The CAH program allows eligible rural hospitals to receive Medicare  payments based on their reasonable costs rather than under a PPS. In 2002, a PPS was implemented for inpatient rehabilitation. If, however, the other  financial benefits associated with the DPU exceeded their combined  losses on inpatient and outpatient services, these potential CAHs would  have had a countervailing incentive to stay under the PPS, rather than  close their DPU and convert. CAH Eligibility Requirements Led to DPU Closures in Rural Communities

The closure of 25 DPUs by hospitals that needed to relinquish their DPU as  part of becoming a CAH may have contributed to the lower availability of  inpatient psychiatric and rehabilitation services in rural areas. Inpatient  psychiatric and rehabilitation providers are concentrated in urban areas,  and DPUs are least common among smaller rural hospitals. In fiscal year 1999, 14 percent (93) of  potential CAHs operated a DPU. Some rural hospital  administrators told us that, even when it was financially advantageous to  seek CAH status, they were reluctant to close their DPU because they  believed it was needed to maintain access to psychiatric or rehabilitation  services in their community. We  found 129 potential CAHs that likely would have been able to meet the  patient census limit of 15 in 1999 if not for the seasonal increase in their  patient census. Most Hospitals Experience Higher Patient Census during Winter

Among hospitals we studied, seasonal fluctuations in patient volume were  common. This pattern was consistent with reports  from hospital officials that their patient census often increased during the  winter due to a higher incidence of flu and pneumonia. Because CAH Patient Census Limit Is Absolute, Potential CAHs Near the Limit May Have Difficulty Staying under It

There were 129 potential CAHs that had at least a slight seasonal increase  in 1999 that pushed them over the CAH limit of 15 acute care patients per  day for some portion of the year. Relaxing the CAH census limit to an annual average of 15 acute care  patients rather than an absolute limit of 15 would accommodate the 129  potential CAHs that exceeded the current limit due to a seasonal increase  as they all had an annual average census below 15. Among the 129 potential CAHs, about 60  percent had net losses on Medicare services in fiscal year 1999, indicating  they might benefit from CAH conversion, while the 40 percent with net  gains would less likely have the financial incentive to convert. From the resulting list of 683 potential CAHs, we identified hospitals  operating rehabilitation or psychiatric distinct part units (DPUs), as well  as those with seasonal variation in patient census or length of stay that  caused them to exceed CAH limits.
Why GAO Did This Study

Critical Access Hospitals (CAHs) are small rural hospitals that receive payment for their reasonable costs of providing inpatient and outpatient services to Medicare beneficiaries, rather than being paid fixed amounts under Medicare's prospective payment systems. Between fiscal years 1997 and 2002, 681 hospitals have become CAHs. In the Medicare, Medicaid and SCHIP Benefits Improvement and Protection Act of 2000, GAO was directed to examine requirements for CAH eligibility, including the ban on inpatient psychiatric or rehabilitation distinct part units (DPUs) and limit on patient census, and to make recommendations on related program changes.

What GAO Found

Using fiscal year 1999 hospital cost report data, GAO identified 683 rural hospitals as "potential CAHs" based on their having an annual average of no more than 15 acute care patients per day. About 14 percent (93) of these potential CAHs operated an inpatient psychiatric or rehabilitation DPU, which they would have to close to convert to CAH status. Among existing CAHs, 25 previously operated a DPU but had to close it as part of becoming a CAH. Among the potential CAHs that operated a DPU, about half had a net loss on Medicare services, indicating they might benefit from CAH conversion. Officials in some hospitals expressed a reluctance to close their DPU, even if conversion would benefit the hospital financially, as they believe the DPU maintains the availability of services in their community. Because inpatient rehabilitation and psychiatric services are disproportionately located in urban areas, even a small number of rural DPU closures may exacerbate any disparities in the availability of these services. Using 1999 Medicare claims data, GAO found 129 potential CAHs that likely would have been able to meet the CAH census limit of no more than 15 acute care patients at any given time if not for a seasonal increase in their patient census. Seasonal increases in patient census were common among the hospitals GAO studied, generally occurring during the winter flu and pneumonia season. For most potential CAHs, their patient census was typically low enough that a small seasonal increase did not cause them to exceed CAH limits. For the 129 potential CAHs that would have had difficulty staying under the CAH limit due to seasonal variation, they could have accommodated their patient volume and had greater flexibility in the management of their patient census if the CAH census limit were changed from an absolute limit of 15 patients per day to an annual average of 15 patients.