Department of Health and Human Services
 

OFFICE OF 

INSPECTOR GENERAL 

MOST CRITICAL ACCESS 

HOSPITALS WOULD NOT 

MEET THE LOCATION 

REQUIREMENTS IF REQUIRED 

TO RE-ENROLL IN MEDICARE
 

Daniel R. Levinson
 

Inspector General
 

August 2013 

OEI-05-12-00080 
 

 

 

 

 

EXECUTIVE SUMMARY: MOST CRITICAL ACCESS HOSPITALS WOULD NOT MEET 

THE LOCATION REQUIREMENTS IF REQUIRED TO RE-ENROLL IN MEDICARE 

OEI-05-12-00080 

WHY WE DID THIS STUDY 

The Critical Access Hospital (CAH) certification was created to ensure that rural beneficiaries are 

able to access hospital services. Medicare reimburses CAHs at 101 percent of their reasonable 

costs, rather than at the rates set by prospective payment systems or fee schedules. 

Currently, hospitals can be certified as CAHs if they meet a variety of regulatory requirements, 

including being located at least a certain driving distance from other hospitals (including CAHs) 

and being located in rural areas. These two requirements are known as the distance requirement and 

the rural requirement, respectively. Collectively, the two requirements are known as the location 

requirements. Prior to 2006, States could exempt CAHs from the distance requirement by 

designating them as “necessary provider” (NP) CAHs. NP CAHs are permanently exempt from 

meeting the distance requirement. 

HOW WE DID THIS STUDY 

We plotted the locations of CAHs and other hospitals onto digital maps to determine whether CAHs 

would meet the location requirements if they were required to re-enroll in Medicare. Additionally, 

we calculated (using 2011 claims data) the potential savings to Medicare and beneficiaries if the 

Centers for Medicare & Medicaid Services (CMS) were to decertify CAHs that would not meet the 

location requirements. 

WHAT WE FOUND 

Nearly two-thirds of CAHs would not meet the location requirements if required to re-enroll. The 

vast majority of these CAHs would not meet the distance requirement. CMS does not have the 

authority to decertify most of these CAHs, as most of these CAHs are NP CAHs. However, if CMS 

were authorized to reassess whether all CAHs should maintain their certifications and concluded 

that some should be decertified, Medicare and beneficiaries could realize substantial savings. If 

CMS had decertified CAHs that were 15 or fewer miles from their nearest hospitals in 2011, 

Medicare and beneficiaries would have saved $449 million. 

WHAT WE RECOMMEND 

Because the CAH certification results in increased spending for both Medicare and beneficiaries, 

CMS should ensure that the only CAHs to remain certified would be those that serve beneficiaries 

who would otherwise be unable to reasonably access hospital services. We recommend that CMS 

(1) seek legislative authority to remove NP CAHs’ permanent exemption from the distance 

requirement, thus allowing CMS to reassess these CAHs; (2) seek legislative authority to revise the 

CAH Conditions of Participation to include alternative location-related requirements; (3) ensure that 

it periodically reassesses CAHs for compliance with all location-related requirements; and 

(4) ensure that it applies its uniform definition of “mountainous terrain” to all CAHs. CMS 

concurred with our first, third, and fourth recommendations, but did not concur with our second 

recommendation. 
TABLE OF CONTENTS 

Objectives ....................................................................................................1 

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

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

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

Nearly two-thirds of CAHs would not meet the location 

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

Medicare and beneficiaries could realize substantial savings if 

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

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

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

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

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

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

C: Example of Critical Access Hospital Locations Relative to 

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

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

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

Most Critical Access Hospitals Would Not Meet the Location Requirements (OEI-05-12-00080) 
 

 

 

 

 

OBJECTIVES 

1.	 To determine the extent to which Critical Access Hospitals (CAH) 

would meet the location requirements if required to re-enroll in 

Medicare. 

2.	 To calculate potential savings to Medicare and beneficiaries if CMS 

decertified CAHs that would not meet the location requirements if 

required to re-enroll in Medicare. 

BACKGROUND 

Critical Access Hospitals 

In 1997, the Balanced Budget Act (BBA) created the CAH certification to 

ensure that hospital care is accessible to beneficiaries in rural 

communities.1, 2 Small hospitals that meet specific requirements can 

qualify for the CAH certification and receive favorable Medicare 

reimbursements. Medicare reimburses CAHs at 101 percent of their 

reasonable inpatient and outpatient costs.3 

There are more than 1,300 CAHs in the United States. CAHs are located 

in every State except Connecticut, Delaware, Maryland, New Jersey, and 

Rhode Island. CAHs provided care for approximately 2.3 million 

beneficiaries in 2011. Medicare and beneficiaries paid approximately 

$8.5 billion for this care. 

Medicare Requirements for CAH Certification 

Facilities must meet the requirements set forth in the CAH Conditions of 

Participation to receive the CAH certification. Conditions of Participation 

lay out health, safety, and location-related requirements that facilities must 

meet to participate in the Medicare program as CAHs. 

Because the intent of the CAH certification is to ensure access to care in 

rural communities, CAHs must meet two location-related requirements.4 

CAHs must be located at least a certain distance from hospitals (including 

acute-care, psychiatric, rehabilitation, long-term, and children’s hospitals) 

and other CAHs, and they must be located in rural areas. These 

1

 Balanced Budget Act of 1997, P.L. 105-33 § 4201. The BBA amended several sections 

of the Social Security Act, including sections 1820, 1861(mm), 1814(l) and 1834(g). 

2

 Centers for Medicare & Medicaid Services (CMS), State Operations Manual, Pub. No. 

100-07, ch. 2, § 2254A. Accessed at http://cms.gov on July 7, 2011. 3

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

4

 Social Security Act, § 1820(c)(2), 42 U.S.C. § 1395i-4(c)(2); CMS, State Operations 

Manual, Pub. No. 100-07, ch. 2, § 2256F. Accessed at http://cms.gov on July 7, 2011. 

Most Critical Access Hospitals Would Not Meet the Location Requirements (OEI-05-12-00080) 

1 
 

 

 

 

two requirements are known as the distance and rural requirements, 

respectively. Collectively, the two requirements are known as the location 

requirements. Appendix A provides the official descriptions of the 

location requirements. 

Distance requirement. Facilities that wish to obtain the CAH certification 

can meet the distance requirement in one of two ways: (1) by being 

located more than a 35-mile drive from a hospital or another CAH or 

(2) by being located more than a 15-mile drive from a hospital or another 

CAH in areas of mountainous terrain or areas where only secondary roads 

are available.5 

CMS defines “secondary roads” as roads that are not primary roads. 

Primary roads include Federal highways (including interstate highways), 

State highways with two or more lanes in one direction, and roads that—in 

accordance with U.S. Geological Survey (USGS) standards—are shown 

on maps as primary highways.6 Secondary roads typically are one-lane 

State highways and all other local roads. 

Prior to 2013, CMS defined “mountainous terrain” as areas identified as 

such on any official maps or other documents published by the State 

agency responsible for highways in the State (typically a Department of 

Transportation or Highways) or by USGS.7 

In April 2013, CMS published a uniform definition of “mountainous 

terrain” States are to use when certifying hospitals as CAHs. According to 

this definition, roads that travel through mountainous terrain must be 

located in a mountain range and meet one of two additional requirements 

related to ease of travel or effort required to construct the roads.8 

Rural requirement. Facilities that wish to obtain the CAH certification can 

meet the rural requirement by being located either in rural areas or in areas 

that are treated as rural.9

 CMS uses a formula based on multiple criteria to 

determine rural status. Examples of these criteria include whether a CAH 

is located outside a metropolitan statistical area (MSA), located inside a 

5

 42 CFR § 485.610(c). 6

 CMS, State Operations Manual, Pub. No. 100-07, ch. 2, § 2256A. Accessed at 

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

 Ibid. Accessed at http://cms.gov on July 7, 2011. 8

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

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

Accessed at http://cms.gov on April 25, 2013. 9

 42 CFR § 485.610(b). 

Most Critical Access Hospitals Would Not Meet the Location Requirements (OEI-05-12-00080) 

2 
 

 

 

 

 

 

rural census tract, or located in an area designated as rural by State law or 

regulation.10 

Additional CAH requirements. To be certified as CAHs, facilities must 

meet additional requirements beyond the location requirements described 

above. For example, CAHs cannot have more than 25 beds that are used 

for acute care or “swing-bed” patients, they must offer 24-hour emergency 

services, and they must achieve an annual average length of stay for 

patients that does not exceed 96 hours.11, 12, 13 

Necessary Provider CAHs 

Prior to January 1, 2006, States had discretion to designate hospitals that 

did not meet the distance requirement as “necessary provider” (NP) 

CAHs.14 NP CAHs had to comply with all of the other CAH Conditions of 

Participation at their certifications, including the rural requirement.15 

At least 40 States identified specific location-related requirements other 

than distance that hospitals had to meet to receive the NP designation.16 

Most of these States required CAHs to be located in areas where there was 

a shortage of health care resources or to be located in counties where the 

unemployment or poverty rates exceeded States’ averages. 

Existing NP CAHs are permanently exempt from meeting the distance 

requirement, unless they relocate. Effective January 1, 2006, the Medicare 

Prescription Drug, Improvement, and Modernization Act prohibited the 

creation of new NP CAHs, but allowed existing NP CAHs to retain their 

NP designations indefinitely, as long as they continue to meet all other 

10 Ibid. A metropolitan statistical area (MSA) is an urbanized area with at least 50,000
 

inhabitants. A rural census tract is a census tract that does not have significant 

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

nursing services. 

12 42 CFR § 485.618(a). 

13 42 CFR § 485.620(b). 

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

§ 1820(c)(2)(B)(i)(II), 42 U.S.C. § 1395i-4(c)(2)(B)(i)(II).
 15 Balanced Budget Act of 1997, P.L. 105-33 § 4201, Social Security Act, 

§ 1820(c)(2)(B) and (e)(3), 42 U.S.C. § 1395i-4(c)(2)(B) and (e)(3).
 16 Technical Assistance Center and Services Center, Necessary Provider Definitions, 

September 2012. Accessed at http://www.ruralcenter.org/tasc/resources/necessaryprovider-definitions on January 17, 2013.
 

Most Critical Access Hospitals Would Not Meet the Location Requirements (OEI-05-12-00080) 

3 
 

 

 

 

 

 

CAH requirements.17, 18 

Although States are no longer able to designate new NP CAHs, most 

CAHs are NP CAHs. At the time of this analysis, approximately 

75 percent of all CAHs were NP CAHs. 

Participating in Medicare as a CAH 

To participate in Medicare as CAHs, facilities must undergo a certification 

process. During this process, CMS verifies that facilities meet all of the 

requirements included in the CAH Conditions of Participation.19, 20, 21 If 

CMS finds facilities to be compliant, it approves them for CAH 

certifications.22 

Evaluation of the location requirements during certification. Since the 

creation of the CAH certification in 1997, there have been changes in how 

CMS evaluates the location requirements during the certification process. 

Currently, during the certification process, CMS verifies that prospective 

CAHs meet the distance and rural requirements. 23 Prior to 2006, when 

States were able to designate CAHs as NPs, CMS verified that prospective 

non-NP CAHs met the distance requirement and that both prospective NP 

and non-NP CAHs met the rural requirement. 24 As previously stated, NP 

CAHs were exempt from meeting the distance requirement at the time of 

their certifications. 

Maintaining the CAH Certification 

CAHs are subject to periodic reassessments of their compliance with the 

CAH Conditions of Participation. According to CMS staff, these 

17 Medicare Prescription Drug, Improvement, and Modernization Act of 2003, 

P.L. 108-173 § 405(h), Social Security Act, § 1820(c)(2)(B)(i)(II), 

42 U.S.C. § 1395i-4(c)(2)(B)(i)(II).
 18 Medicare Prescription Drug, Improvement, and Modernization Act of 2003, 

P.L. 108-173 §405(h), Social Security Act, § 1820(h), 42 U.S.C. § 1395i-4(h). 

19 CMS, State Operations Manual, Pub. No. 100-07, ch. 2, § 2256A. Accessed at 

http://cms.gov on July 7, 2011. 20 In rare cases, CMS would also verify that hospitals meet all of the requirements 

included in the hospital Conditions of Participation. 21 State agencies survey CAHs for compliance with the CAH Conditions of Participation 

prior to CMS verification. Accreditations from one of the three CMS-approved CAH 

Medicare accreditation programs can replace State agency survey and certification or 

reassessment for CAHs. Organizations that maintain CAH Medicare accreditation 

programs include the Joint Commission; the American Osteopathic Association; and Det 

Norske Veritas Healthcare, Inc. 

22 CMS, State Operations Manual, Pub. No. 100-07, ch. 2, §§ 2256 A–B. Accessed at 

http://cms.gov on July 7. 2011. 23 CMS, State Operations Manual, Pub. No. 100-07, ch. 2, §§ 2256A. Accessed at 

http://cms.gov on April 29, 2013. 24 Ibid. Accessed at http://cms.gov on July 7, 2011. 

Most Critical Access Hospitals Would Not Meet the Location Requirements (OEI-05-12-00080) 

4 
 

 

 

reassessments must take place every 3 years, on average. For CAHs to 

maintain their certifications, CMS or a CMS-approved Medicare CAH 

accreditation program must verify that the CAHs continue to meet all 

CAH Conditions of Participation.25 

Further evaluation of the location requirements. Prior to 2013, CMS did 

not periodically reassess whether CAHs continued to meet the location 

requirements. CMS guidance required that non-NP CAHs’ compliance 

with the distance requirement and non-NP and NP CAHs’ compliance with 

the rural requirement be verified only during the initial certification 

process.26 Because CMS did not routinely reassess whether CAHs 

continued to meet the location requirements, most CAHs that did not meet 

the requirements retained their critical access certifications. 

In March 2013, CMS removed the limitation that it assess compliance 

with locations requirements only during the certification process.27 As a 

result, non-NP CAHs that do not meet the distance requirement and 

non-NP and NP CAHs that do not meet the rural requirement at the time of 

these reassessments can now be decertified and given the opportunity to 

convert to certified Medicare hospitals (after demonstrating compliance 

with the hospital Conditions of Participation).28 NP CAHs are statutorily 

exempt from meeting the distance requirement. 

CMS reassesses whether CAHs meet the rural requirement (and in some 

cases, the distance requirement) if CAHs relocate or have changes of 

ownership and the new owners do not assume the existing provider 

agreement.29, 30 In the case of non-NP CAHs, CMS reassesses whether 

they meet both requirements. In the case of NP CAHs, CMS reassesses 

whether they meet the rural requirement but does not reassess whether 

25 CMS, State Operations Manual, Pub. No. 100-07, ch. 2, §§ 2021A and 2022B. 

Accessed at http://cms.gov on July 7, 2011. 26 CMS, State Operations Manual, Appendix W – Survey Protocol, Regulations and 

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

§ C-0160. Accessed at http://cms.gov on July 7, 2011. 27 CMS, Guidance for Hospitals, Critical Access Hospitals (CAHs) and Ambulatory 

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

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

April 25, 2013. 

28 Ibid. 

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

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

§ C-0160. Accessed at http://cms.gov on July 7, 2011. 30 CMS, State Operations Manual, Pub. No. 100-07, ch. 2, § 2256. Accessed at 

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

Most Critical Access Hospitals Would Not Meet the Location Requirements (OEI-05-12-00080) 

5 
 

 

 

 

 

 

 

they meet the distance requirement.31 CAHs must notify CMS of any 

changes in their location or ownership.32 

Payments for CAH Services 

CMS pays CAHs under a system different from that for paying most other 

hospitals. CAHs receive 101 percent of their “reasonable costs” for most 

services provided.33, 34 CMS determines these costs using information 

from CAHs’ cost reports.35 CMS pays most other hospitals using inpatient 

and outpatient prospective payment systems (IPPS and OPPS), which pay 

predetermined rates for treating beneficiaries.36, 37 Inpatient services are 

paid on the basis of the patients’ diagnoses, while outpatient services are 

paid on the basis of the services provided. 

Like other Medicare beneficiaries, beneficiaries who receive services at 

CAHs are responsible for paying a deductible and coinsurance for 

inpatient services.38 However, the inpatient deductible and coinsurance are 

the same whether services were provided at a CAH or at a hospital paid 

under IPPS.39 

Additionally, like other Medicare beneficiaries, beneficiaries who receive 

services at CAHs are responsible for paying a deductible and coinsurance 

for outpatient services.40 CAHs’ cost-based reimbursement method results 

in coinsurance calculated from submitted charges rather than from final 

costs for services provided, making coinsurance a relatively high 

percentage of final total payments. Medicare beneficiaries generally do 

not pay coinsurance for outpatient laboratory services and certain 

preventive outpatient services.41 

Proposed CAH Changes 

Medicare payments to CAHs have come under increased scrutiny as part 

of ongoing deficit-reduction discussions. In September 2011, the 

31 If an NP CAH relocates and will not continue to serve essentially the same service 

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

Pub. No. 100-07, ch. 2, § 2256F. 

32 42 CFR § 424.516(e). 

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

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

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

35 42 CFR § 413.20(a). 

36 Social Security Act, § 1886(d) and (g), 42 U.S.C. § 1395ww(d) and (g).
 37 Social Security Act, § 1833, 42 U.S.C. § 1395l.
 38 Social Security Act, § 1866(a)(2)(A), 42 U.S.C. § 1395cc(a)(2)(A). 

39 Social Security Act, § 1813(a)(1), 42 U.S.C. § 1395e(a)(1). Inpatient coinsurance is a
 

percentage of the inpatient deductible, which is a fixed amount set annually by law. 

40 Social Security Act, § 1866(a)(2)(A), 42 U.S.C. § 1395cc(a)(2)(A). 41 Social Security Act, § 1833(a)(1), 42 U.S.C. § 1395l(a)(1).
 

Most Critical Access Hospitals Would Not Meet the Location Requirements (OEI-05-12-00080) 

6 
 

 

 

 

 

 

 

 

 

 

President published his Plan for Economic Growth and Deficit 

Reduction. 

42 The Plan proposed reducing CAH reimbursements to 

100 percent of reasonable costs and eliminating the critical access 

certification for CAHs fewer than 10 miles from another hospital.43 The 

President’s proposed budget for fiscal year 2014 made the same 

recommendations and estimated the savings over 10 years to be 

$1.4 billion from reducing reimbursement to 100 percent of reasonable 

costs (from 101 percent) and $690 million from eliminating the critical 

access certifications of CAHs located fewer than 10 miles from another 

hospital.44 

Related Work 

In 1996 and 2003, the Office of Inspector General (OIG) issued reports 

that focused on rural health clinic (RHC) program compliance. Like the 

intent of CAHs, the intent of RHCs is to ensure accessible health care to 

Medicare beneficiaries in rural communities. In both studies, OIG found 

numerous RHCs noncompliant with the requirements that they be located 

in rural and underserved areas. Additionally, OIG found that the 

requirements did not effectively prevent RHC participation in areas with 

existing health care providers.45, 46 

OIG is conducting a nationwide review of swing-bed services at CAHs.47 

OIG is comparing the reimbursement for swing-bed services at CAHs to 

the reimbursement for the same level of care obtained at skilled nursing 

facilities for 2005–2010. 

METHODOLOGY 

To determine the extent to which CAHs would meet the location 

requirements if required to re-enroll in Medicare, we plotted CAHs’ and 

hospitals’ locations onto digital maps using ArcGIS, a type of mapping 

and spatial analysis software. We also surveyed CMS and State agencies 

to collect information about rural areas and mountainous terrain. 

42 Office of Management and Budget, Living Within Our Means and Investing in the 

Future: The President’s Plan for Economic Growth and Deficit Reduction, September 

2011. Accessed at http://www.whitehouse.gov on October 24, 2011.
 43 Ibid., p. 36. 44 OMB, Fiscal Year 2014 Budget of the U.S. Government, p. 196, 2013.
 45 OIG, Rural Health Clinics: Growth, Access, and Payment, OEI-05-94-00040, 

July 1996. 

46 OIG, Status of Rural Health Clinic Program, OEI-05-03-00170, August 2005. 47 OIG, U.S. Department of Health and Human Services Office of Inspector General 

Work Plan: Fiscal Year 2013, Part 1, p. 7. Accessed at http://oig.hhs.gov on 

July 23, 2013. 

Most Critical Access Hospitals Would Not Meet the Location Requirements (OEI-05-12-00080) 

7 
 

To calculate the potential savings to Medicare and beneficiaries if CMS 

were to decertify some CAHs that would not meet the location 

requirements if required to re-enroll, we analyzed 2011 claims data. 

For a detailed description of the methodology, see Appendix B. 

Scope 

We limited our review to the location requirements used by CMS to certify 

CAHs. We determined whether CAHs would meet the location 

requirements if required to re-enroll, but we did not determine whether 

they would meet the remaining CAH Conditions of Participation. 

Further, we did not examine the types of services or quality of services 

provided by CAHs. We performed a limited review of emergency service 

availability—we determined whether nearby facilities provided emergency 

services, but we did not compare the complexity of the emergency 

services provided at these locations to the services provided at CAHs. 

Data Sources and Collection 

Hospital information. To identify CAHs’ and hospitals’ locations, we used 

the Certification and Survey Provider Enhanced Reports (CASPER) 

database.48 To identify CAHs and hospitals that had emergency 

departments, we used CMS’s 2011 National Claims History (NCH) 

inpatient and outpatient files. Finally, CMS provided us a list of all NP 

CAHs. 

Distance requirement. To determine whether CAHs would meet the 

distance requirement if required to re-enroll, we used CAHs’ and 

hospitals’ locations and two additional sources: 

1.	 Roadway classification codes from the ArcGIS U.S. and Canada 

Streets dataset to identify primary and secondary roads.49 

2.	 Survey of all States’ Departments of Transportation regarding areas 

of mountainous terrain. 

Rural requirement. To determine whether CAHs would meet the rural 

requirement if required to re-enroll, we used CAHs’ locations, the U.S. 

Census Bureau’s 2010 MSA files, the U.S. Department of Agriculture’s 

list of rural census tracts, and documents from States’ Departments of 

Rural Health that identify areas designated as rural by State law or 

regulation. 

48 The CASPER database includes data generated from certification surveys and includes 

information such as provider addresses and enrollment dates. 

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

2012. 

Most Critical Access Hospitals Would Not Meet the Location Requirements (OEI-05-12-00080) 

8 
 

Potential savings. To calculate potential savings to Medicare and 

beneficiaries if CMS were to decertify CAHs that would not meet the 

location requirements, we used CMS’s 2011 NCH inpatient and outpatient 

files. 

Data Analysis 

Hospital locations. To plot CAHs’ and hospitals’ locations, we first 

retrieved addresses for the 4,751 active hospitals and 1,329 active CAHs 

in the CASPER database. We then plotted all of the hospitals’ and CAHs’ 

locations onto a digital map using ArcGIS. This digital map served as the 

foundation of our analysis of whether CAHs would meet the location 

requirements if required to re-enroll. 

Distance requirement. To determine whether CAHs would meet the 

distance requirement if required to re-enroll, we first determined the 

driving distance from each CAH to the nearest hospital or other CAH 

using ArcGIS. We stopped at this point for CAHs greater than 35 miles or 

15 miles or fewer from the nearest hospital or other CAH, as driving 

distances alone were enough to determine that the first group of CAHs 

would meet the distance requirements and that the second group would 

not. For each of the remaining CAHs—those more than 15 and up to 

35 miles from the nearest hospital or other CAH—we analyzed routes to 

the nearest hospital or other CAH and survey responses from States’ 

Departments of Transportation to determine the number of miles that were 

through mountainous terrain or on secondary roads. 

Emergency services at hospitals near CAHs. To determine whether CAHs 

were providing services that beneficiaries could not get at nearby 

hospitals, we determined whether CAHs that would not meet the distance 

requirement were located near hospitals or other CAHs that provided 

emergency services. Emergency services are one of several types of 

services that CAHs are required to provide. 

We used the 2011 NCH inpatient and outpatient files to identify CAHs and 

hospitals that Medicare paid for emergency services. We then determined 

how many of the hospitals or CAHs nearest to the CAHs that would not 

meet the distance requirement Medicare had paid for emergency services 

in 2011. 

Rural requirement. To determine whether CAHs would meet the rural 

requirement if required to re-enroll, we used ArcGIS and the MSA files to 

determine whether CAHs were located outside MSAs. Next, for CAHs 

that were located inside MSAs, we determined whether they were located 

in rural census tracts. Finally, for CAHs that were located inside MSAs 

and not located in rural census tracts, we used States’ documents to 

Most Critical Access Hospitals Would Not Meet the Location Requirements (OEI-05-12-00080) 

9 
 

 

determine whether they were located in areas designated as rural by the 

States. 

NP CAH analysis. We used the list of NP CAHs to determine how many 

CAHs that would not meet the location requirements were NPs. 

Compliance with location requirements not possible to determine. For 

some CAHs, we could not determine whether they would meet the 

location requirements. We discuss the reason why a determination was 

not possible in a finding. 

Potential savings. We used the 2011 inpatient and outpatient NCH files to 

calculate potential savings to Medicare and beneficiaries if CMS were to 

decertify some CAHs that would not meet the location requirements. We 

included all inpatient services in this analysis, but only some outpatient 

services. The outpatient services we selected include clinic and 

emergency department visits; significant outpatient procedures and 

services provided along with these procedures, such as pathology services 

and x-ray services; imaging services; services paid under a fee schedule or 

payment system other than the OPPS; and outpatient laboratory services. 

These services represent approximately 60 percent of all outpatient 

services provided at CAHs that would not meet the location requirements 

if required to re-enroll and 47 percent of the outpatient services for which 

beneficiaries paid coinsurance. The payments to CAHs for these selected 

outpatient services represent approximately 67 percent of Medicare and 

beneficiary payments for all outpatient services provided at CAHs that 

would not meet the location requirements if required to re-enroll. 

We calculated potential savings to Medicare and beneficiaries if CMS 

were to decertify some CAHs that would not meet the location 

requirements. We did this by comparing what CMS paid for inpatient and 

selected outpatient services at these CAHs in 2011 to what they would 

have paid for these services under prospective payment systems and fee 

schedules (hereinafter known as the “base rates”). Table 1 describes the 

formulas we used to compute the savings to Medicare and beneficiaries 

for inpatient and selected outpatient services. 

Most Critical Access Hospitals Would Not Meet the Location Requirements (OEI-05-12-00080) 

10 
 

 

 

Table 1: Formulas Used To Compute Savings to Medicare and Beneficiaries If CMS Were 

To Decertify Some CAHs That Would Not Meet the Location Requirements If Required To 

Re-enroll in Medicare 

Type of Service Medicare Savings Beneficiary Savings 

Inpatient services 

Medicare payments to CAHs that would not meet 

the location requirements 

minus base rates minus beneficiary inpatient 

deductibles 

We did not attempt to calculate 

potential beneficiary savings for 

inpatient stays, as deductible and 

coinsurance amounts are the 

same for services received at a 

CAH and at a hospital paid under 

IPPS 

Outpatient services with 

beneficiary coinsurance 

Medicare payments to CAHs that would not meet 

the location requirements 

minus base rates minus beneficiary 

coinsurances 

Coinsurance payments to CAHs 

that would not meet the location 

requirements 

minus coinsurance payments 

under the OPPS 

Outpatient services with no 

beneficiary coinsurance 

Medicare payments to CAHs that would not meet 

the location requirements 

minus base rates 

N/A 

Source: OIG analysis method. 

Limitations 

We adopted a conservative definition of “primary roads” that likely 

resulted in an underestimate of the number of CAHs that would not meet 

the distance requirement if required to re-enroll. We were not able to 

identify all primary roads because the dataset we used did not include the 

number of lanes each road contained. Instead, we adopted a conservative 

definition of “primary roads,” defining them only as interstate and Federal 

highways. We classified all State highways, including those with two or 

more lanes in one direction, as secondary roads. 

We used an older dataset for our distance analysis that may have resulted 

in a further underestimate of the number of CAHs that would not meet the 

distance requirement if required to re-enroll. We used a dataset published 

in 2007 to find routes between CAHs and their nearest hospitals. More 

recent datasets would contain newly constructed roads that might reduce 

the driving distances between CAHs and the hospitals closest to them. 

Our figures for potential per-CAH savings for Medicare and beneficiaries 

are likely low and should be considered conservative estimates, given that 

our analyses did not include all services performed at the CAHs that 

would not meet the location requirements. We included only inpatient 

services and some outpatient services in our calculations. 

Standards 

This study was conducted in accordance with the Quality Standards for 

Inspection and Evaluation issued by the Council of the Inspectors General 

on Integrity and Efficiency. 

Most Critical Access Hospitals Would Not Meet the Location Requirements (OEI-05-12-00080) 

11 
 

 

               

80

70

60

Number of CAHs

50

40

30

20

10

0

Miles from CAHs to nearest hospitals or other CAHs

<1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 
 

FINDINGS 

Nearly two-thirds of CAHs would not meet the location 

requirements if required to re-enroll 

Overall, 849 of the 1,329 CAHs (64 percent) would not meet the location 

requirements if required to re-enroll in Medicare. The vast majority of 

these CAHs would not meet the distance requirement, and only three of 

these CAHs would not meet the rural requirement. Approximately 

1.2 million beneficiaries received services at these CAHs in 2011. 

Eight hundred forty-six CAHs would not meet the distance 

requirement 

Of the 846 CAHs that would not meet the distance requirement if required 

to re-enroll, 306 were located a drive of 15 or fewer miles from their 

nearest hospitals or other CAHs (and, therefore, had 15 or fewer miles of 

their routes going through mountainous terrain or on secondary roads.) 

Figure 1 illustrates the distribution of driving distances for these CAHs. 

Of these CAHs, 235 were between 10–14 miles from their nearest 

hospitals or other CAHs. The other 71 CAHs were less than a 10-mile 

drive from their nearest hospitals or other CAHs. 

Figure 1: The Distribution of Driving Distances for CAHs That Would Not 

Meet the Distance Requirement That Are a Drive of 15 or Fewer Miles From 

Their Nearest Hospitals or Other CAHs 

Source: OIG analysis of CAHs’ distances to their nearest hospitals or other CAHs. 

The remaining 540 CAHs were located between 15 and up to 35 miles 

from their nearest hospitals or other CAHs. These CAHs had 15 or 

fewer miles of their routes going through areas of mountainous terrain or 

Most Critical Access Hospitals Would Not Meet the Location Requirements (OEI-05-12-00080) 

12 
 

               

   

   

   

areas where only secondary roads were available. Figure 2 illustrates the 

distribution of driving distances for these CAHs and the average number 

of miles of their routes that traveled though areas of mountainous terrain 

or were on secondary roads. On average, the routes from these CAHs to 

their nearest hospitals or other CAHs traveled through approximately 

5 miles of mountainous terrain or secondary roads. 

Figure 2: The Distribution of Driving Distances for CAHs That Were 

Between 15 and up to 35 Miles From Their Nearest Hospitals or Other CAHs 

and the Average Numbers of Miles of Their Routes That Were Through 

Mountainous Terrain or on Secondary Roads 

0

5

10

15

20

25

30

35

40

45

15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34

Miles from CAHs to nearest hospitals or other CAHs

Number of CAHs

Average miles on

moutainous terrain

or secondary roads

Source: OIG analysis of CAHs’ distances to their nearest hospitals or other CAHs. 

CAHs that would not meet the distance requirement if required to re-enroll 

were most often located near other CAHs. Approximately 50 percent were 

located nearest to other CAHs; 43 percent were located nearest to 

acute-care hospitals; and the remaining 7 percent were located nearest to 

other types of hospitals, such as psychiatric or rehabilitation hospitals. For 

an example of CAHs’ locations relative to those of other CAHs and 

hospitals in an average State, see Appendix C. 

Most of the CAHs and hospitals that were located near CAHs that would 

not meet the distance requirement if required to re-enroll provided 

emergency services in 2011. Approximately 93 percent of CAHs and 

hospitals (including acute-care hospitals and other types of hospitals) 

located near these CAHs provided emergency services. Most hospitals 

that were near CAHs and that did not provide emergency services were 

Most Critical Access Hospitals Would Not Meet the Location Requirements (OEI-05-12-00080) 

13 
 

psychiatric hospitals. Table 2 provides the number of all CAHs and 

hospitals that were near CAHs and that did not provide emergency 

services. 

Table 2: CAHs and Hospitals That Were Near CAHs and That Did Not 

Provide Emergency Services in 2011 

Type of Hospital Number That Did Not Provide 

Emergency Services 

Psychiatric hospital 34 

Acute-care hospital 15 

Long-term-care hospital 4 

Rehabilitation hospital 3 

CAH 1 

Source: OIG analysis of CAHs and hospitals that are near CAHs and that do not 

provide emergency services.
 

Most CAHs that would not meet the location requirements are 

NP CAHs 

Of the 849 CAHs that would not meet the location requirements if 

required to re-enroll, 88 percent were NP CAHs. NP CAHs did not have 

to meet the distance requirement when they were initially certified. 

Further, NP CAHs are permanently exempt from meeting the distance 

requirement because of statutory provisions. Table 3 provides the number 

of NP and non-NP CAHs that would not meet the location requirements if 

required to re-enroll. 

Table 3: Number of NP and Non-NP CAHs That Would Not Meet the 

Location Requirements If Required to Re-enroll in Medicare 

Number of CAHs That Would 

Not Meet the Distance 

Requirement 

Number of CAHs That 

Would Not Meet the Rural 

Requirement 

Total 

NP CAHs 

(n=994) 749 2 751 

Non-NP CAHs 

(n=335) 97 1 98 

Total 846 3 849 

Source: OIG analysis of NP and non-NP CAHs. 

NP and non-NP CAHs that would not meet the location requirements if 

required to re-enroll differed in several ways. NP CAHs were located 

closer and had shorter driving times to their nearest hospitals than non-NP 

Most Critical Access Hospitals Would Not Meet the Location Requirements (OEI-05-12-00080) 

14 
 

 

CAHs. Most CAHs located in metropolitan areas were NP CAHs. 

Further, most CAHs that would not meet location requirements and were 

owned by private, for-profit organizations were NP CAHs. 

Table 4 describes these differences between NP and non-NP CAHs that 

would not meet the location requirements if required to re-enroll. 

Table 4: Differences Between NP and Non-NP CAHs That Would Not Meet 

the Location Requirements If Required To Re-enroll 

NP CAHs Non-NP CAHs 

Average distance to nearest 

hospital 18.8 miles 20.7 miles 

Average time to nearest 

hospital 29.3 minutes 31.1 minutes 

Located in metropolitan 

areas (n= 173) 151 (87%) 22 (13%) 

Owned by private, for-profit 

entities (n= 49) 40 (82%) 9 (18%) 

Source: OIG analysis of differences between NP and non-NP CAHs. 

For 62 CAHs, it was not possible to determine whether they 

would meet the location requirements if required to re-enroll 

For 62 CAHs, it was not possible to determine whether they would meet 

the distance requirement if required to re-enroll because CMS’s guidance 

at the time of our analysis did not reference a uniform definition of 

“mountainous terrain” and not all States have a definition of “mountainous 

terrain.” USGS’s Web site stated that the agency does not have an official 

definition despite CMS’s naming USGS as a source of this information in 

guidance to State survey agencies. Additionally, Department of 

Transportation staff of at least one State that did not have a definition 

would not provide OIG a subjective determination of what they consider 

to be mountainous terrain. 

Most Critical Access Hospitals Would Not Meet the Location Requirements (OEI-05-12-00080) 

15 
 

 

 

Medicare and beneficiaries could realize substantial 

savings if CMS were to decertify some CAHs 

Medicare and beneficiaries could realize substantial savings if CMS 

decertified some CAHs that would not meet the location requirements if 

required to re-enroll in Medicare. Medicare would reimburse decertified 

CAHs at the rates set by prospective payment systems and fee schedules 

rather than at 101 percent of costs. Rates set by the prospective payment 

systems and fee schedules are typically lower than the rates that CAHs 

receive for most services. 

Medicare could realize substantial savings if CMS were to 

decertify some CAHs 

Because services provided at CAHs are typically reimbursed at rates that 

are higher than the base rates, Medicare could realize substantial savings if 

CMS were to decertify some CAHs that would not meet the location 

requirements. For example, if CMS had decertified all CAHs located 

15 or fewer miles from their nearest hospitals or other CAHs, Medicare 

could have saved an estimated $268 million in 2011. Additionally, if CMS 

had decertified half of all CAHs that would not meet the location 

requirements, Medicare could have saved an estimated $373 million in 

2011. On average, Medicare could have saved approximately 

$860,000 per decertified CAH in 2011.50 

Beneficiaries could realize substantial savings in coinsurance 

if CMS were to decertify some CAHs 

Because coinsurance amounts for services provided at CAHs are 

calculated on the basis of charges rather than final costs, beneficiaries pay 

more for services at these facilities than they likely would for the same 

services at acute-care hospitals. For example, if CMS had decertified all 

CAHs located 15 or fewer miles from their nearest hospitals or other 

CAHs, beneficiaries could have saved an estimated $181 million in 

coinsurance in 2011. Additionally, if CMS had decertified half of the 

CAHs that would not meet the location requirements, beneficiaries could 

have saved an estimated $200 million in coinsurance in 2011. On average, 

beneficiaries could have saved an estimated $485,000 in coinsurance per 

decertified CAH, or approximately $400 per CAH beneficiary who 

received outpatient services, in 2011.51 

50 This amount includes payments for inpatient and selected outpatient services. 51 This amount includes coinsurance for selected outpatient services. 

Most Critical Access Hospitals Would Not Meet the Location Requirements (OEI-05-12-00080) 

16 
 

CONCLUSION AND RECOMMENDATIONS 

Sixty-four percent of CAHs would not meet the location requirements if 

required to re-enroll in Medicare. Most of these CAHs are NP CAHs that 

would not meet the distance requirement. CMS is not authorized to 

decertify these CAHs because NP CAHs are statutorily exempt from 

meeting the distance requirement. Further, prior to April 2013, CMS did 

not evaluate whether non-NP CAHs continued to meet the location 

requirements after they enrolled in Medicare. 

Medicare and beneficiaries could realize substantial savings if CMS were 

authorized to reassess whether all CAHs should retain their certifications 

and concluded that some should be decertified. For example, we 

calculated that Medicare and beneficiaries could have saved more than 

$1.3 million per decertified CAH in 2011. These savings would come 

from paying the decertified CAH at the rates set by prospective payment 

systems and fee schedules. These CAHs would have the option to remain 

enrolled in Medicare as acute-care hospitals. 

Because the CAH certification results in increased spending for both 

Medicare and beneficiaries, CMS should ensure that the only CAHs to 

retain the critical access certification are those that continue to serve 

beneficiaries who would otherwise be unable to reasonably access hospital 

services. 

To do this, we recommend that CMS: 

Seek Legislative Authority To Remove Necessary Provider 

CAHs’ Permanent Exemption From the Distance Requirement, 

Thus Allowing CMS To Reassess These CAHs 

NP CAHs’ permanent exemption from the distance requirement prevents 

CMS from periodically reassessing these CAHs. NP CAHs may have 

provided beneficiaries needed access to hospital services when originally 

certified, and many of them may continue to do so now. However, CMS 

should periodically reassess whether these CAHs are still providing this 

access and are deserving of increased financial support from Medicare and 

beneficiaries. 

Seek Legislative Authority to Revise the CAH Conditions of 

Participation To Include Alternative Location-Related 

Requirements 

The CAH Conditions of Participation currently include two 

location-related requirements: the distance and rural requirements. 

However, most CAHs are NPs that were granted their CAH certifications 

because they met State-defined location-related requirements. To ensure 

Most Critical Access Hospitals Would Not Meet the Location Requirements (OEI-05-12-00080) 

17 
 

that CMS can evaluate whether these and other CAHs serve beneficiaries 

who would otherwise be unable to reasonably access hospital services, 

CMS should include alternative location-related Conditions of 

Participation by which to further evaluate CAHs that would otherwise lose 

their certifications because they did not meet the distance or rural 

requirements. For example, CMS could allow CAHs to keep their 

certifications if they serve communities with high poverty rates, even if 

they don’t meet the location requirements. 

Including these alternative location-related requirements would allow 

CMS to make better-informed decisions about which CAHs should retain 

their certifications. We strongly encourage CMS to include only 

requirements that it can assess in a uniform manner on a national level. 

For guidance on alternative location-related requirements, CMS could 

reference States’ NP criteria. 

Under separate cover, we have referred to CMS the CAHs that would not 

meet the location requirements if required to re-enroll. CMS could 

prioritize reassessing these CAHs after it updates the CAH Conditions of 

Participation. CMS could also conduct an evaluation of these CAHs, 

outside the current reassessment schedule, to determine whether these 

CAHs should retain their certifications. 

Ensure That It Periodically Reassesses CAHs’ Compliance 

With All Location-Related Conditions of Participation 

In March 2013, CMS began requiring that CAHs submit to periodic 

reassessment of the distance and location requirements. CMS should 

ensure that these periodic reassessments continue and that these 

reassessments include any additional location-related requirements that it 

may add to the CAH Conditions of Participation in the future. 

While performing these periodic reassessments, CMS may determine that 

some CAHs should be decertified. CMS could grant a transition period 

during which decertified CAHs would gradually move from cost-based 

payments to the prospective payment systems and fee schedules. 

Ensure That It Applies Its Uniform Definition of “Mountainous 

Terrain” to All CAHs 

In April 2013, CMS published a uniform definition of “mountainous 

terrain.” CMS should ensure that it uses this definition during periodic 

reassessments of CAHs’ compliance with the CAH Conditions of 

Participation, as well as during the certification of new CAHs. 

Most Critical Access Hospitals Would Not Meet the Location Requirements (OEI-05-12-00080) 

18 
 

AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 

RESPONSE 

CMS concurred with our first, third, and fourth recommendations, but did 

not concur with our second recommendation. CMS’s responses to our 

recommendations indicate a desire to balance preserving beneficiary 

access to care with promoting payment efficiency. OIG also believes that 

future management of CAHs should balance these competing objectives 

and urges CMS to take all of the actions described in our 

recommendations. 

CMS concurred with our first recommendation—seek legislative authority 

to remove necessary provider CAHs’ permanent exemptions—thus 

allowing CMS to reassess whether these CAHs should retain their critical 

access certifications. However, the actions described by CMS did not 

address the main point of our recommendation, which was to remove the 

permanent exemption status from all NP CAHs. CMS indicated that it 

supports the plan outlined in the President’s FY 2014 budget to decertify 

all CAHs that are fewer than 10 miles from the nearest hospital or CAH. 

If CMS took only this action, it would have authority to reassess only 

71 of the NP CAHs. We continue to recommend that CMS seek 

legislative authority to remove the necessary provider exemption from the 

remaining NP CAHs so it could reassess whether these CAHs should 

retain their certifications as well. 

CMS did not concur with our second recommendation, which originally 

read “revise the CAH Conditions of Participation to include additional 

location-related requirements.” CMS noted that the existing distance and 

rural requirements have been uniformly applied to all CAHs certified since 

January 2006 and stated that establishing new criteria could be duplicative 

and overly burdensome to implement. CMS also stated that it believes the 

CAH certification should not be tied to criteria that have the potential to 

change rapidly, such as the types of services offered. 

We have revised our second recommendation to better reflect our intent 

and to acknowledge that creating alternative location requirements would 

require a legislative change. We now recommend that CMS seek 

legislative authority to revise the CAH Conditions of Participation to 

include alternative location-related requirements. Beneficiary access may 

depend on factors other than distance to another provider or rural location. 

CAHs that are providing important access to beneficiaries but are not 

meeting the current distance or rural requirements could possibly retain 

their certifications by meeting alternative location-related requirements. 

These requirements could be tied to stable characteristics, as opposed to 

rapidly fluctuating criteria, of nearby hospitals or the surrounding 

Most Critical Access Hospitals Would Not Meet the Location Requirements (OEI-05-12-00080) 

19 
 

 

communities. Examples of such stable characteristics could include 

whether the nearby hospital was a specialty hospital or an acute-care 

hospital or whether the surrounding community had a high poverty rate. 

We continue to encourage CMS to reference States’ NP criteria when 

developing additional location-related requirements. 

CMS concurred with our third and fourth recommendations—to 

periodically reassess CAHs’ compliance with all location-related 

Conditions of Participation and to apply its uniform definition of 

“mountainous terrain” to all CAHs. CMS noted that it had recently issued 

two memorandums on these issues, one requiring that all non-NP CAHs 

be recertified periodically on the distance and rural requirements and one 

that establishes a uniform definition of “mountainous terrain.” CMS 

stated that these memorandums now represent CMS policy to which CMS 

regional offices, State survey agencies, and accrediting organizations with 

CMS-approved Medicare CAH accreditation programs will be expected to 

adhere when certifying and recertifying CAHs. We look forward to seeing 

CMS’s plans for ensured compliance with both of these new policies. 

For the full text of CMS’s comments, see Appendix D. 

Most Critical Access Hospitals Would Not Meet the Location Requirements (OEI-05-12-00080) 

20 
 

APPENDIX A 

Distance and Rural Requirements 

The material in this appendix is quoted verbatim from the sources listed in 

the footnotes. 

(b) Standard: Location in a rural area or treatment as rural. The critical 

access hospital (CAH) meets the requirements of either paragraph 

(b)(1) or (b)(2) of this section or the requirements of either (b)(3) or 

(b)(4) of this section: 

(1) The CAH meets the following requirements: 

(i) The CAH is located outside any area that is a 

Metropolitan Statistical Area, as defined by the Office of 

Management and Budget, or that has been recognized as 

urban under the regulations in § 412.64(b), excluding 

paragraph (b)(3) of this chapter.52 

 The term urban area means— 

(A) A Metropolitan Statistical Area or a Metropolitan 

division (in the case where a Metropolitan Statistical 

Area is divided into Metropolitan Divisions), as defined 

by the Executive Office of Management and Budget; or 

(B) For discharges occurring on or after 

October 1, 1983, and before October 1, 2007, the 

following New England counties are deemed to be parts 

of urban areas under section 601(g) of the Social 

Security Amendments of 1983 

(Pub. L. 98-21, 42 U.S.C. 1395ww (note); Litchfield 

County, Connecticut; York County, Maine; Sagadahoc 

County, Maine; Merrimack County, New Hampshire; 

and Newport County, Rhode Island.53 

(ii) The CAH has not been classified as an urban hospital 

for purposes of the standardized payment amount by the 

Centers for Medicare & Medicaid Services or the Medicare 

Geographic Classification Review Board under 

§ 412.230(e) of this chapter, and is not among a group of 

52 42 CFR 485.610(b). 

53 42 CFR 412.64 (b)(ii). 

Most Critical Access Hospitals Would Not Meet the Location Requirements (OEI-05-12-00080) 

21 
 

hospitals that have been redesignated to an adjacent urban 

area under § 412.232 of this chapter.54 

(2) The CAH is located within a Metropolitan Statistical Area 

(MSA), as defined by the Office of Management and Budget 

(OMB), but is being treated as being located in a rural area in 

accordance with § 412.103 of this chapter.55 

	 A prospective payment hospital that is located in an urban 

area (as defined in subpart D of this part) may be 

reclassified as a rural hospital if it submits an application in 

accordance with paragraph (b) of this section and meets 

any of the following conditions: 

(A) The hospital is located in a rural census tract of a MSA 

as determined under the most recent version of the 

Goldsmith Modification, the Rural-Urban Commuting Area 

codes, as determined by the Office of Rural Health Policy 

(ORHP) of the Health Resources and Services 

Administration, which is available via the ORHP Web site 

at: http://www.ruralhealth.hrsa.gov or from the U.S. 

Department of Health and Human Services, Health 

Resources and Services Administration, Office of Rural 

Health Policy, 5600 Fishers Lane, Room 9A–55, Rockville, 

MD 20857. 

(B) The hospital is located in an area designated by any law 

or regulation of the State in which it is located as a rural 

area, or the hospital is designated as a rural hospital by 

State law or regulation. 

(C) The hospital would qualify as a rural referral center as 

set forth in § 412.96, or as a sole community hospital as set 

forth in § 412.92, if the hospital were located in a rural 

area. 

(D) For any period after September 30, 2004 and before 

October 1, 2006, a CAH in a county that, in FY 2004, was 

not part of a MSA as defined by the Office of Management 

and Budget, but as of FY 2005 was included as part of an 

54 42 CFR 485.610(b). 

55 Ibid. 

Most Critical Access Hospitals Would Not Meet the Location Requirements (OEI-05-12-00080) 

22 
 

MSA as a result of the most recent census data and 

implementation of the new MSA definitions announced by 

OMB on June 6, 2003, may be reclassified as being located 

in a rural area for purposes of meeting the rural location 

requirement in § 485.610(b) of this chapter if it meets any 

of the requirements in paragraphs (a)(1), (a)(2), or (a)(3) of 

this section.56 

(3) Effective for October 1, 2004 through September 30, 2006, the 

CAH does not meet the location requirements in either paragraph 

(b)(1) or (b)(2) of this section and is located in a county that, in 

FY 2004, was not part of a Metropolitan Statistical Area as defined 

by the Office of Management and Budget, but as of FY 2005 was 

included as part of such a Metropolitan Statistical Area as a result 

of the most recent census data and implementation of the new 

Metropolitan Statistical Area definitions announced by the Office 

of Management and Budget on June 3, 2003.57 

(4) Effective for October 1, 2009 through September 30, 2011, the 

CAH does not meet the location requirements in either paragraph 

(b)(1) or (b)(2) of this section and is located in a county that, in 

FY 2009, was not part of a Metropolitan Statistical Area as defined 

by the Office of Management and Budget, but, as of FY 2010, was 

included as part of such a Metropolitan Statistical Area as a result 

of the most recent census data and implementation of the new 

Metropolitan Statistical Area definitions announced by the Office 

of Management and Budget on November 20, 2008.58 

(c) Standard: Location relative to other facilities or necessary provider 

certification. The CAH is located more than a 35-mile drive (or, in the 

case of mountainous terrain or in areas with only secondary roads 

available, a 15-mile drive) from a hospital or another CAH, or before 

January 1, 2006, the CAH is certified by the State as being a necessary 

provider of health care services to residents in the area. A CAH that is 

designated as a necessary provider on or before December 31, 2005, will 

maintain its necessary provider designation after January 1, 2006.59 

56 42 CFR 412.103. 

57 42 CFR 485.610(b). 

58 Ibid. 

59 42 CFR 485.610(c). 

Most Critical Access Hospitals Would Not Meet the Location Requirements (OEI-05-12-00080) 

23 
 

 

 

	 Mountainous terrain is – 

(A)Located in a mountain range; and 

(B) Has either of the following characteristics: 

a.	 Consists of extensive sections of roads with steep 

grades (i.e., greater than 5 percent), continuous 

abrupt and frequent changes in elevation or 

direction, or any combination of horizontal and 

vertical alignment that causes heavy vehicles to 

operate at crawl speeds for significant distances or 

at frequent intervals; or 

b.	 The roads on the travel route are considered by the 

State Transportation or Highway agency to be 

located in mountainous terrain based on 

significantly more complicated than usual 

construction techniques required to achieve 

compatibility between the road alignment and 

surrounding rugged terrain. 

(C) A letter from the State Transportation or Highway agency 

specific to the travel route(s) in question is required to 

support the claim of mountainous terrain.60 

	 A primary road is -

(A)A numbered federal highway, including interstates, 

intrastates, expressways or any other numbered federal 

highway; or 

(B) A numbered State highway with 2 or more lanes each way; 

or 

(C) A road shown on a map prepared in accordance with the 

U.S. Geological Survey’s Federal Geographic Data 

Committee (FGDC) Digital Cartographic Standard for 

Geologic Map Symbolization as a “primary highway, 

divided by median strip.”61 

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

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

Accessed at http://cms.gov on April 25, 2013. 61 CMS, State Operations Manual, Pub. No. 100-07, ch. 2, § 2256A. Accessed at 

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

Most Critical Access Hospitals Would Not Meet the Location Requirements (OEI-05-12-00080) 

24 
 

APPENDIX B 

Detailed Methodology 

Determining Whether CAHs Would Meet the Distance and Rural 

Requirements 

Critical Access Hospitals (CAH) would meet the distance requirement by 

being located: 

 a drive of more than 35 miles from a hospital or another CAH or 

	 a drive of more than 15 miles from a hospital or another CAH in 

areas of mountainous terrain or areas where only secondary roads 

are available. 

CAHs that would not meet the distance requirement are located: 

 a drive of 15 or fewer miles from a hospital or another CAH or 

 a drive of 35 or fewer miles from a hospital or another CAH, with 

15 or fewer miles of the drive through mountainous terrain or on 

secondary roads. 

CAHs would meet the rural requirements by: 

 being located outside Metropolitan Statistical Areas (MSA), 

 being located in rural census tracts of MSAs, 

	 being located in areas designated by State law or regulation as 

rural or by being designated as rural hospitals by State law or 

regulation, or 

	 qualifying as rural referral centers or sole community hospitals if 

they were located in rural areas. 

CAHs that would not meet the rural requirements are located in MSAs 

and: 

	 are not located in areas designated as rural by State law or 

regulation and are not designated as rural hospitals by State law or 

regulation or 

	 would not qualify as rural referral centers or sole community 

hospitals if they were located in rural areas. 

Most Critical Access Hospitals Would Not Meet the Location Requirements (OEI-05-12-00080) 

25 
 

Data Sources and Collection 

Rural requirement. 

1.	 We identified MSAs using the U.S. Census Bureau’s
 

2010 Topologically Integrated Geographic Encoding and 

Referencing system’s (TIGER) MSA files.62 These files are 

available online at 

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

2.	 We identified rural census tracts using the U.S. Department of 

Agriculture’s Economics Research Service’s Rural-Urban 

Commuting Areas (RUCA) codes. These codes are available 

online at 

http://www.ers.usda.gov/data/ruralurbancommutingareacodes/. 

3.	 We identified areas or CAHs that are designated as rural because of 

State laws or regulations by surveying States’ Departments of 

Rural Health. 

4.	 We identified CAHs that would meet the rural requirement by 

meeting the rural referral center or sole community hospital criteria 

by conducting structured interviews with States’ Departments of 

Rural Health. 

Data Analysis 

Hospital locations. We included 6,080 CAHs and hospitals in our 

analysis. Before plotting CAHs’ and hospitals’ locations, we “cleaned” 

each address to remove redundant characters and typographical errors. 

When we encountered ambiguities in the addresses, we relied on CAHs’ 

and hospitals’ Web sites to determine their correct addresses. When we 

were unable to confirm CAHs’ or hospitals’ addresses online, we called 

them directly. 

To convert the CAHs’ and hospitals’ addresses into geographic 

coordinates, we used Texas A&M Geoservice’s geocoder.63 Geospatial 

software, like ArcGIS, does not recognize traditional street addresses. 

Instead, data must be entered into the software as geographic coordinates 

(i.e., latitude and longitude). 

The geocoder was not able to accurately geocode the addresses of 

363 CAHs and 820 hospitals, most of which are located in remote areas. 

We searched for these CAHs’ and hospitals’ names and addresses in 

62 TIGER files are digital spatial representations of census data. 

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

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

Most Critical Access Hospitals Would Not Meet the Location Requirements (OEI-05-12-00080) 

26 
 

 

Google Maps and then visually confirmed their locations on the satellite 

images. Once we confirmed a CAH’s or hospital’s location, we recorded 

the geographic coordinates of its main entrance (or, if we could not 

identify the main entrance, what appeared to be the middle of the length of 

road in front of the CAH or hospital) as provided by Google Maps. 

Distance requirement. To find the driving distances between CAHs and 

their nearest hospitals or other CAHs, we used ArcGIS’s Network Analyst 

tool. We identified multiple routes from each CAH to its nearest hospitals 

or other CAHs. For analysis purposes, we selected either the shortest 

route that caused a CAH to not meet the distance requirement or the 

shortest overall route if all of the routes showed that a CAH would meet 

the distance requirement. 

We used the North America Equidistant Conic coordinate system to 

conduct the analysis in ArcGIS. North America Equidistant Conic was 

appropriate for our analysis because it reduces shape distortions far better 

than other geographic systems by accounting for the curvature of the earth. 

Limiting distortions is an important consideration when conducting a 

distance analysis, as they can lead to inaccuracies in distance 

measurements. 

Additionally, to differentiate between primary and secondary roads, we 

used Shield Codes. Shield Codes are numbers assigned to roadways that 

describe the type of road. Because we defined “secondary road” as any 

road that is not a numbered Federal highway (including interstates, 

intrastates, expressways, or any other numbered Federal highway), we 

categorized primary roads as those roads with Shield Codes 1 or 2, which 

represent interstates and Federal highways.64 

To identify CAHs that have more than 15 miles of their routes through 

mountainous terrain, we surveyed States’ Departments of Transportation. 

We sent them detailed maps of all routes within their States that were more 

than 15 and up to 35 miles and had 15 or fewer miles on secondary roads. 

We asked States’ Departments of Transportation to inspect each route and 

to identify the number of miles that travel through mountainous terrain. 

Emergency services at hospitals near CAHs. To determine whether CAHs 

that would not meet the distance requirement were located near hospitals 

or other CAHs with emergency departments, we used the 2011 NCH 

inpatient and outpatient file to identify CAHs and hospitals that had been 

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

2012. 

Most Critical Access Hospitals Would Not Meet the Location Requirements (OEI-05-12-00080) 

27 
 

 

 

 

 

 

paid for claims submitted under an emergency department revenue center 

(0450, 0451, 0452, 0456, and 0459). 

Rural requirement. To identify CAHs that are located in rural census 

tracts, we identified the census tract that each CAH is located in using 

Texas A&M Geoservice’s geocoder. We then matched census tracts to 

RUCA codes to identify CAHs located in rural census tracts. Any census 

tract with a RUCA code between 4 and 10 is classified as rural.65 

Finally, we identified CAHs that: (1) are located in areas designated as 

rural by State law or regulation, (2) are designated as rural hospitals by 

State law or regulation, or (3) were granted the certification because they 

proved that they would qualify as rural referral centers or sole community 

hospitals if they were located in rural areas. We used the results from our 

surveys and structured interviews with States’ Departments of Rural 

Health to identify CAHs that would meet one of these criteria. 

Potential savings. We removed all professional services from the CAH 

outpatient claims.66 To do this, we removed all services with revenue 

center codes in the 095X, 096X, 097X, and 098X series. We were not 

able to remove professional services from the CAH inpatient claims, as 

payment amounts for individual services are not available on the claims. 

Approximately 31 percent of CAHs that would not meet the location 

requirements had professional claims in their outpatient, and therefore 

presumably inpatient, claims. 

We used status indicator codes to identify outpatient clinic or emergency 

department visits, significant procedures, services that were provided 

along with significant procedures, imaging services, and services paid 

under a fee schedule or payment system other than the outpatient 

prospective payment system (OPPS).67 Specifically, we analyzed all 

outpatient services with status indicators V, S, T, N, X, Q3, and A.68 

The Centers for Medicare & Medicaid Services (CMS) pays outpatient 

services with status indicator T at half of their regular rate when provided 

65 University of Washington, Rural Health Research Center, RUCA Data. Accessed at 

http://www.depts.washington.edu/uwruca/ruca-codes.php on October 23, 2012. 66 We removed professional services from CAH outpatient claims to allow for more 

accurate comparisons to the base rates for outpatient services. Payments made under the 

OPPS do not include professional services. 

67 Most of the services paid under a fee schedule or payment system other than the OPPS 

were paid under the physicians’ fee schedule. We excluded any services that were 

subject to carrier judgment (i.e., for which the Healthcare Common Procedure Coding 

System coverage code was C). 

68 CMS, Medicare Claims Processing Manual, Pub. No. 100-04, ch. 4, §§ 10.1 and 10.4. 

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

Most Critical Access Hospitals Would Not Meet the Location Requirements (OEI-05-12-00080) 

28 
 

 

with other significant procedures (status indicators S or T) under the 

OPPS.69 To account for this in our analysis, we identified all services with 

a status indicator T that were part of a claim that included another 

significant procedure. For claims that included services with status 

indicators S and T, we reduced the base rates by 50 percent for all services 

with status indicator T. For claims that included only multiple services 

with status indicator T, we reduced the base rates by 50 percent for all 

services except the service with the highest reimbursements. For this 

service, the base rate was not adjusted. 

CMS pays outpatient services with status indicator Q3 either at the regular 

base rate or at a composite base rate, depending on the other services 

provided during the visit.70 For claims that had only one Q3 claim, we 

included them in our analysis at their regular base rates. For claims that 

had more than one Q3 claim, when feasible, we applied the appropriate 

grouping logic to determine the composite base rate for those claims. 

We used Current Procedural Terminology codes to identify outpatient 

laboratory services.71 

Finally, when estimating the savings that Medicare and beneficiaries 

would have realized if Medicare had decertified half of all CAHs that 

would not meet the location requirements in 2011, we selected a random 

sample of 425 CAHs to include in the analysis. 

69 CMS, Medicare Claims Processing Manual, Pub. No. 100-04, ch. 4, §§ 10.4–10.5. 

Accessed at http://cms.gov on January 3, 2011. 70 CMS, Medicare Claims Processing Manual, Pub. No. 100-04, ch. 4, § 10.2.1. 

Accessed at http://cms.gov on January 3, 2011. 71 Current Procedural Terminology codes describe medical services and procedures. 

Most Critical Access Hospitals Would Not Meet the Location Requirements (OEI-05-12-00080) 

29 
 

APPENDIX C 

Example of Critical Access Hospital Locations Relative to 

Those of Other Hospitals 

We selected one representative region of the country to provide a visual 

example of critical access hospitals’ (CAH) location relative to those of 

other hospitals. The map below identifies all CAHs and hospitals in 

Missouri and surrounding States. Missouri has 36 CAHs; 69 percent of 

them would not meet the location requirements if required to re-enroll in 

Medicare. CAHs that would meet the location requirements are shown on 

the map as green checkmarks. CAHs that would not meet the location 

requirements are shown as red “X” symbols. Non-CAH hospitals are 

shown as black dots. 

Source: Office of Inspector General analysis of CAHs’ and hospitals’ locations, 2012. 

Most Critical Access Hospitals Would Not Meet the Location Requirements (OEI-05-12-00080) 

30 
APPENDIX D 

Agency Comments 

DEPARTMENT OF HEALTH & HUMAN SERVICES • Centers for Medicare & Medicaid Services 

Administrator JUN 1 7 2013 Washington, DC 20201 

TO: 	 Daniel R. Levinson 

Inspecto;; General 

FROM: 	 Ma~n T:n<enner 

Administnltot 

SUBJECT: 	 Office oflnspector General (OIG) Draft Report: "Most Critical Access Hospitals 

Would Not Meet the Location Requirements" (OEI-05-12-00080) 

Thank you for the opportunity to review and comment on the above-subject draft report. Tne 

OIG conducted an analysis of whether or not facilities currently certified as CAHs meet the 

location requirements specified in Section 1820 of the Social Security Act. OlG found that 849 

CAHs, or 64 percent of all CAHs, would not meet the current location requirements if required 

to re-enroll. Eighty-eight percent ofthese 849 CAHs are necessary provider (NP), CAHs; (i.e., 

CAHs that were exempted from meeting the distance requirements on the basis of designation by 

their state as an NP). The NP designation was removed by law effective January I, 2006 by the 

Medicare Prescription Drug, Improvement, and Modernization Act of2003 (MMA). However, 

the MMA allowed existing NP CAHs to retain their NP designations indefinitely, as long as they 

continue to meet all other CAH requirements. OIG's report also notes that the President, in his 

September 2011 Plan for Economic Growth and Deficit Reduction proposed eliminating the 

critical access certification for CAHs fewer than I 0 miles from another hospital, and the 

President's proposed budget for FY 2014 includes this proposal . 

The OIG estimated savings that the Medicare program and beneficiaries would realize if CAH 

status were removed for all CAHs, including NP CAHs, which do not meet the statutory location 

criteria. Basing its estimate on a review of2011 Medicare claims data, the OIG estimates that 

Medicare and beneficiaries could have saved on average over $1.3 million per de-certified CAH 

in 2011 if payments were based on the inpatient and outpatient prospective payment systems fee 

schedules rather than the CAH payment methodology, which is based on I 0 I percent of a CAH's 

reasonable costs. 

It also examined the availability of emergency services in the hospitals and CAHs nearest to 

those CAHs which would not satisfy the location requirements. It found that emergency services 

were available in 93 percent of these other facilities. 

The OIG recommendations and CMS's responses to those recommendations are discussed 

below. 

Most Critical Access Hospitals Would Not Meet the Location Requirements (OEI-05-12-00080) 

3 1 
 

 

Most Critical Access Hospitals Would Not Meet the Location Requirements (OEI-05-12-00080) 

32 
 

Most Critical Access Hospitals Would Not Meet the Location Requirements (OEI-05-12-00080) 

33 
 

ACKNOWLEDGMENTS 

This report was prepared under the direction of Ann Maxwell, Regional 

Inspector General for Evaluation and Inspections in the Chicago regional 

office; Thomas Komaniecki, Deputy Regional Inspector General; and 

Laura Kordish, Deputy Regional Inspector General. 

Lisa Minich served as the team leader for this study, and Elliot Curry and 

Brian Jordan served as the lead analysts. Central office staff who provided 

support include Clarence Arnold, Meghan Kearns, Christine Moritz, and 

Tasha Trusty. 

Most Critical Access Hospitals Would Not Meet the Location Requirements (OEI-05-12-00080) 

34 
 

 

 

 

 

 

Office of Inspector General

http://oig.hhs.gov 

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

amended, is to protect the integrity of the Department of Health and Human Services 

(HHS) programs, as well as the health and welfare of beneficiaries served by those 

programs. This statutory mission is carried out through a nationwide network of audits, 

investigations, and inspections conducted by the following operating components: 

Office of Audit Services 

The Office of Audit Services (OAS) provides auditing services for HHS, either by conducting 

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

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

out their respective responsibilities and are intended to provide independent assessments of 

HHS programs and operations. These assessments help reduce waste, abuse, and 

mismanagement and promote economy and efficiency throughout HHS. 

Office of Evaluation and Inspections 

The Office of Evaluation and Inspections (OEI) conducts national evaluations to provide 

HHS, Congress, and the public with timely, useful, and reliable information on significant 

issues. These evaluations focus on preventing fraud, waste, or abuse and promoting 

economy, efficiency, and effectiveness of departmental programs. To promote impact, OEI 

reports also present practical recommendations for improving program operations. 

Office of Investigations 

The Office of Investigations (OI) conducts criminal, civil, and administrative investigations 

of fraud and misconduct related to HHS programs, operations, and beneficiaries. With 

investigators working in all 50 States and the District of Columbia, OI utilizes its resources 

by actively coordinating with the Department of Justice and other Federal, State, and local 

law enforcement authorities. The investigative efforts of OI often lead to criminal 

convictions, administrative sanctions, and/or civil monetary penalties. 

Office of Counsel to the Inspector General 

The Office of Counsel to the Inspector General (OCIG) provides general legal services to 

OIG, rendering advice and opinions on HHS programs and operations and providing all 

legal support for OIG’s internal operations. OCIG represents OIG in all civil and 

administrative fraud and abuse cases involving HHS programs, including False Claims Act, 

program exclusion, and civil monetary penalty cases. In connection with these cases, OCIG 

also negotiates and monitors corporate integrity agreements. OCIG renders advisory 

opinions, issues compliance program guidance, publishes fraud alerts, and provides other 

guidance to the health care industry concerning the anti-kickback statute and other OIG 

enforcement authorities.