Publication Date: January 3rd, 2004
Publication Type(s): Working Paper
Topic(s): Critical Access Hospitals, Healthcare Financing, Rural Hospital Flexibility Program
Author(s): Stensland, J., Davidson, G., Moscovice, I.
As of November, 2003, 834 small rural hospitals have converted to Critical Access Hospital (CAH) status. A primary benefit of converting to CAH status is to receive cost-based payments (rather than prospective payments) from Medicare. The small rural hospitals that converted in FY 1999 experienced an average increase in Medicare inpatient and outpatient payments that exceeded $500,000, in fiscal year 2000 inflation adjusted dollars. While Medicare payments increased by 36%, Medicare patient days declined by 8%.
The CAH program has contributed significantly to the financial viability of small rural hospitals. This is likely due to a one-time shift to cost-based reimbursement as well as behavioral changes induced by higher payment rates. After conversion, CAHs expanded their outpatient and swing bed services and reduced their home health and SNF operations. However, it is important to emphasize that conversion to CAH status was not responsible for all of the
financial changes experienced by CAHs. Approximately half of the increase in inflation adjusted facility revenue was due to increases in non-Medicare sources.