% 

[ DEPARTMENT OF HEALTH ta HUMAN SERVICES t+edthCareFlnantingAdm{n{strntion 

‘\w4	 Tha Admlnigtrmw 

W88hlnfton, DC. 20208 

DATE JNIO!996 

TO:	 June Gibbs Brown 

Inspeomr General 

FROM:	 Bruce C. Vladcc*N 

Administrator 

suBJEc’n Office ofInspectorGeneralDraflReport “Rural HealthClinics: GrowtlL 

Access, aad l%ymen~”(OEL05-94-00040) 

We reviewed the above-referenced&aft reportwhich analyzes the r-t growthofrursl 

healthclinics ad its implications for the Fedeml govemrnent andSbtiS, Our COftUIICli~ 

an attachedfor your oonsideratiou. 

Thankyou for the opportunityto revkw andcommcut on this draftreport. 

Atfichmem 

A- 2 
~ 

Cutifkation Process. The HCF& with the HealthResourcesandServices 

Administrati~ should modifi the certilioationprocess to hwrease State involvement and 

ensuremom strategicplacementof ruralhcaitholinics (RHC). 

Q	 Implementthe GAO mommdaa “onto createspecific underserved designation 

criteriafm this prqram. Or, refine andoveGec the existing SYstcm to ensure that 

deaigmuions are acourate andup-to-dateandti areasare de-designatedas 

appropriate
and in � tidy manner. 

w FA IbsDonse


We concur. The currentshortageareadesignationsystmnneeds to be revised to


ensurethatdesignationsof shottagcareasareaccurateandup-todate @ that


areasare redesignated as appropriateandin a tidy manner. It is our


understdbg that the Hea!th Resouroes andSezvkes Administration


(HRSA) will be publishingrcgulatimtsto revise the cuffent dcsignafions


system. WC will continue to monitmthis regulatoryactivity andprovide


appropriatecomments regardingtheimpactof the regulationsoaatheRHC 

hcnefit. 

o	 Find ways to expandthe involvementof stateofficials (Medicaid andpubJic 

health) in the certificationproecss. 

HCFA ResDQIJSS


We concur. State Medic&dandpublichealthof5ciak should take 8 more active


role in ensuringthatRHCs arelocated m approprialblydesignatedshmtage areas.


States curredy have the � uthodty to review areasfosappfopdate designationssn~ 

d4cs@ationa. Iftstatebelieves thatanaresnoloagerma the criteriaf~ 

designationass shortagearc~thestatecanrequestthatHRSA de-kignate the 

area WewiUnot@ states to bemorea@iwhti~sq andwevdlas,k 

wes in monitoriq ~lZWt9 to HRSA to de-designatean area. 

o	 EstablishH_ in additionto ruraLd= servedde~tions, thatwill 

documentSKJcdandimpacton acecss Ofncw RHcs. Requireapplicants10submit 

a plan docundng need andprojectedimpaot. - ~aphlo limits to 

Cunirutc Goncemmtionsof RHcs. Remindstatesthasthey may impklnent dleir 

own criteriavia a cedkate ofnccd or create8 similarprocess. 

A -3 
Page 2 

We disagree. We believe thatwith the implementationof the IiRSA regulations to 

revise the designation system andmore active state involvementin requestingthe 

redesignation of ueas, RHCSwill be finishing services to mral medically 

undcrsmmd residentsconsistent with the statutoryintent of the RHCbenefit. 

o	 Requirerecedficationof RHCSwithin a specific time limit (for example, 5 years), 

appiyiq new criteria. 

We disagree.Congressintendedthatonce8 RHC was approved endcontinued to 

paticipatc in the Mcdican#Mcdioaidprogramit could oontinue to do so even if 

the arealost its ruralshorlageareastatus. (See response to previouspoint.) 

Regulations. HCFA should expedite the issuance of the regulationsnow under 

development 

Reimbursement Methodology. HCFAshouldtake rntennediatesteps to improve the

oversight and functioning of the currentcost reimbursementsystem, with the long term 

goal of implementing a diffkrentmethod. 

We concur with the above two recommendationsandbeliew they are usefd md 

meaningful suggestions fa improvementof the RHC progranL 

Page L last paragraph-An areawitht rnethlly undersexed populationgroupis not an 

eligible em for RHO. Also, additionalmas thateraeligible butnot mentioned in the 

pwtu@ are amaa which idnde � popdatim group whichhas a heahh professional 

_ andhi~ migmntimpaot~, 

Page 9, certification prooesq 2rd sentence - shouldreed”. ~. tlmtmees oetin broad 

Iooationmquinmnts md certainFederalheahh andsafety requirementsis approvedto 

pm”cipate in the MedioareandMedicaidprograms.” 

A -4 
,, ,lW* 

t % DEPARTM~T OF HEALTH & HUMAN SERVXCES PubIii Heekh SOrvlce 

[ 

‘L 4	 Heeifh Re-soums and 

Sm”cQS Adrnhktration 

Rockvilk MD 20657 

MAY 241996 

Tb : Inspector General, OS, DHHS 

FROM ; Deputy Admi.n~strator 

SUBJECT :	 Office of Inspector General (OIG) Draft Report llRural Health clinics: Growth, ~ccesS~ and pawen~” 

OE1-05-94-00040 

Attached, in accordance with your March 29 request, are HRSA’6 

comments to the subjec~ draft report. 

Staff questions may be referred to Paul Clark on 

(301) 443-5255, A 

1’ 

yiiThi’i ‘, ~Jj Mahoney 

A– 5

~etration conuaeAtg 

gn the Office Of IIlaDOCtO r Qenezal (OIGI DmafQ 

~rt ‘Rural Health Clin i cat arowth. JLeees8, 

pavlllant W (OEI-05-94-00040) 

QENERA.LCOMMEWTS 

HRSA agrees with the 01~’s premise that Rural Health Clinics 

(RHCS) should increase access to care. As stated by the OIG, 

RHCS are intended to increase access to health care for the 

rural medically Undeserved. We recognize that RHCS receive 

cost related reimbursement only for Medicaid and Medicare 

patients. Given the intent to increase access, RHCS should be


expected to provide care for the uninsured and underinsured to 

the best of their abilitiee. 

CERTIFICATION PROCESQ


It should be understood that the ways in which the RHC


certification process is modified will be determined in part by


resource constraints, All units of government charged with


certification or other monitoring responsibilities need


adequate program support resources.


We have concerns with some of the strategies identified by the


OIG for implementing the certification recommendation. For


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


underaerved designation criteria for the RHC program. The


current designation system can work for the RHC program as well


as other programs. We believe it would be inefficient to


administer an additional designation system.


HRSA endorses several of the strategies identified by the OIG. 

We agree with the option to ensure that designations are 

accurate and up-to-date, and HRSA is currently working on that


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


incorporating need and impact on access in the certification 

proce88. Certainly, need is a critical factor in determining 

where providers should be located. It should be recognized that the presence of other providers, in addition to a 

particular RHC, does not necessarily indicate an ade~ate 

primary care capacity. One aspect of determining need is a 

provider to population ratio analysis. We further concur with


the OIG that consideration should be given to development of a


recertification process. If a recertification process isI not a 

viable alternative, other ways to monitor RHCS should be 

examined.


A-6

-2-


REQULATIONS


We understand that Stakes have requested guidance from HCFA 

regarding such matters as provider-based reimbursement and 

commingling in a practice thak operates part of the time as an 

RHC and part of the time ae a fee-for-senice practice, 

However, the statement on page iii of the report that the 

States’ requests for guidance have been ‘Ito assist them in 

monitoring and evaluating RHCSN is too limited to sufficiently 

explain why States have requested guidance. It” implies more 

consistency and rigor by States In monitoring and evaluating 

RHCS than currently exists. Furthermore, States’ requests for


guidance are related to their desire to limit RHC


certifications and to curtail their rising RHC costs.


~IMBURSEMENT METHODOLOGY


In the report, the 01(3briefly discussed, but did not evaluate, 

cost related reimbursement. HRSA believes that the current 

cost reimbursement system should be improved. The current


reimbursement cap for independent RHCS should be examined for


reasonableness, Consideration should also be given to the use


of a cap for provider-based RHCS. We believe HCFA should 

consider whether the cap for provider-based RHCS should be the 

same or different from that used for independent RHCS.


The OIG statement on page ii that the “Vulnerabilitiea inherent


in the cost reimbursement system are apparent in the RHC


program” implies that implementation of cost related


reimbursement will always have certain problems. The problems


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


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


efficiency, 3) providing opportunities for inflated and


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


cumbersome, complex, and difficult and expensive to oversee. 

As evidenced by MIX Associates, Inc. 1995 study, llImpactof 

Federally Qualified Health Centers Implementation of Community


Health Centers Revenue and Utilizationtt,the problems cited by


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


indicating that cost related reimbursement can be associated


with improved access to care for Medicaid recipients and the 

uninsured. Furthermore, the study shows that there are 

A-7

-3-

incentives to control co8ts and ways to guard against inflated 

and inappropriate payments. A means to address the 

vulnerabilities of cost related reimbursement is the use of 

tests of reasonableness of costs such as caps and productivity 

screens. There are various ways to implement cost related 

reimbursement with te8kS of reasonableness, including such 

options as prospective all-inclusive per visit rates without 

reconciliation and cost-related cavitation rates, We believe 

that any change from cost related reimbursement should include 

a thorough analysis of potential effects on the RHCS’ ability 

to remain in operation, and the impact on access to primary 

health care in undersexed rural communities. 

We also have concerns with the OIG suggestion to institute 

itemized billing because it is potentially in conflict with the 

desire to implement a proces6 which is less cumbersome, 

complex, and difficult and expensive to oversee. 

OIG RECO~ 

The Eealth Care Financing Administration (HCFA), with the HRSA, 

should modify the certification proce-s to increaso State 

involvement and enmmo more strategic plaeemont of RHCS. 

4 coV?e concur. This recommendation is consistent with HRSA goals 

and objectives related to increasing access to primary care, 

This should result in more rigorous assessment of need and 

community impact and help prevent inappropriate proliferation 

of RHc6m Therefore, HRSA will collaborate with HCFA in 

determining how to increase State involvement in the 

certification process of RHCS and ensure more strategic


placement of RHCS, giving appropriate consideration to the


OIG’S suggestions for implementing the recommendation,


A-8

--

� 

#,, ,,wc,,J+ 

, 

� , 3 

: DEPARTMENT OF HEALTH & HUMAN sERVICES OffIce Of the Secretary 5 

:


~..\


&

TO: 

FROM: 

SUBJECT: 

- .— 

kvastV@On. D,G, xnm 

JUN I2 Ijx


June Gibbs Brown 

Inspector General 

Assistant Secretary for Planning and Evaluation 

OIG Draft Report: “Rural Health Clinics: Growth, Access and Payment;” OEI05-94-00040 COMMENTS 

Thank you for giving us the opportunity to comment on this report which identifies structural 

and oversight diff~culties associated with rural health clinics (RHCs). The report is timely and 

touches on issues State officials and others have raised regarding the proliferation of RHCS. 

We agree with the general direction of the report’s recommendations and the topic areas they 

address, although not with every action which is proposed. It is disappointing that this report 

was umble to address the effect the growth in number of RHCS has had on access to care 

other than anecdotally. If information on the impact of RHCS on access becomes available, 

perhaps through the current HCFA evaluation, the report’s recommendations, particularly 

those related to certification, should be revisited. 

While we believe this report raises important questions, we believe it could be strengthened. 

Our specific comments follow: 

BACKGROUND 

�	 On page 2, it is mentioned that independent RHCS are subject to a “productivity 

standard”. We recommend that this term be defined. 

FINDINGS 

U’ 

~ The report consistently uses the phrase “growth of RHCS” to refer 

to an increase in the -of RHCS, and various comparisons are made among States 

about increases in numbers and corresponding rates of “growth. ” We recommend that 

a discussion be added indicating that there is significant variety in the types of RHCS, 

and therefore that not all RHCS are interchangeable units. Nowhere does the report 

address trends in the number of Medicare and Medicaid patients using RHCS which 

would be an important and perhaps more significant component of “growth. ” 

Similarly, while the report on page 6 explores increases in Medicare and Medicaid 

expenditures for RHCS, it does not shed light on the degree to which these increases 

are tied to the increase in number of RHCS, as opposed to increases in expenditures 

among existing RHCS, While there are footnotes addressing the lack of reliable data 

on users and visits, some acknowledgment should be made of the limitations of using 

raw numbers of RHCs as the primary unit of amlysis. 

A-9

--

--

� 

Page 2- June Gibbs Brown 

In the discussion of recent growth on pages 4-7 much information is provided which is 

lacking in context. For example, the fact that more than half the RHCS in the Nation 

are projected to be located in 10 States is not of itself significant. (More than half the 

Nation’s population resides in the Nation’s 10 most populous States.) What is 

important is that the number of rural residents (or, more to the point, rural residents 

living in undersexed areas) in these States is not proportionate to their number of 

RHCS. In another example, on page 6, it is observed that Medicaid expenditures for 

RHCS are approximately three times those of Medicare, but there is no indication as to 

why this is important. 

� orv versus DlSC@JMUUVRe~ It would be helpful for the report, and in 

particular its recommendations on certification and reimbursement methodology, to 

identifi more specifically which program flaws are the result of statutory requirements 

(which would require legislative changes) and which can be addressed through 

regulatory or policy changes. 

-- Page 9. The report comparesthecurrent RHC cerdfication process
toanentitlement 

program.Whilewe understand theamlogybeingdrawn,we think that
theword

enthlement hasmany connotations beyondtheonebeingreferred
 tohere,andtherefore


suggest thatheOIG consider usingadifferent
 term.


Page 11. Some indication ofthebreakdownbetweenFederal
andState desigmtions 

wouldbehelpful,forbothnew andoldRHCS,


Pages 12-13. In the example of two competing RHCS, it is suggested that 

closing one of two hospitals in a rural area is clearly a negative outcome because it will 

reduce access to primary and tertiary care. This is not necessarily true, particularly in 

areas where there is overcapacity, as is suggested in this example. We recommend that 

this example be revised to take this issue into account. 

RECOMMENDATIONS 

�	 _ to C= The introductory paragraph to this section notes that questions have 

been raised as to whether the intent of the law to expand access to care is being met. 

While the topic areas included in the recommendations should be pursued immediately, 

major redesign of RHC requirements would benefit from better information about their 

effect on access. The report should contain a recommendation addressing this point. 

� ProcS We agree that the certiilcation process can be improved and that 

expanded involvement of State officials in the process would be beneficial. We would 

A- 10

Page 3- June Gibbs Brown 

prefer refinement and improvement of the existing system of designations rather than 

create of a new system to avoid duplication of effort, both at the Federal and State 

levels. Confusion that would result from two similar processes; and the time and StaIIup costs inherent in developing and implementing a new system need to be considered. 

�	 ~ An estimated date for publication would be helpfid, if HCFA can provide 

this. 

�	 ~ We applaud the attempts to create greater fmncial 

accountability and narrow the differences in payment and reporting requirements 

treatment between provider-based and independent RHCS that are spelled out in the list 

of intermediate steps. However, we do not endorse the suggestion of capping visits per 

year. Finally, we do not understand the logic behind the last “intermediate step” 

recommendation. Specifically, why can Medicare use payment safeguards if there is 

only one fiscal agent per region or country, but not if there are more than one? 

The long term steps are directed toward exploring the need for and structure of a new 

reimbursement structure. These possible changes need to be considered against 

Medicaid’s, and increasingly, Medicare’s, growing involvement in managed care and 

the participation of RHCS in mamged care plans. Flat rate reimbursement and 

enhanced fee schedules may well become increasingly inappropriate in this changing 

environment. 

. 

r@Q-4--

Peter B. Edel~ 

A -11