Over sixty years ago, the Hill Burton Act infused over $33 billion into construction of hospital facilities in the United States. Attorney David H. Snow of Hall, Render, Killian, Heath & Lyman says many of these now aging critical access hospitals (CAHs) are facing a serious leap of faith when building replacement facilities.
There are over 1,300 U.S. hospitals with the critical access Medicare designation. These organizations receive cost-based reimbursement, rather than the DRG reimbursement paid by Medicare to most other hospitals. These hospitals must operate 25 or fewer licensed beds. Under the original Federal law they also had to be located either 35 miles from the next closest hospital or at least 15 miles in areas of mountainous terrain or areas where only secondary roads are available.
Until January 1, 2006, however, states had the authority to designate necessary providers as CAHs that may not have met the federal requirements for the CAH status because they are too close to other hospitals. The Office of the Inspector General of the Department of Health and Human Services issued a report in August of 2013 indicating that if all CAH were re-enrolled under the original federal requirements, two-thirds of over 1,300 CAHs would lose their special status. While the federal government has not attempted to revoke necessary provider status for these grandfathered CAHs, this report has created serious concerns about whether this might happen. The current administration has included proposals to do so, at least in part, with budget legislation in recent years.
“The challenges for rural hospitals are unique,” says Snow. “The prospective payment system inherently assumes a certain level of patient volume which smaller rural hospitals don’t have.”
The CAH program has allowed many of these hospitals to remain open that might not otherwise have been able to do so. Many now also face the prospect of replacing aging facilities that were built to a patient care model that no longer exists. The best option is often a “green grass” location with room for a facility designed for today’s and future models of care.
“However, Medicare requires CAHs that relocate their campus, even to a site just across town, to go through an approval process with CMS to assure continued CAH status at the new location,” says Snow. “The problem is that you can’t get final approval until at least six months, but as long as 12 to 15 months, after you physically move into the new campus.”
This timing is particularly troublesome to county and district hospitals that must issue bonds to raise the construction funds.
“Three years before the move, you have to go to a bank or bond market for a $30 million campus,” says Snow. “Payback is based on the expectation of maintaining CAH status. But assurance that you will is not available until after the funds are borrowed and spent.”
In the worst-case scenario, municipal hospitals that lose CAH status after building replacement facilities may have to rely on their taxing authority to meet their debt obligations for replacement facilities. However, not-for-profit CAHs which do not have taxing authority may face total financial insolvency.
Snow says he has not seen any CAHs financially crash and burn because their CAH status was revoked after the move, but he expects that it will eventually happen. He believes that CMS should develop an advance approval process to prevent this from happening.
“The boards of directors of CAHs are volunteers. The CEO and other leadership are making a leap of faith that they will be able to keep CAH status and keep hospital viable,” says Snow. “You ought to be able to get a solid ‘yes’ or ‘no’ before you make that kind of commitment to your constituency and community.”
Under cost-based CAH reimbursement, continuous facility renovations and piecemeal upgrades can end up costing Medicare more over time than one-time facility replacements.
Even without the challenge of facility replacements, operating a viable rural hospital in the United States is a continuous uphill battle.
“Attracting and retaining physicians is always a challenge in rural communities. Finding ways to get the right primary care and specialty care the community needs is an ongoing challenge,” says Snow. “We’re seeing creative solutions with service line joint ventures, where a small CAH will joint venture a service line like oncology with a large, friendly health system and bring state of the art infusion and radiation oncology to a rural CAH. This allows patients to get care in their hometown rather than travel 50 miles.”
Snow says many CAHs that have also reorganized how home health, hospice, physician clinics, and skilled nursing facility services are provided to improve their financial performance, which has helped fund replacement hospital projects.
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David H. Snow is an attorney with Hall, Render, Killian, Heath & Lyman, P.C. in Milwaukee, Wisconsin. He can be contacted by email at dsnow@hallrender.com or by phone at (414) 721-0447.