United States General Accounting Office

GAO Testimony

Before the Subcommittee on Human Resources,

Committee on Government Reform and Oversight,

House of Representatives

For Release on Delivery

Expected at 1:00 p.m.,

Thursday, February 13, 1997

RURAL HEALTH CLINICS

Rising Program

Expenditures Not Focused

on Improving Care in

Isolated Areas

Statement of Bernice Steinhardt, Director, 

Health Service Quality and Public Health Issues

GAO/T-HEHS-97-65

Rural Health Clinics: Rising Program

Expenditures Not Focused on Improving

Care in Isolated Areas

Mr. Chairman and Members of the Subcommittee:

We are pleased to be here today to discuss our recent report on the Rural

Health Clinic (RHC) program.1

 This program, established two decades ago,

allows higher Medicare and Medicaid reimbursement as a way to support

health care professionals, including nurse practitioners and physician

assistants, in underserved areas that may be too sparsely populated to

normally sustain a physician practice. The RHC program is one of the few

federal programs that addresses underservice in small communities that

do not have a traditional health care system in place.

The program is administered by the Department of Health and Human

Services’ (HHS) Health Care Financing Administration (HCFA), which must

certify as RHCs all Medicare-certified primary care providers requesting

such status if they practice in a rural and underserved area. At the time of

our review, there were nearly 3,000 RHCs in the program and their numbers

were growing by more than 30 percent a year. At this rate of growth,

Medicare and Medicaid will pay RHCs more than $1 billion a year by 2000.

This rapid growth has raised concerns about the benefits that program

expenditures are providing.

At this Subcommittee’s request, we undertook our review, which used

available national statistics that we supplemented with a detailed review

of 144 RHCs in four states—Alabama, Kansas, New Hampshire, and

Washington. We focused our review on two main questions:

• Is the program serving a Medicare and Medicaid population that would

otherwise have difficulty obtaining primary care?

• Are adequate controls in place to ensure that Medicare and Medicaid

payments to RHCs are reasonable and necessary?

In brief, the answer to both questions is no. The program needs to be

refocused. While some clinics clearly meet the program’s initial focus of

serving Medicare and Medicaid populations having difficulty obtaining

primary care in isolated rural areas, most clinics are in fairly

well-populated areas that already have extensive health care delivery

systems in place. Controls over the amounts that these clinics receive from

Medicare and Medicaid are weak or nonexistent, resulting in

reimbursements that are in some cases over five times higher than those

1

Rural Health Clinics: Rising Program Expenditures Not Focused on Improving Care in Isolated Areas

(GAO/HEHS-97-24, Nov. 22, 1996).

Page 1 GAO/T-HEHS-97-65 Rural Health Clinics
Rural Health Clinics: Rising Program

Expenditures Not Focused on Improving

Care in Isolated Areas

paid to other providers. These financial benefits are provided indefinitely,

even after an area may no longer be rural or underserved.

Program Often Is Not

Targeting

Underserved

Populations

Some RHCs clearly provide benefit to rural communities. Such RHCs were

generally those in communities without Medicare or Medicaid providers or

in sparsely populated areas such as those with fewer than 5,000 people.

For example, Wadley, Alabama, a community of just over 500, was unable

to support a primary care practice until a nearby hospital set up an RHC

staffed by a part-time nurse practitioner. Nearly 40 percent of the clinic’s

Medicare patients reduced their distance to care by a median of 18 miles.

Similarly, a hospital district in eastern Washington uses three family

physicians and two physician assistants to operate an RHC and two satellite

clinics 15 to 30 miles away, reducing distance to care for at least 80 of the

507 Medicare patients by a median of 48 miles.

We did not find much evidence of efforts to establish RHCs in such

locations, however. In the four states we reviewed, neither HCFA nor the

state rural health offices were aware of any efforts to actively target and

establish RHCs in areas with 5,000 people or less, though many of these

areas had no Medicare or Medicaid primary care provider.

While sparsely populated areas of the country may be underserved, as

shown in figure 1, RHCs are increasingly being certified in larger

communities, many with 50,000 or more people living within 15 miles of

the clinic.

Page 2 GAO/T-HEHS-97-65 Rural Health Clinics
Rural Health Clinics: Rising Program

Expenditures Not Focused on Improving

Care in Isolated Areas

Figure 1: RHCs by Population and Year Certified, 1991-95

2,000 or Less

Population Within 15 Miles of RHC

1991

2,001-10,000 10,001-25,000 25,001-50,000 More Than 50,000

50 Percent of All RHCs

0

40

30

20

10

45

35

25

15

5

1992

1993

1994

1995

We found that these larger communities already have a number of health

care providers and facilities in place. For example, one clinic we reviewed

was recently certified in a location that had 25,000 people, 17 practices

with primary care providers, a number of specialty practices, a hospital,

two skilled nursing facilities, a mental health facility, a hospice, and a

home health agency.

Also, RHCs generally do not appear to enhance the availability of health

care in these larger communities. In the four states where we reviewed

clinics, the availability of health care did not change appreciably for at

least 90 percent of the Medicare and Medicaid patients using them. A

significant reason was that two-thirds of the RHCs were simply conversions

of existing physician practices. For most clinics, the primary change was

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Expenditures Not Focused on Improving

Care in Isolated Areas

the higher level of Medicare and Medicaid payments that they received,

and not the number and mix of patients treated.

Broad Eligibility Criteria

Allow Growth in Areas

Where Need Is Minimal

Why are many RHCs being approved in areas where they are unlikely to

improve access to care? One reason is the broad criteria used for defining

rural. While the Bureau of the Census generally defines rural areas as

those with fewer than 2,500 people, the law authorizing the program

allows for including areas with up to 50,000. However, the census

boundaries may not account for all the people living within 15 miles of the

RHC, which HHS has defined as the maximum distance people should have

to travel for care under the worst road conditions. Therefore, the law

allows RHCs to be near other cities that constitute an even larger patient

base, as many as 1 million or more.

A second reason, that we have pointed out in other recent work,2

 is that

the definitions of underserved areas results in an undercount of the

number of medical providers already present. To become certified, an RHC

must be located in an area that HHS has determined to have health care

shortages. However, we found that more than half the underservice

designations may be invalid because they are outdated or do not count a

significant number of primary care providers, such as nurse practitioners

or physician assistants.

A third reason is that there is no requirement to use the benefits of the RHC

program to expand services to whoever is underserved in the community.

While HHS often designates an entire community as underserved, most

RHCs said that the uninsured poor make up the majority of underserved

people in their community. Nevertheless, only 16 of 73 RHCs we contacted

said that they offered services on a sliding fee scale, based on the patient’s

ability to pay for care. Similarly, over 85 percent of RHCs said that the

program had no influence on the number or type of patients they serve,

even when located in areas with specified underserved population groups

such as migrant farmworkers or Medicaid patients.

2

Health Care Shortage Areas: Designations Not a Useful Tool for Directing Resources to the

Underserved (GAO/HEHS-95-200, Sept. 8, 1995).

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Expenditures Not Focused on Improving

Care in Isolated Areas

Controls Are Not in

Place to Ensure

Reasonable Costs and

Effective Targeting of

Funds

Despite the fact that many RHCs provide little additional benefit to

Medicare and Medicaid patients, these RHCs continue to receive significant

financial benefits from these programs. RHCs are generally reimbursed by

Medicare and Medicaid for the costs they claim in providing services,

rather than by the lower set fees for these services that would otherwise

apply. Using 1993 claims data, we estimate that Medicare paid at least 43

percent more for services at RHCs than it paid to other providers, while

Medicaid paid at least 86 percent more. Assuming that this same

percentage held true in following years, the RHC program cost Medicare an

additional $100 million and Medicaid about $195 million in 1996.

Because the RHC program is more generous, adequate controls over

claimed costs are particularly important to safeguard Medicare and

Medicaid expenditures. However, such controls are not in place to do so.

RHCs that are independently operated are limited to an annually adjusted

amount currently set at $56 per Medicare or Medicaid visit.3

 However,

there are no limits on payments to RHCs operated as part of a hospital or

other facility, even though almost half the RHCs are operated by such

facilities, and this percentage is rapidly increasing (see fig. 2).

3

This amount is still substantially higher than the average payment providers received for similar

services on the Medicare fee schedules.

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Rural Health Clinics: Rising Program

Expenditures Not Focused on Improving

Care in Isolated Areas

Figure 2: RHCs by Ownership Type, 1978-95

Facility-Based RHCs

Independent RHCs

3000 Number of RHCs

0

2400

1800

1200

600

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

Year

HCFA has not determined how much more Medicare and Medicaid pay for

services at facility-operated RHCs as a result, but indications are that the

costs are sometimes substantially higher. For example, our review of cost

reports for 28 of these RHCs shows that they received up to $214 per visit,

or four times the maximum amount paid for a visit to an independent RHC.

HCFA has established a working group that is addressing the issue of

payment limits for facility-operated RHCs, but had no estimate of when

regulations will be issued.

Second, HCFA has not implemented screening guidelines to assess whether

claimed costs are reasonable. Because such guidelines were never

implemented, RHCs have no apparent limits on the amount or type of costs

they claim for Medicare and Medicaid reimbursement. Our review of 228

cost reports for independent RHCs found that one-fourth were paying

physician salaries of up to 50 percent or more than the national mean of

$127,000. Our review of 28 cost reports at facility-operated RHCs shows

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Expenditures Not Focused on Improving

Care in Isolated Areas

that hospitals sometimes claimed overhead costs that were more than

100 percent of the direct costs of operating the clinic.

Third, under current law the RHCs receive the extra Medicare or Medicaid

reimbursement indefinitely, even if the area is no longer rural or

underserved. Many areas of the United States that were considered rural in

1978 are now part of an urbanized area, and areas considered underserved

15 years ago may now have an adequate number of primary care

physicians. This aspect of the program—the lack of

recertification—means that the program cannot effectively target

reimbursement only to the clinics that need it. Most of the clinics we

called said that they were financially viable without the added

reimbursement, while some said that it was only needed in their first few

years as a new clinic until an adequate patient base was established. Most

clinics, however, thought that the higher reimbursement should continue

because it helped them to compete for patients with other providers

moving into the area and assisted in offsetting the negative effects of

Medicare and Medicaid reimbursement reform.

Conclusions and

Recommendations

Our work clearly demonstrates that the RHC program is adrift. It lacks a

clear focus on its original goal of assisting underserved rural communities

and also lacks controls over costs to the Medicare and Medicaid programs.

As it continues to grow—often in populated areas with established health

care systems—there is little evidence to demonstrate that this growth is

directed at improving access to care on the part of Medicare and Medicaid

beneficiaries or other underserved segments of the population.

What does the program need? One thing is a new definition for the types of

areas that are eligible for the higher Medicare and Medicaid payments. The

rural and underserved criteria by themselves are insufficient to ensure that

its most attractive feature for providers—cost reimbursement—is used by

clinics needing it to meet a clear program goal, rather than obtaining a

competitive advantage or avoiding the effects of Medicare and Medicaid

payment reforms. A second need is for controls over the reimbursement

costs claimed by clinics to ensure that they are reasonable. Success in

meeting the original purpose of RHCs requires more active management at

the federal, state, and local levels to identify specific locations where

clinics are needed and to determine when financial assistance can

reasonably be discontinued.

Page 7 GAO/T-HEHS-97-65 Rural Health Clinics
Rural Health Clinics: Rising Program

Expenditures Not Focused on Improving

Care in Isolated Areas

Accordingly, our report contains recommendations for both the Secretary

of Health and Human Services and the Congress to accomplish these

needed improvements.

First, for those RHCs that continue to receive higher Medicare and

Medicaid reimbursement, the Secretary of HHS should direct the

Administrator of HCFA to revise Medicare payment policy to hold all RHCs

to the same payment limits and reporting requirements and reimburse

them for only the reasonable costs incurred in providing care to Medicare

and Medicaid beneficiaries. HHS agreed with our recommendations and

stated that it would begin to take actions to implement them.

In addition, we recommend that the Congress assist in refocusing the RHC

program to meet its original purpose by

• restricting higher Medicare and Medicaid reimbursement to (1) RHCs in

areas with no other Medicare or Medicaid providers or (2) RHCs that can

demonstrate that existing providers will not accept new Medicare or

Medicaid patients and that the funding will be used to expand access to

them and

• requiring periodic recertification to continue higher payments only to the

clinics that need it for this purpose.

This concludes my statement. I would be happy to answer any questions

you have.

Contributors This testimony was prepared under the direction of Bernice Steinhardt,

Director, Health Service Quality and Public Health Issues, who may be

reached at (202) 512-7119 if there are any questions. Other key

contributors include Frank Pasquier, Assistant Director, and Lacinda

Baumgartner and Stan Stenersen, Evaluators.

(108312) Page 8 GAO/T-HEHS-97-65 Rural Health Clinics
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