Hospitals

By Michelle M. Casey, Ira Moscovice, G. Mark Holmes, George H. Pink, and Peiyin Hung
doi: 10.1377/hlthaff.2014.0788

Minimum-Distance Requirements
HEALTH AFFAIRS 34,
NO. 4 (2015): 627–635
©2015 Project HOPE—
The People-to-People Health

Could Harm High-Performing Foundation, Inc.

Critical-Access Hospitals And

Rural Communities
Michelle M. Casey (mcasey@
ABSTRACT Since the inception of the Medicare Rural Hospital Flexibility umn.edu) is a senior research
fellow in and deputy director
Program in 1997, over 1,300 rural hospitals have converted to critical- of the Rural Health Research
access hospitals, which entitles them to Medicare cost-based Center, Division of Health
Policy and Management,
reimbursement instead of reimbursement based on the hospital School of Public Health,
prospective payment system (PPS). Several changes to eligibility for University of Minnesota, in
Minneapolis.
critical-access status have recently been proposed. Most of the changes
focus on mandating that hospitals be located a certain minimum distance Ira Moscovice is the Mayo
Professor, director of the
from the nearest hospital. Our study found that critical-access hospitals Rural Health Research Center,
located within fifteen miles of another hospital generally are larger, and head of the Division of
Health Policy and
provide better quality, and are financially stronger compared to critical- Management, all at the School
access hospitals located farther from another hospital. Returning to the of Public Health, University of
Minnesota.
PPS would have considerable negative impacts on critical-access hospitals
that are located near another hospital. We conclude that establishing a G. Mark Holmes is an
associate professor in the
minimum-distance requirement would generate modest cost savings for Department of Health Policy
Medicare but would likely be disruptive to the communities that depend and Management and director
of the North Carolina Rural
on these hospitals for their health care. Health Research and Policy
Analysis Center, both at the
University of North Carolina
at Chapel Hill.

I
n response to concerns about access to
care for rural Medicare beneficiaries,
the Balanced Budget Act of 1997 estab-
lished the Medicare Rural Hospital Flex-
ibility Program and criteria for designat-
ing institutions as critical-access hospitals. In
the years before the creation of the program,
rural hospitals experienced widespread financial
difficulties and closures. Unlike hospitals in
Medicare’s hospital prospective payment system
(PPS), whose Medicare reimbursement is based
on the average cost of patients in each diagnosis-
related group or ambulatory payment classifica-
tion, critical-access hospitals receive cost-based
Medicare reimbursement (99 percent of allow-
able costs for inpatient and outpatient services).1
According to section 1820 of the Social Security
Act of 1965, to be certified as critical-access hos-
pitals, rural hospitals are required to meet eligi-
bility criteria related to their location in a rural
area, number of beds, average length-of-stay,
and provision of emergency services. George H. Pink is the Humana
Distinguished Professor in the
Initially, critical-access hospitals were re-
Department of Health Policy
quired to be located more than thirty-five miles and Management and deputy
from the nearest hospital, or more than fifteen director of the North Carolina
miles in areas with mountainous terrain or only Rural Health Research and
Policy Analysis Center, both
secondary roads. From 1997 through Decem- at the University of North
ber 2005, however, states could waive the dis- Carolina at Chapel Hill.
tance requirements for hospitals designated by
the governor as “necessary providers” of health Peiyin Hung is a graduate
research assistant in the
care services. Beginning in 2006, any new
Division of Health Policy and
critical-access hospitals must meet the distance Management, School of Public
requirements, but existing institutions were al- Health, University of
lowed to remain in the program. Minnesota.
Medicare’s cost-based payments to critical-
access hospitals (including beneficiary cost shar-
ing) account for only 5 percent of all Medicare
inpatient and outpatient payments to hospitals.2
However, they have generated interest from pol-
icy makers who are concerned about deficit
reduction and about whether the number of
critical-access hospitals has expanded beyond

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Hospitals
the original legislative intent.
In 2011 the Congressional Budget Office
(CBO) proposed reducing Medicare costs by
ending provisions for critical-access hospitals
and other special rural hospitals.3 In 2012 the
Medicare Payment Advisory Commission (Med-
PAC) questioned the need for maintaining en-
hanced payments for all critical-access hospi-
tals.4 In 2013 the Office of Inspector General
in the Department of Health and Human Ser-
vices recommended that the Centers for Medi-
care and Medicaid Services (CMS) seek legisla-
tive authority to remove the “necessary provider”
exemption.5 The fiscal year 2015 budget submit-
ted to Congress by the Obama administration
proposed to “prohibit CAH [critical-access hos-
pital] designation for facilities that are less than
10 miles from the nearest hospital.”6
If any of these proposals were implemented,
there could be two major effects on critical-
access hospitals: The number of hospitals with
that designation would be reduced, and hospi-
tals that lost critical-access status and ended up
in the PPS could experience a substantial reduc-
tion in Medicare revenue.7,8
Recent studies found that institutions that
converted to critical-access hospitals had higher
expenses per admission than nonteaching rural
hospitals of similar size that did not convert9 and
that critical-access hospitals had higher mortali-
ty rates for Medicare patients with certain medi-
cal conditions than other acute care hospitals
did.10 Despite their limitations, including meth-
odological issues related to the comparison
group used and the treatment of transferred pa-
tients,11–13 these studies have been widely cited as
evidence of the need to reexamine cost-based
reimbursement for critical-access hospitals.14
However, cost-based reimbursement has fi-
nancially stabilized many critical-access hospi-
tals15 and allowed them to invest in quality im-
provement activities, including additional staff
and training to improve patient care.16 It has also
allowed critical-access hospitals to invest in up-
graded facilities and equipment, which may re-
sult in improved diagnosis and patient care.17 In
addition, subsequent studies of mortality rates at
critical-access hospitals have found that their
surgical mortality rates are equivalent to those
at other types of hospitals,18 and their stroke
mortality rates are similar to those at other hos-
pitals with relatively low volumes.19
Researchers have not examined the relation-
ship between distance to another hospital and a
critical-access hospital’s financial and quality
performance. In this article we compare hospi-
tals that could lose critical-access status because
of a minimum-distance requirement to the re-
maining critical-access hospitals in terms of or-
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ganizational characteristics, quality, and finan-
cial performance. We also estimate the potential
financial consequences of reversion to the
PPS for hospitals that could lose critical-access
status.
Study Data and Methods
Distance And Hospital Characteristics Us-
ing data for the first quarter of 2013 from CMS’s
Provider of Services File, geocoded with the SAS
system and Pitney Bowes’s MapMarker, we iden-
tified all active short-stay nonfederal hospitals,
including critical-access hospitals, that were
certified by Medicare. We excluded facilities that
were not short-term acute care hospitals, such as
long-term acute care, psychiatric, children’s,
emergency only, or rehabilitation hospitals.20
We used Esri’s ArcGIS to calculate the distance
from each critical-access hospital to all other
short-term acute care hospitals within 250 linear
miles. Driving routes and distances for the five
nearest hospitals were calculated. If the nearest
hospital was less than a tenth of a mile away from
a critical-access hospital, we determined wheth-
er or not the two hospitals had the same CMS
record number. If they did, we assumed that they
were not distinct providers, and we used the
next-nearest neighbor instead. All roads were
treated as primary roads.
Each critical-access hospital was assigned to
one of three categories based on its distance from
the nearest hospital. Those in the “nearest dis-
tance” group were less than 15 miles from the
nearest hospital, those in the “middle distance”
group were 15–35 miles away, and those in the
“farthest distance” group were more than 35
miles away.
We used data on hospitals’ size and date of
certification from a critical-access hospital data-
base maintained by the Flex Monitoring Team,21
a consortium of rural health research centers
funded by the Federal Office of Rural Health
Policy in the Health Resources and Services Ad-
ministration.We also used data on critical-access
hospitals’ utilization and organizational charac-
teristics from the American Hospital Association
Annual Survey database for fiscal year 2011. Dif-
ferences in characteristics between the critical-
access hospitals in the nearest distance group
and hospitals in each of the other two distance
groups were based on Fisher’s exact tests for
categorical variables and on two-sample t-tests
for continuous variables.
Quality We used publicly available CMS Hos-
pital Compare data—for discharges in the period
April 2012–March 2013—for nineteen inpatient
and outpatient quality measures that address
recommended care for acute myocardial infarc-
tion, heart failure, pneumonia, surgical care,
and immunizations. We excluded measures for
which relatively few critical-access hospitals had
data (the hospitals do not provide some services,
such as percutaneous cardiac intervention) and
measures for which only three months of data
were available (for example, new stroke and ve-
nous thromboembolism measures).
The publicly available data were combined
with nonpublic CMS data from hospitals that
reported ten or fewer cases for a measure. CMS
suppresses these data on Hospital Compare, but
it makes them available to the Federal Office of
Rural Health Policy for aggregate critical-access
hospital analyses.
For each quality measure, we compared criti-
cal-access hospitals in the nearest distance group
with hospitals in each of the other two distance
groups on both reporting (defined as the percent-
age of critical-access hospitals that reported data
for at least one patient) and performance (defined
as the percentage of eligible patients in each
group of critical-access hospitals who received
the recommended care), using Fisher’s exact
tests. We also used logistic regression models
to examine the effect on quality performance
of controlling for the following hospital charac-
teristics: number of beds, accreditation, system
affiliation, ownership, and census region.
Financial Performance A model of critical-
access hospitals’ financial distress that was de-
veloped by the Flex Monitoring Team uses his-
torical data on a hospital’s financial performance
to predict the probability of signals of financial
distress—continued operating losses, decline in
equity, or closure—within two years.22,23 Current
financial performance variables (current profit-
ability, reinvestment, and hospital size) and
market characteristic variables (competition,
economic status, and market size) were used in
a system of logistic regression models to develop
risk scores used to assign critical-access hospi-
tals to one of four levels that predict the risk or
likelihood that a hospital will be in financial
distress within two years.
For example, in our initial analyses, 70 percent
of critical-access hospitals in the high-risk cate-
gory had a negative operating margin in three
consecutive years, compared to 8 percent of low-
risk hospitals. Similarly, 30 percent of high-risk
hospitals had a negative fund balance compared
to 2 percent of low-risk hospitals.
To estimate the reduction in Medicare revenue
from eliminating the “critical-access hospital”
designation, we used fiscal year 2011 Medicare
cost reports from the Healthcare Cost Report
Information System. Medicare inpatient (in-
cluding swing beds) and outpatient revenue
were calculated for all critical-access hospitals.
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(Swing beds are beds that Medicare allows to be
used for either acute or skilled nursing facility–
level care.) These amounts were reduced by the
approximate amount by which the hospital pay-
ments exceeded PPS payments in two scenarios:
by 20 percent, as estimated by the CBO,3 and by
30 percent, as estimated by MedPAC.8
We recalculated total net patient revenue using
the reduced Medicare revenue as an estimate of
what revenue would have been under PPS re-
imbursement. The adjusted revenue calculations
were then used to recompute the financial indi-
cators in the critical-access hospital financial dis-
tress model, and the hospitals again were as-
signed to one of four levels of risk of financial
distress.
This method assumed that only Medicare re-
imbursement would change and all else would
remain the same—for instance, Medicare bene-
ficiary cost sharing, Medicaid and other revenue,
expenses, volume, and market share and size.
However, administrators might respond to a
change in Medicare reimbursement with other
changes, including increased attention to effi-
ciency, a decrease in the number of Medicare
patients, or changes to corporate strategy. Our
approach provides an approximation of short-
term effects before longer-term responses could
be implemented.
Study Results
Distance And Hospital Characteristics Of
the 1,332 critical-access hospitals operating as
of June 2013, 19.2 percent were less than 15 miles
from the nearest hospital, 65.6 percent were 15–
35 miles away, and 15.1 percent were more than
35 miles away. These are comparable to previous
distance estimates from the Office of Inspector
General5 and MedPAC.8 Fifty-two percent of the
critical-access hospitals in the nearest distance
group had another critical-access hospital as
their nearest hospital; the other 48 percent were
closest to a PPS hospital.
Critical-access hospitals in the three distance
groups differed significantly on several charac-
teristics (Exhibit 1). Compared to hospitals in
the middle and farthest distance groups, those
in the nearest distance group were more likely
to be private nonprofit hospitals, accredited by
the Joint Commission or the American Osteo-
pathic Association, and members of a multihos-
pital system. The majority of hospitals in the
nearest distance group were located in the Mid-
west (59.1 percent) or South (23.7 percent) cen-
sus regions. Nearly all (93.4 percent) were certi-
fied as critical-access hospitals between 2000
and 2005.
Compared to critical-access hospitals in the
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Hospitals

Exhibit 1

Critical-Access Hospital (CAH) Characteristics, By Distance To Nearest Hospital, April 2012–March 2013
Percent of CAHs
<15 miles 15–35 miles >35 miles
Characteristic (n = 257 CAHs) (n = 874 CAHs) (n = 201 CAHs)
Hospital ownership
Public or government 31.9% 44.1%**** 42.8%***
Private nonprofit 62.7 50.6**** 53.2**
Private for-profit 5.5 5.3 4.0
Accreditation 42.8 28.2**** 24.4****
System affiliation 51.0 40.3*** 33.3****
Year of CAH certification
1994–99 5.1 8.7** 9.5**
2000–03 50.2 54.4 58.2*
2004–05 43.2 31.9**** 15.4****
2006–13 1.6 5.0*** 16.9****
Census region
Northeast 4.7 5.5 3.5
Midwest 59.1 48.6*** 27.4****
South 23.7 31.1*** 8.5****
West 12.5 14.8 60.7****
Obstetric services 37.4 38.4 52.7****
Mean
Miles to nearest acute care hospital 11.6 22.6 50.5
Number of beds 23.1 22.6 20.7****
Annual admissions 818.3 687.8*** 585.5****
Annual inpatient days 4,115.3 3,696.7 3,368.1**
Annual outpatient visits (thousands) 43.8 33.6**** 26.9****
Annual outpatient surgeriesa 1,013.4 756.1**** 791.2***
Annual inpatient surgeriesb 203.7 151.6*** 159.3***
Annual birthsc 203.6 153.0*** 166.2*

SOURCE Authors’ analysis of data for 2013 from the Flex Monitoring Team (see Note 20 in text) and for fiscal year 2011 from the
American Hospital Association Annual Survey. NOTES Significance refers to differences between the closest distance group and each
of the other distance groups based on Fisher’s exact tests for categorical values and on two-sample t-tests for continuous variables.
a
Calculated for hospitals with any outpatient surgeries. bCalculated for hospitals with any inpatient surgeries. cCalculated for hospitals
with any births. *p < 0:10 **p < 0:05 ***p < 0:01 ****p < 0:001

middle and farthest distance groups, those in the
nearest distance group had significantly more
annual admissions, outpatient visits, and inpa-
tient and outpatient surgeries. On average, hos-
pitals in the nearest distance group had signifi-
cantly more beds and inpatient days than
hospitals in the farthest distance group.
Quality Compared to critical-access hospitals
in the middle distance group, those in the near-
est distance group were significantly more likely
to publicly report data on twelve of the nineteen
quality measures we studied (Exhibit 2). For fif-
teen of the measures, hospitals in the nearest
distance group were significantly more likely
to publicly report data than those in the farthest
distance group.
Critical-access hospitals in the nearest dis-
tance group performed better than those in the
other distance groups on the majority of quality
measures across multiple conditions. In the bi-
variate results, patients in hospitals in the near-
est distance group were significantly more likely
to receive recommended care than patients in
hospitals in the middle-distance group on thir-
teen of the nineteen measures, and to receive
recommended care than patients in hospitals
in the farthest distance group on eleven of the
measures (p < 0:001, p < 0:01, or p < 0:05, de-
pending on the measure). Other differences in
performance between distance groups were not
significant. Exhibit 3 shows the nine measures
on which the nearest distance group had signifi-
cantly better quality than both of the other dis-
tance groups.
The results of the multivariate regression mod-
els were generally consistent with the bivariate
results. When we controlled for hospital size,
ownership, accreditation, system membership,
and census region, we found that patients in
hospitals in the nearest distance group were sig-
nificantly more likely to receive recommended
care than patients in hospitals in the middle

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 Exhibit 2

Critical-Access Hospital (CAH) Public Reporting Of Quality Measures By Distance To Nearest Hospital,
April 2012–March 2013
Percent of CAHs reporting data
Quality measures <15 miles 15–35 miles >35 miles
Acute myocardial infarction
Aspirin prescribed at discharge (inpatient) 40.1% 32.0%** 34.8%*
Statin prescribed at discharge (inpatient) 38.1 31.6* 31.8
Aspirin at arrival (ED) 50.2 45.2 44.3
Heart failure
Discharge instructions provided 82.1 78.9 77.1
Evaluation of LVS function 85.2 81.2 77.6**
ACE inhibitor or ARB for LVSD 72.0 66.6 52.7****
Pneumonia
Blood culture in ED before first antibiotic 87.5 78.3**** 72.1****
Appropriate initial antibiotic selection 90.7 82.8*** 77.1****
Inpatient surgery
Patients on beta-blockers who received beta-blockers perioperatively 45.9 29.5**** 29.9****
Timing of antibiotic prophylaxis 47.9 34.0**** 35.8****
Perioperative temperature management 51.4 35.1**** 34.8****
Prophylactic antibiotic selection for surgical patients 47.9 34.0**** 35.3***
Prophylactic antibiotics end within 24 hours 47.9 33.9**** 35.3***
Urinary catheter removed on postoperative day 1 or 2 47.5 32.2**** 31.3****
VTE prophylaxis within 24 hours before or after surgery 49.4 34.0**** 33.8****
Outpatient surgery
Timing of antibiotic prophylaxis 29.2 18.6**** 18.9***
Prophylactic antibiotic selection for surgical patients 28.4 18.2**** 18.4**
Immunization
Pneumococcal immunization 37.7 32.3* 23.4****
Influenza immunization 36.2 30.5* 22.9***

SOURCE Authors’ analysis of Hospital Compare data for the second quarter of 2012 through the first quarter of 2013. NOTES Numbers
of hospitals in the three groups are provided in Exhibit 1. Significance refers to differences between critical-access hospitals that are
less than fifteen miles from the next nearest hospital and critical-access hospitals in each of the other distance groups based on
Fisher’s exact tests. ED is emergency department. LVS is left ventricular systolic. ACE is angiotensin-converting enzyme. ARB is
angiotensin receptor blocker. LVSD is left ventricular systolic dysfunction. VTE is venous thromboembolism. *p < 0:10 **p < 0:05
***p < 0:01 ****p < 0:001

distance group on nine measures, and to receive
recommended care than patients in hospitals in
the farthest distance group on ten measures (see
the online Appendix for additional data).24
Financial Performance For the 1,233
critical-access hospitals with valid 2011 cost re-
port data, total Medicare reimbursement was
$6.521 billion, or $5.3 million per hospital. A
20 percent reduction in Medicare reimburse-
ment, therefore, would translate to an average
reduction of $1.06 million per critical-access hos-
pital. Hospitals in the nearest distance group had
a relatively higher proportion of Medicare re-
imbursement, however, which resulted in a rela-
tively higher average reduction of $1.27 million.
The total savings to Medicare by reducing re-
imbursement to the hospitals in the nearest dis-
tance group would be about $308 million,25
which is 0.056 percent of the $549.1 billion that
Medicare spent in 2011.26
Our analysis of the distribution of the 2011
operating margin by Medicare revenue scenario
and distance to nearest hospital found that
62 percent of critical-access hospitals in the
nearest distance group had a positive operating
margin, compared to 53 percent of hospitals in
the middle distance group and 49 percent of
those in the farthest distance group (p ¼ 0:012,
according to a chi-square test). However, these
values were all lower than the 71.6 percent of all
US hospitals with a positive operating margin in
2011.27
Additionally, the operating margins of hospi-
tals in the nearest distance group would be dra-
matically affected by the removal of critical-
access status. If these hospitals were to revert
to the hospital PPS and experience a 30 percent
decline in Medicare reimbursement, the per-
centage of critical-access hospitals that had a
negative operating margin would double, in-
creasing from 37.6 percent to 75.6 percent.
The typical critical-access hospital would expe-

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Hospitals

Exhibit 3

Critical-Access Hospital Quality Performance, By Distance Group, April 2012–March 2013

SOURCE Authors’ analysis of Hospital Compare data for the second quarter of 2012 through the first quarter of 2013. NOTES Numbers
of hospitals in the three groups are provided in Exhibit 1. Significant differences in the percentages of eligible patients receiving
recommended care between critical-access hospitals in the nearest distance group (less than 15 miles from the nearest hospital)
and hospitals in each of the other distance groups (middle distance, 15–35 miles away; farthest distance, more than 35 miles away)
were based on Fisher’s exact tests. All differences were significant (p < 0:001) except heart failure discharge instructions (p < 0:05
for the difference between the nearest and the middle distance groups); timing of antibiotic prophylaxis (p < 0:01 for the difference
between the nearest and the middle distance groups); perioperative temperature management (p < 0:05 for the difference between
the nearest and the farthest distance groups); and influenza immunization (p < 0:01 for the difference between hospitals in the near-
est distance group and those in the middle distance group). LVS is left ventricular systolic. VTE is venous thromboembolism.

rience a decrease of approximately 8 percentage
points in operating margin if a 30 percent cut
were imposed. For example, hospitals within fif-
teen miles of another hospital have a median
operating margin of 1.8 percent (interquartile
range: −3.2, 6.4) under the status quo and would
have a margin of −5.3 percent (IQR: −11.0, 0.0)
with a 30 percent cut.
Exhibit 4 presents the distribution of risk of
financial distress (low, mid-low, mid-high, and
high risk) among critical-access hospitals in the
nearest distance group by Medicare revenue sce-
nario and census region. Sixty-one percent of the
hospitals were located in the Midwest. However,
they represented only 27 percent of critical-
access hospitals with the highest risk of financial
distress under the current payment scenario.
Meanwhile, the hospitals in the South were over-
represented among high-risk hospitals (45 per-
cent of high-risk versus 22 percent of all critical-
access hospitals). Notably, however, after
hospitals reverted to the PPS and experienced
a reduction in Medicare revenue of 30 percent,
the share of high-risk hospitals in the Midwest
would increase from 27 percent to 44 percent.
In sum, imposing a minimum distance stan-
dard of fifteen miles on critical-access hospitals
would primarily affect institutions in the South
and Midwest, with Midwestern critical-access
hospitals most likely to experience an increase
in the proportion in financial distress.
Discussion
This study found that hospitals that could lose
critical-access status because of a minimum-
distance requirement had a higher volume of
patients, were more financially stable, were more
likely to publicly report quality data, and had
better quality performance than critical-access
hospitals located farther from other hospitals.
These findings have several policy implications.
First, using only distance from another hospi-
tal to determine whether a hospital is able to
retain critical-access certification is a narrow cri-
terion. Clinical expertise, physician distribution,
the availability of technology, sufficient volume
to maintain key services, the availability of other
health care providers, and the needs of special
and underserved populations are surely as im-
portant as geographic distance in determining
which hospitals should receive cost-based re-
imbursement.
Second, loss of critical-access status and cost-

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 Exhibit 4

Distribution Of Financial Distress Risk Across Regions And Scenarios For Critical-Access Hospitals (CAHs) Within 15 Miles
Of Another Hospital, Fiscal Year 2011
Midwest Northeast South West All
Distress risk No. % No. % No. % No. % No.
CAHs 147 61 13 5 54 22 28 12 242
Status quo scenario
Low 113 68 8 5 26 16 19 11 166
Mid-low 14 47 2 7 9 30 5 17 30
Mid-high 14 58 0 0 9 38 1 4 24
High 6 27 3 14 10 45 3 14 22
20% Medicare reduction scenario
Low 87 69 6 5 15 12 18 14 126
Mid-low 27 60 2 4 12 27 4 9 45
Mid-high 16 55 2 7 9 31 2 7 29
High 17 40 3 7 18 43 4 10 42
30% Medicare reduction scenario
Low 82 68 6 5 15 13 17 14 120
Mid-low 22 61 2 6 9 25 3 8 36
Mid-high 21 58 2 6 9 25 4 11 36
High 22 44 3 6 21 42 4 8 50

SOURCE Authors’ analysis of data for fiscal year 2011 from Medicare cost reports.

based reimbursement could have potentially
devastating financial consequences for many
critical-access hospitals. These policy proposals
are being made at a time when many of the in-
stitutions are already facing financial challenges.
For example, Medicare bad-debt payments for
critical-access hospitals are being reduced from
100 percent to 65 percent, phased in over a three-
year period beginning in fiscal year 2013.28
In addition, hospitals may not have sufficient
time to respond to reimbursement changes by
altering their behavior or strategy, such as by
joining accountable care organizations, altering
service mix, or aggressively trimming costs. In-
deed, after loss of critical-access status, the lim-
ited liquidity of many critical-access hospitals
could limit their ability to operate long enough
to develop and implement potential responses.
Third, and most important, these policy pro-
posals do not recognize the potential harmful
impacts on the rural health care system and ac-
cess to care for rural residents. Many rural hos-
pitals could be considered critical safety-net fa-
cilities despite their close proximity to nearby
hospitals if, for example, they have a high pro-
portion of Medicaid patients.29 A substantial re-
duction in financial support could lead to a re-
newal of the high rural hospital closure rates of
the 1990s, with concomitant deleterious effects
on the health of these communities.30 Because
hospitals often are a major employer in their
community, changes could also lead to a decline
in the economy of many rural communities.31
Finally, if financially vulnerable critical-access
hospitals were to close, residents of many areas
would experience increased travel time to a dif-
ferent hospital. One study found that residents
would have to travel an average of 7.9 miles far-
ther to access a hospital.32
Conclusion
Establishing a minimum distance requirement
for critical-access hospitals would generate mod-
est cost savings for Medicare but would likely be
disruptive to the communities that depend on
these hospitals for their health care. Maintaining
access to high-quality care for rural residents is
a very important health policy priority, and cost-
based reimbursement can be a strategy to ensure
that high-quality rural hospitals are able to
continue providing care to their communities.
To ensure that cost-based reimbursement is
supporting high-quality care for Medicare bene-
ficiaries, all critical-access hospitals should be
required to publicly report relevant quality mea-
sures and should be supported in efforts to im-
prove their quality of care.33 ▪

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Hospitals
Earlier projected impacts on hospital
profitability and distress were
presented at the annual conference of
the National Rural Health Association,
Louisville, Kentucky, May 8, 2013; the
Rural Health Care Leadership
Conference, Phoenix, Arizona,
February 1, 2014; and the Rural Health
Policy Institute, Washington, D.C.,
NOTES
1 Under the original legislation,
critical-access hospitals received
101 percent of their costs. However,
under the Budget Control Act of
2011, Medicare pays 99 percent as a
result of payment reductions im-
posed by a budget sequester on
Medicare payments and changes to
the share of hospital bad debt
payments that are reimbursable by
Medicare.
2 Medicare Payment Advisory Com-
mission. Critical access hospitals
payment system [Internet]. Wash-
ington (DC): MedPAC; 2014 Oct
[cited 2015 Feb 23]. Available from:
http://medpac.gov/documents/
payment-basics/critical-access-
hospitals-payment-system-14.pdf?
sfvrsn=0
3 Congressional Budget Office. Re-
ducing the deficit: spending and
revenue options [Internet]. Wash-
ington (DC): CBO; 2011 Mar [cited
2015 Feb 10]. Available from: http://
www.cbo.gov/sites/default/files/
cbofiles/ftpdocs/120xx/doc12085/
03-10-reducingthedeficit.pdf
4 Medicare Payment Advisory Com-
mission. Report to the Congress:
Medicare and the health care deliv-
ery system [Internet]. Washington
(DC): MedPAC; 2012 Jun [cited 2015
Feb 10]. Available from: http://
www.medpac.gov/documents/
reports/jun12_entirereport.pdf?
sfvrsn=0
5 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
[Internet]. Washington (DC): HHS;
2013 Aug [cited 2015 Feb 10].
Available from: http://oig.hhs.gov/
oei/reports/oei-05-12-00080.pdf
6 Office of Management and Budget.
Fiscal year 2015 budget of the U.S.
government [Internet]. Washington
(DC): OMB; 2014 [cited 2015
Feb 10]. Available from: http://www
.whitehouse.gov/sites/default/files/
omb/budget/fy2015/assets/budget
.pdf
7 The effective decrease in Medicare
revenue associated with a reversion
to the hospital PPS is unknown and
would vary by hospital. The Office of
Inspector General’s estimate was
634 Health Affai rs April 2015 34 : 4
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February 6, 2014. Summary results from
the quality and financial analyses were
presented at the Minnesota Rural Health
Conference, Duluth, Minnesota, June 23,
2014. Collection of the data underlying
this study was supported by the Federal
Office of Rural Health Policy of the
Health Resources and Services
Administration (PHS Grant
around 17 percent (see Note 5), and
MedPAC’s was 28 percent (see
Note 8). Hospitals with a higher
percentage of revenue from Medi-
care would see larger decreases in
net patient revenue. Since the typical
critical-access hospital in our study
received 25.3 percent of its net pa-
tient revenue from Medicare, rever-
sion to the PPS would effectively
reduce revenue by 4 percent (0.17
times 0.253) to 7 percent (0.28 times
0.253).
8 Medicare Payment Advisory Com-
mission. Report to Congress: issues
in a modernized Medicare program
[Internet]. Washington (DC): Med-
PAC; 2005 Jun. Chapter 7: Critical
access hospitals; [cited 2015 Feb 10].
Available from: http://www.medpac
.gov/documents/reports/June05_
Entire_report.pdf?sfvrsn=0
9 Rosko MD, Mutter RL. Inefficiency
differences between critical access
hospitals and prospectively paid ru-
ral hospitals. J Health Polit Policy
Law. 2010;35(1):95–126.
10 Joynt KE, Harris Y, Orav EJ, Jha AK.
Quality of care and patient outcomes
in critical access rural hospitals.
JAMA. 2011;306(1):45–52.
11 Moscovice IS, Casey MM. Quality of
care in critical access hospitals.
JAMA. 2011;306(15):1653.
12 Westfall JM, Battaglia C, Mill M.
Quality of care in critical access
hospitals. JAMA. 2011;306(15):
1653–4.
13 Fairchild R. Quality of care in critical
access hospitals. JAMA. 2011;
306(15):1654.
14 Gold J. When “critical access” hos-
pitals are not so critical. Kaiser
Health News [serial on the Internet].
2011 Dec 8 [cited 2015 Feb 10].
Available from: http://www.kaiser
healthnews.org/stories/2011/
december/08/medicare-critical-
access-rural-hospitals.aspx
15 Holmes GM, Pink GH, Friedman SA.
The financial performance of rural
hospitals and implications for elim-
ination of the Critical Access Hos-
pital program. J Rural Health.
2013;29(2):140–9.
16 Casey MM, Moscovice I. Quality
improvement strategies and best
practices in critical access hospitals.
J Rural Health. 2004;20(4):327–34.
No. U27RH01080). In addition to the
presentations mentioned above, earlier
projected impacts on hospital
profitability and distress were included
in a policy brief from the Flex
Monitoring Team (see Note 21 in text).
The analysis in this article used
different categorizations and updated
data.
17 Nedelea IC, Fannin JM. Impact of
conversion to Critical Access Hospi-
tal status on hospital efficiency.
Socioecon Plann Sci. 2013;47(3):
258–69.
18 Gadzinski AJ, Dimick JB, Ye Z,
Miller DC. Utilization and outcomes
of inpatient surgical care at critical
access hospitals in the United States.
JAMA Surg. 2013;148(7):589–96.
19 Lichtman JH, Leifheit-Limson EC,
Jones SB, Wang Y, Goldstein LB. 30-
day risk-standardized mortality and
readmission rates after ischemic
stroke in critical access hospitals.
Stroke. 2012;43(10):2741–7.
20 This is an improvement over the
methods used in the Office of In-
spector General’s analysis (see
Note 5), in which 7 percent of the
critical-access hospitals in the “less
than fifteen miles” category were
assigned to that group on the basis
of proximity to long-term acute care,
psychiatric, children’s, emergency
only, or rehabilitation hospitals in-
stead of proximity to a general acute
care hospital.
21 The Flex Monitoring Team, a con-
sortium of the rural health research
centers at the Universities of Min-
nesota, North Carolina at Chapel
Hill, and Southern Maine, maintains
a national database of critical-access
hospitals based on CMS reports and
augmented by information provided
by state flex coordinators and data
collected by the North Carolina Rural
Health Research Program on hospi-
tal closures. See Flex Monitoring
Team. Critical access hospital loca-
tions [Internet]. Minneapolis (MN):
The Team; [cited 2015 Feb 6].
Available from: http://www
.flexmonitoring.org/data/critical-
access-hospital-locations/
22 Holmes M, Pink GH. Risk of finan-
cial distress among critical access
hospitals: a proposed model [Inter-
net]. Minneapolis (MN): Flex Mon-
itoring Team; 2011 Apr [cited 2015
Feb 6]. (Policy Brief No. 20). Avail-
able from: http://www
.flexmonitoring.org/documents/
PolicyBrief20_Strategies.pdf
23 Holmes M, Pink GH. Change in
profitability and financial distress of
critical access hospitals from loss of
cost-based reimbursement [Inter-
 net]. Chapel Hill (NC): North Caro-
lina Rural Health Research Program;
2013 Dec [cited 2015 Feb 6]. Avail-
able from: http://www.shepscenter
.unc.edu/wp-content/uploads/
2013/12/Change-in-Profitability-
and-Financial-Distress-of-CAHs-
November-2013.pdf
24 To access the Appendix, click on the
Appendix link in the box to the right
of the article online.
25 The Office of Inspector General es-
timated $449 million in savings for
Medicare and its beneficiaries (see
Note 5).
26 Boards of Trustees. 2012 annual re-
port of the boards of trustees of the
Federal Hospital Insurance and
Federal Supplementary Medical In-
surance Trust Funds [Internet].
Baltimore (MD): Centers for Medi-
care and Medicaid Services; 2012
Apr 23 [cited 2015 Feb 5]. Available
from: http://www.cms.gov/
Research-Statistics-Data-and-
Systems/Statistics-Trends-and-
Reports/ReportsTrustFunds/
downloads/tr2012.pdf
27 American Hospital Association.
Trendwatch chartbook 2014: sup-
plementary data tables, trends in
hospital financing [Internet]. Chi-
cago (IL): AHA; 2014 [cited 2015
Feb 5]. Available from: http://www
.aha.org/research/reports/tw/
chartbook/2014/table4-1.pdf
28 Centers for Medicare and Medicaid
Services. Medicare program; end-
stage renal disease prospective pay-
ment system, quality incentive pro-
gram, and bad debt reductions for all
Medicare providers. Final rule. Fed
Regist. 2012;77(218):67450–531.
29 National Advisory Committee on
Rural Health and Human Services.
Implications of proposed changes to
rural hospital payment designations
[Internet]. Rockville (MD): Health
Resources and Services Administra-
tion; 2012 Dec [cited 2015 Feb 10].
(Policy Brief). Available from:
http://www.hrsa.gov/advisory
committees/rural/publications/
rhpdbrief2012.pdf
30 Reif SS, DesHarnais S, Bernard S.
Community perceptions of the ef-
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fects of rural hospital closure on
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31 Holmes GM, Slifkin RT, Randolph
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32 Freeman VA, Randolph RK, Pink G,
Holmes M. Implications for benefi-
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vulnerable critical access hospitals
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North Carolina Rural Health Re-
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33 Casey MM, Moscovice I, Klingner J,
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