Critical Access Hospitals and Necessary Provider Designation

April 13, 2016

Author: Jim Mikes
Vice President of Rural Advocacy and Regulation

They’re not just clever names. Missourians count on the state’s critical access hospitals, and those with necessary provider designation, to have access to care close to home. These programs are essential to care in rural parts of the state and are allowing Missouri’s seniors to “age in place,” providing significant resources to the community.

There have been continued challenges to CAH’s status. Maintaining Missouri’s CAH’s and hospital’s necessary provider designation is important.  

Before I talk about what MHA is doing, here’s some background.

CAHs were authorized by the Balanced Budget Act of 1997. Recognizing that small, rural, low-volume hospitals had difficulty surviving under the inpatient PPS, Congress provided an option for these hospitals to be reimbursed by Medicare through an alternative, cost-based payment system. Eligibility to convert to the CAH program required that a hospital meet certain location and distance requirements. The CAH had to be located in a designated rural area and separated from the nearest hospital by at least 15 miles by secondary road or 35 miles by primary road, or be declared a necessary provider by the state. This necessary provider option expired Dec. 31, 2005.

Many CAHs in Missouri have operated for more than a decade without clear state documentation of their necessary provider designation. As many as 20 other states were faced with the issue of missing or inadequate documentation during the early formation of the CAH program. The Centers for Medicare & Medicaid Services provides interpretive guidance to help surveyors establish a CAH’s compliance with Medicare’s Conditions of Participation. Current guidance requires the CAH to provide documentation of necessary provider designation if that is how the CAH entered the program. The lack of producing documents reflecting necessary provider designation put many CAHs at risk of losing cost-based reimbursement or ceasing to participate in the Medicare program.

Fortunately, CMS recently provided alternative methods that a CAH could use to document the necessary provider designation prior to Jan. 1, 2006. Central to this alternate methodology is the ability to provide evidence of the CAH’s original eligibility to meet the state’s standard of necessary provider. Missouri’s Rural Health Plan, created in 2005, provided five criteria for a hospital to be considered a necessary provider. Those five criteria are as follows.

  1. The facility was located in a federally-designated primary care health professional shortage area of federally-designated medically underserved area; or
  2. The facility was in a county where the percentage of families with incomes below 100 percent of the federal poverty level was greater than the state average; or
  3. The facility was in a county with an average unemployment rate for the preceding five years that exceeded the state average for the same time period; or
  4. The facility was located in a county with a percentage of the population age 65 or older that exceeded the state average; or
  5. The facility was a Medicare dependent hospital or sole community provider or could be designated as such if the facility was designated as “rural.”

MHA has researched the data files of federal and state agencies to determine which criteria a CAH met prior to 2006. MHA will provide the Missouri State Office of Primary Care and Rural Health with results of the research on behalf of each CAH member. The next step in the process will be to secure a letter of validation indicating that the state recognizes the CAH as having been designated a necessary provider prior to Jan. 1, 2006. With this documentation in hand, CAHs that entered the CAH program using the necessary provider designation should be compliant with the CoPs as outlined in CMS’ recent guidance.