Minnesota Hospital Association

Policy & Advocacy

rules, regulations and comments

The Minnesota Hospital Association continually monitors state and federal rules and regulations to keep members informed and advocates on behalf of members regarding the impact of regulations on the state’s hospitals and health systems. MHA submits comment letters to share recommendations and feedback with the appropriate government organizations and health care stakeholders. Examples of rules and regulations that MHA addresses include those implementing federal or state health care reform efforts, changing payment methodologies, establishing community benefit or other standards for tax-exempt organizations, or modifying government oversight of health care activities.

July 29, 2016

MHA Comments on Critical Access Hospital Reimbursement

June 29, 2016

Andrew M. Slavitt
Acting Administrator
Centers for Medicare & Medicaid Services
200 Independence Ave., S.W.
Washington, DC 20201

RE: Critical Access Hospital Reimbursement

Dear Mr. Slavitt:

On behalf of our 78 member Critical Access Hospital (CAHs), the Minnesota Hospital Association (MHA) offers the following comments and suggestions regarding the Centers for Medicare & Medicaid Services’ (CMS) Rural Health Council’s discussion of the potential impact of a 1% across-the-board cut to reimbursement. Reducing CAH reimbursement would have a significant and detrimental impact not only on these hospitals, but also on their patients and communities. MHA continues to strongly advocate to maintain cost-based reimbursement of at least 101 percent of reasonable costs, as currently required by law.

Across the board cuts are destabilizing. Especially for rural hospitals that have very constrained financial flexibility. In 2014, the median operating margin for CAHs in Minnesota was only 2.7%, with over one-quarter of CAHs experiencing negative operating margins. Since many CAHs have a Medicare and Medicaid payer revenue mix that is 60% or more, there is little room for recouping these losses from the commercial payer market.

Minnesota’s CAHs serve a rural population of over 2.1 million people. Well over one-half of admissions to Minnesota CAHs are for Medicare beneficiaries. Furthermore, many of our CAHs provide a full continuum of services including primary care, ambulance, home health, hospice and skilled nursing facilities.

The Balanced Budget Act of 1997 created the CAH certification to ensure that hospital care would be accessible to beneficiaries in rural communities. As part of this program and as mandated by law, Medicare pays CAHs 101 percent of their reasonable costs for inpatient and outpatient services. The reality is, however, that CAHs are currently reimbursed far less than 101 percent of reasonable costs; any additional reductions would threaten and limit their ability to provide necessary health care in rural communities.

The current sequestration policies, originally set forth in the Budget Control Act of 2011, decreased Medicare payments to CAHs by 2 percent. This cut has been extended on several occasions, and will now be in effect through at least 2025. As a result, CAH reimbursement is actually only 99 percent of reasonable costs currently. In addition, only a portion of CAH costs qualify for reimbursement. These “allowable costs” do not capture some of the patient- and physician-related costs incurred by CAHs when caring for Medicare beneficiaries including, but not limited to, certain emergency department services, standby/on-call costs for certified registered nurse anesthetists, diagnostic tests and laboratory procedures, preventive community health services and services provided at off-campus CAH clinics. This leaves CAHs with a reimbursement rate of even less than 99 percent of reasonable costs when considering their full scope of expenses.

Even if CAHs received 101 percent of reasonable costs for all of the costs they incur to treat Medicare beneficiaries, this one percent margin does not provide CAHs with the capital needed to make much-needed improvements to equipment and their physical facilities or to expand services offered to their communities. This one percent also does not go far enough to account for the challenges CAHs face as rural hospitals – including low volumes, a case mix that is more reliant on public program and more vulnerable to Medicare payment cuts and health care provider shortages.

We agree with the American Hospital Association (AHA) that CAHs play an important role in delivering health care to their communities, and we must continue to maintain the viability of these important hospitals going forward – that begins with maintaining cost-based reimbursement of 101 percent of reasonable costs. These hospitals provide essential high-quality medical care to the 19.3 percent of the U.S. population that resides in rural area, including many vulnerable patients. Yet, CAHs nationally account for less than 5 percent of total Medicare payments to hospitals. CAHs are often the only source of care in the area. In Minnesota, CAHs treat over 290,000 patients in their emergency departments and an additional 2.6 million in their outpatient departments.

We urge CMS and its Rural Health Council to reframe and broaden the scope of its work related to CAHs and other rural hospitals. Specifically, we urge the agency to move away from simply evaluating cuts to existing payment programs and instead toward developing integrated and comprehensive strategies to reform health care delivery and payment. The AHA is exploring this issue as part of its Task Force on Ensuring Access in Vulnerable Communities, which is examining emerging models and strategies to ensure access to health care services in vulnerable rural and urban communities.

In Minnesota, we initiated a task force in 2014 that concluded in 2015 with two recommendations to preserve and bolster the CAH cost-based reimbursement program: One, move CAHs to a value-based purchasing model, and two, implement a more refined readmissions reduction incentive program. These two recommendations would serve as a baseline while many of our CAHs consider and participate in more advanced payment reform demonstrations such as ACOs.

Thank you for holding the special edition Open Door Forum on June 14 and for acknowledging our concerns. We look forward to working with CMS to find more reasonable approaches to holding the line on Medicare costs while preserving access to health care in rural areas.

If you have any questions, please contact me at (651) 659-1415 or [email protected].


Joseph A. Schindler
Vice President, Finance
Minnesota Hospital Association