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Closer Look at Critical Access Hospitals

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Closer Look at Critical Access Hospitals

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California hospitals are facing a $22 billion decrease in Medicare funding by 2022, according to industry analysts, forcing many hospitals to evaluate how they will stay afloat. One solution is converting some hospitals to a Critical Access Hospital, but what will this mean for patients?

Adam Spencer wrote this story for the Triplicate as a 2013 California Endowment Health Journalism Fellow.

There are 1,332 Critical Access Hospitals in the United States, more than a quarter of all hospitals in the country. Graphic courtesy of Rural Assistance Center
There are 1,332 Critical Access Hospitals in the United States, more than a quarter of all hospitals in the country. Graphic courtesy of Rural Assistance Center
The Triplicate
Tuesday, October 29, 2013

If Sutter Coast makes the change, it’ll have company

Editor’s note: The possible conversion of Sutter Coast to a Critical Access Hospital has long been a hot-button issue here. No new material from the previously reported opponents or supporters of the conversion are represented here. Instead, this is an analysis of the Critical Access process.

California hospitals are facing a $22 billion decrease in Medicare funding by 2022, according to industry analysts, forcing many hospitals to evaluate how they will stay afloat.

The cuts will hit even harder for hospitals that serve a higher percentage of Medicare patients, like Sutter Coast Hospital in Crescent City, where they make up 47 percent of the inpatient pool, compared with about 36 percent statewide.

Sutter Coast administrators have floated the idea of converting to a Critical Access Hospital, which receives higher Medicare reimbursements. The proposal has drawn bitter opposition from some local doctors, government officials, and silver-topped retirees who chose to spend their last years in Del Norte County partly because of the hospital — just the way it is.

Opponents have gone as far as buying a billboard in Crescent City that reads: “Tell Sutter don’t cut our hospital. Our lives depend on it.”

Whether or not becoming a Critical Access Hospital would really represent significant cuts at Sutter Coast, however, is up for debate.

After all, these types of hospitals are far from unique.

CAH requirements

Approximately 68 percent of rural hospitals in the United States are already classified as Critical Access Hospitals. More than a quarter of the country’s 4,953 hospitals (urban included) currently have CAH status.

The two main limitations that the feds require of Critical Access Hospitals is a maximum allowance of 25 inpatient beds (Sutter Coast currently has 49 beds) and an average length of stay for inpatients of less than 96 hours.

Although Sutter Coast would have to decrease its inpatient bed capacity from 49 to 25, there are several types of hospital beds that do not count toward the 25 cap: examination or procedure beds, stretchers, operating room tables, beds used by surgical patients recovering from anesthesia, beds in the obstetric delivery room used exclusively for active labor and delivery of newborn infants (although the bed where the mother remains after giving birth does count) and newborn bassinets.

Critical Access Hospitals are also allowed to have a distinct 10-bed psychiatric unit and a 10-bed rehabilitation unit.

In addition, “observation beds” not counted toward the 25-bed limit may be used for short-term treatment, assessment and reassessment.

“A patient may be in an observation status even though the CAH furnishes the patient overnight accommodation, food, and nursing care,” according to federal guidelines for Critical Access Hospitals.

CAH history

Opponents of converting Sutter Coast Hospital to a Critical Access Hospital have put up a billboard on the issue at the southern approach to Crescent City on Highway 101. Del Norte Triplicate / Bryant Anderson

To understand the genesis of Critical Access Hospitals you have to look back to 1983 when the federal government drastically changed the way it funded Medicare, the national program to provide health care to the elderly.

Since Medicare first became available in 1966, hospitals that accepted Medicare recipients were allowed to charge the feds whatever costs were spent on treatment.

In 1983, this cost-based payment system was replaced by a prospective payment system (PPS), ostensibly to encourage more cost-efficient medical care. The government started paying a predetermined, fixed amount depending on the diagnosis of the Medicare patient and the type of facility doing the treating.

Before the PPS funding was rolled out nationwide, it had been experimented with in some urban areas such as New Jersey, but “it had never been tested in a small, rural hospital environment,” said Brock Slabach, a senior vice-president for the National Rural Health Association, a nonprofit membership organization that advocates for rural health issues across the country.

“This new payment system created havoc in the hospital world, and it turned everything that we knew in the hospital program upside down,” said Slabach, who is also a former hospital administrator.

After almost 400 small and rural hospitals went belly-up in the wake of PPS funding, “Congress woke up and said we have a problem” and decided to create programs, including Critical Access Hospitals in 1997, to prevent further hospital closures, Slabach said.

“This stemmed the loss of small, rural hospitals significantly,” Slabach said. “It took us away from volume and back to cost.”

Critical Access Hospitals do not have to rely on the PPS-based funding, instead reverting back to cost-based Medicare funding, actually receiving 101 percent of the cost of treatment (although under current federal cuts through sequestration, CAHs are only reimbursed 99 percent of cost).

“It was a life saver,” Slabach said, estimating that 70 to 80 percent of hospitals “would’ve gone bankrupt if they hadn’t converted.”

‘Like a gold rush’

Currently, in order to qualify for a CAH designation, a hospital must be more than 35 miles away from another hospital or only 15 miles away in mountainous terrain or areas with only secondary roads.

When the CAH program began in 1997, however, hospitals that did not meet the mileage requirement could still qualify for CAH status if they were designated by their state as a “necessary provider” of health care services to residents in the area, according to the Centers for Medicare & Medicaid Services. The “necessary provider” loophole closed in 2006.

Slabach, who served on the board of trustees for the National Rural Health Association during that time, said that a few hundred hospitals rushed to become certified as CAH before the sunset of the necessary provider provision. “Like a gold rush,” he said.

Slabach said that roughly 80 percent of today’s CAHs qualified under the necessary provider clause, with a few hundred hospitals converting every year from 1997 to 2006. Since then, only three to five convert annually, he said.

Critical Access elsewhere

Dr. Greg Duncan, Sutter Coast’s chief of medical staff who has been leading the local opposition to CAH designation, points to the Critical Access conversion of Sutter Lakeside Hospital in Lake County as evidence of the negative impacts in store for Del Norte County.

Sutter Lakeside converted to a CAH in 2008, cutting inpatient beds from 69 to 25. Duncan has blamed Lakeside’s conversion to CAH for recent layoffs and the closure of two clinics associated with the hospital.

But during Lakeside layoffs in 2010, Jan Emerson of the California Hospital Association said that hospitals across the state had been forced to “lay off employees, halt wage increases, implement hiring freezes and even shut down programs because of the current economy,” as reported by Lake County News.

Dr. Karen Tait, the public health officer for Lake County, home of Sutter Lakeside, said that the conversion to a CAH did not stay controversial for long. There was a slight increase in the amount of emergency transfers out of Sutter Lakeside, but she’s hesitant to correlate this to the CAH designation since there is a trend of more and more patients going to out-of-county to specialized treatment centers for services like cardiology or stroke care.

Siri Nelson, chief administrative officer of Sutter Lakeside, said that the hospital has received more than $16 million in additional Medicare reimbursement since 2008 due to critical access status, in an opinion piece published this past week in Lake County News.

“There isn’t going to be substantially different care provided in a Critical Access Hospital; in most cases they are required to provide the exact same level of care,” said Peggy Wheeler, vice president of the Rural Healthcare Center at the California Hospital Association.

Critical Access Hospitals are required to have an emergency room open 24/7. They  are not required to have it staffed with a doctor 24/7, but a physician must be on call and able to arrive within 30 minutes.

Wheeler said some rural hospitals whose average daily census was hovering around 26 or 25 patients ultimately decide not to pursue CAH status.

“Primarily this decision is a financial based decision. If they can generate additional funds through Medicare payments it may make sense to them,” Wheeler said.

When Slabach was a hospital administrator at Field Memorial Community Hospital in Centreville, Miss., his team would consider CAH status on an annual basis, but it did not make sense to convert to CAH until 2003, after changes to Medicare law applied the less-lucrative PPS funding to out-patients as well. Slabach also saw his inpatient numbers dropping and predicted more of the same in coming years.

At the time of his hospital’s conversion, he experienced the same type of community resistance currently bubbling in Del Norte.

“This is an old story,” he said. “This conversation was going on in communities all over the country. They thought they were going to become a Band-Aid station, relegated to an inferior status. But nothing really changes in terms of perception to public. This is somewhat normal — it’s just the resistance to change.”

Possible impacts

Dr. Duncan has repeatedly said that Critical Access designation would lead to more emergency transfers of patients to other facilities due to the 25-bed limit, which could result in expensive air ambulance charges to patients.

Duncan recently said that 247 additional patients would have required emergency transfers from Crescent City in 2011 under Critical Access designation, citing an internal 2012 Sutter Coast study.  But that figure does not include the mitigation methods that could accompany CAH designation, like a psychiatric unit, rehabilitation unit or the use of more observation beds.

The average daily census at Sutter Coast has been dropping significantly over the past five years, dipping to 19 in 2012. Those numbers include labor and delivery beds, which do not count toward the 25-bed cap.

Sutter Coast already has many patients emergency transferred to other hospitals because they need special services or a higher level of care, including trauma.

In 2012, Sutter Coast transferred 660 patients out of the hospital, but only three of those were transferred due to lack of bed capacity, Sutter Coast administrators have said.

“We would still have the same doctors, do the same surgeries, have the same ER, the same lab, the same radiology department,” wrote Dr. John Tynes, medical director of the Sutter Coast Community Clinic, in a Triplicate opinion piece published last August. “We would still admit for the same diagnoses, and I simply don’t agree with the math that the opponents to critical access proclaim when it comes to the numbers of people who would have to be transferred out due to lack of capacity.”

Slabach said that the only time his hospital in Mississippi ran into problems with the 25-bed cap was during flu season, but it found ways to comply with the limit.

“We did what we had to do, but we were certainly never going to compromise patient care and safety,” Slabach said.

Looking ahead

Next week, Sutter Coast plans on releasing the findings of a “strategic options study” that it said analyzed all possible future options for the hospital, including Critical Access designation.

The findings of the $170,000 study, conducted by the Camden Group consultants, will be presented next week to the hospital’s Board of Directors, which will have the final word on the future of Sutter Coast.


Sutter Coast Hospital average daily census inpatients excluding newborns and observation status patients:

2008 25

2009 22

2010 22

2011 21

2012 19

Source: Sutter Coast Hospital 

This article originally appeard in The Triplicate.