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Become a member and receive career-enhancing benefits

Our top priority is providing value to members. Your Member Services team is here to ensure you maximize your ACS member benefits, participate in College activities, and engage with your ACS colleagues. It's all here.

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Critical access hospitals continue to provide vital services to rural patients

The role of critical access hospitals in providing access to health care in rural areas is assessed, along with the financial benefits of facilities.

Mark W. Puls, MD, FACS

November 1, 2018

A critical access hospital (CAH) provides access to health care in an area of the nation where these services might otherwise be difficult to obtain. Most CAHs are in rural areas of the U.S. General surgeons, through billing generated for their services, play an essential role in maintaining the financial viability of CAHs.

The development of CAHs

Until 1983, the Health Care Financing Administration (HCFA, now the Centers for Medicare & Medicaid Services [CMS]) reimbursed hospitals for patient care using a cost-based payment system. It was in that year that HCFA introduced the Inpatient Prospective Payment System (IPPS). Under this system, hospitals are reimbursed based on the payment weight assigned to specific diagnosis-related groups. Many small and rural hospitals developed serious financial issues following the implementation of the IPPS, with more than 400 small and rural hospitals closing. To keep hospitals open in rural areas that had no other hospitals nearby, CAHs were created through legislation included in the Balanced Budget Act (BBA) of 1997.1 The BBA authorized states to establish a State Flex Program under which certain facilities that participate in Medicare could become CAHs.

CMS has a list of criteria that must be met for a hospital to be certified as a CAH, which includes the following:2

  • Have no more than 25 inpatient beds that may also be used for swing bed services. A swing bed can be used for either acute care or postacute care that is equivalent to skilled nursing facility care.
  • Be located in a rural area or must meet specifications under a special provision that allows qualified hospitals in urban areas to be treated as rural.
  • Be located more than 35 miles from any hospital or other CAH or located more than 15 miles from any hospital or CAH in an area with mountainous terrain or only secondary roads. Prior to 2006, if a hospital did not meet these distance criteria, the hospital could still be designated as a CAH if the state in which it is located determined that the hospital was a “necessary provider” of health care services to residents of that area.
  • Furnish 24-hour emergency care services seven days a week.
  • Have an annual average length of stay of 96 hours or less per patient for acute care (not including swing bed services).
  • Be located in a state that has established a rural health plan for the State Flex Program.

Location of CAHs

The U.S. has 5,534 hospitals,3 1,348 (24 percent) of which are CAHs (see Figure 1).4

Figure 1. Location of Critical Access Hospitals

Figure 1. Location of Critical Access Hospitals
Figure 1. Location of Critical Access Hospitals

Financial implications of CAHs

CAHs are reimbursed differently than non-CAHs. CMS reimburses CAHs with the following criteria:2,5

  • Pay for most inpatient services provided to Medicare patients at 101 percent of reasonable costs.
  • Pay for most outpatient services provided to Medicare patients at 101 percent of reasonable costs under the Standard Payment Method. For outpatient services, a hospital may choose the Optional Payment Method. Under this method, if a physician or practitioner reassigns their billing rights to the CAH, the CAH can be paid for facility services at 101 percent of reasonable costs and for physician or nonphysician professional services at 115 percent of the allowable amount.
  • Reimbursement is not subject to the IPPS.
  • Reimbursement is not subject to the Hospital Outpatient Prospective Payment System.
  • May receive 101 percent of reasonable costs for clinical lab services provided to Medicare patients.

CAHs also may receive financial help through federal programs to assist with the following activities:6,7

  • Funding to construct, expand, or improve rural health care facilities and CAHs, which can be obtained through grants and loans through the U.S. Department of Agriculture’s Community Facilities Loan and Grant Program
  • Reduced-cost pharmaceuticals, which can be made accessible to rural communities through the Patient Protection and Affordable Care Act, which allows CAHs to participate in the 340B program

What is the ACS doing to assist CAHs?

The ACS Advisory Council for Rural Surgery (ACRS), which was formed in 2012, is tasked with identifying, investigating, and rectifying the challenges of rural surgical practice. Being aware of any issues that might affect the ability of CAHs to provide care for patients in rural communities is certainly a priority for the ACRS.

The ACS Division of Advocacy and Health Policy (DAHP) has been actively monitoring the interpretation and enforcement of CMS’ CAH 96-hour rule. As stated previously, CAHs are required to have an annual average length of stay of 96 hours or less per Medicare patient for acute care. This mandate has changed somewhat over time. The CAH 96-hour rule in the BBA of 1997 imposed both a condition of participation and a condition of payment for CAHs, requiring that all Medicare patients be discharged or transferred within 96 hours.1

To allow CAHs more flexibility in the types of patients they could treat, Congress modified the condition of participation in 1999 by making the 96-hour limit an annual average rather than a requirement for each Medicare patient.8 CAHs then began treating any patients they could as long as they could stay within the annual average length of stay of 96 hours per patient. The condition of payment portion of the BBA, however, was not similarly modified. The law still stated that a CAH hospital would only receive payment from CMS for a Medicare patient who had a length of stay of less than 96 hours. This discrepancy between the 1997 and the 1999 legislation went unrecognized for years.

When CMS instituted its Two-Midnight Rule for inpatient hospitalization in 2013, the agency realized that the 96-hour rule regarding the condition of payment was not being enforced.9 CAHs then became concerned that they might not receive CMS payment for any Medicare patients who stayed longer than 96 hours, which would greatly influence the type of patients who could receive care in a CAH.

Recognizing the threat to CAHs should the 96-hour rule be enforced for each patient rather than as an annual average, the ACS DAHP became very active in advocating for the 96-hour rule as written in the 1999 law. Several attempts to pass legislation that would repeal the 1997 condition of payment rule have failed. Last year, CMS finalized a proposal in the IPPS rule to make enforcement of the CAH 96-hour rule a low priority. Although CMS is not enforcing the law regarding conditions of payment, the law remains in place. The ACS supports legislation introduced by Rep. Adrian Smith (R-NE) the Critical Access Hospital Relief Act, H.R. 5507, which would repeal the 96-hour certification requirement.10


Many rural areas in the U.S. are critically dependent on their local hospitals to provide access to health care. In terms of reimbursement from CMS, there are definite financial benefits for CAHs. It’s clear that the creation of CAHs has been an important component of ensuring that access to health care is available in all U.S. patient populations.


  1. Government Publishing Office. Balanced Budget Act of 1997 Public Law 105-33. Available at: www.gpo.gov/fdsys/pkg/PLAW-105publ33/pdf/PLAW-105publ33.pdf. Accessed September 12, 2018.
  2. CMS Medicare Learning Network. Critical access hospital. Available at: www.cms.gov/Outreach-and-Education/Medicare-Learning-Network-MLN/MLNProducts/downloads/CritAccessHospfctsht.pdf. Accessed September 12, 2018.
  3. American Hospital Association. Fast facts on U.S. hospitals, 2018. Available at: www.aha.org/statistics/fast-facts-us-hospitals. Accessed September 12, 2018.
  4. Rural Health Information Hub. Critical access hospitals. Available at: www.ruralhealthinfo.org/topics/critical-access-hospitals. Accessed September 12, 2018.
  5. Medicare Improvements for Patients and Providers Act (MIPPA) of 2008. Public Law 110-275-July 15, 2008. Available at: www.gpo.gov/fdsys/pkg/PLAW-110publ275/pdf/PLAW-110publ275.pdf. Accessed September 12, 2018.
  6. Rural Health Information Hub. USDA Community Facilities Direct Loan and Grant Program. Available at: www.ruralhealthinfo.org/funding/91. Accessed September 12, 2018.
  7. Government Publishing Office. Patient Protection and Affordable Care Act (ACA). Available at: www.gpo.gov/fdsys/pkg/PLAW-111publ148/pdf/PLAW-111publ148.pdf. Accessed September 15, 2018.
  8. Congress.gov. H.R.3426 – Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999. Available at: www.congress.gov/bill/106th-congress/house-bill/3426. Accessed September 14, 2018.
  9. Centers for Medicare & Medicaid Services. 2-Midnight benchmark: Discussion of the hospital inpatient admission order and certification. Available at: www.cms.gov/Outreach-and-Education/Outreach/NPC/National-Provider-Calls-and-Events-Items/2014-02-27-2Midnight.html. Accessed September 14, 2018.
  10. Congress.gov. H.R.5507–Critical Access Hospital Relief Act of 2018. Available at: www.congress.gov/bill/115th-congress/house-bill/5507/text. Accessed September 14, 2018.