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Report (OEI-05-12-00080)

Most Critical Access Hospitals Would Not Meet the Location Requirements If Required To Re-enroll in Medicare

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The Critical Access Hospital (CAH) certification was created to ensure that rural beneficiaries are able to access hospital services. Medicare reimburses CAHs at 101 percent of their reasonable costs, rather than at the rates set by prospective payment systems or fee schedules.

Currently, hospitals can be certified as CAHs if they meet a variety of regulatory requirements, including being located at least a certain driving distance from other hospitals (including CAHs) and being located in rural areas. These two requirements are known as the distance requirement and the rural requirement, respectively. Collectively, the two requirements are known as the location requirements. Prior to 2006, States could exempt CAHs from the distance requirement by designating them as "necessary provider" (NP) CAHs. NP CAHs are permanently exempt from meeting the distance requirement.


We plotted the locations of CAHs and other hospitals onto digital maps to determine whether CAHs would meet the location requirements if they were required to re-enroll in Medicare. Additionally, we calculated (using 2011 claims data) the potential savings to Medicare and beneficiaries if CMS were to decertify CAHs that would not meet the location requirements.


Nearly two-thirds of CAHs would not meet the location requirements if required to re-enroll. The vast majority of these CAHs would not meet the distance requirement. CMS does not have the authority to decertify most of these CAHs, as most of these CAHs are NP CAHs. However, if CMS were authorized to reassess whether all CAHs should maintain their certifications and concluded that some should be decertified, Medicare and beneficiaries could realize substantial savings. If CMS had decertified CAHs that were 15 or fewer miles from their nearest hospitals in 2011, Medicare and beneficiaries would have saved $449 million.


Because the CAH certification results in increased spending for both Medicare and beneficiaries, CMS should ensure that the only CAHs to remain certified would be those that serve beneficiaries who would otherwise be unable to reasonably access hospital services. We recommend that CMS (1) seek legislative authority to remove NP CAHs' permanent exemption from the distance requirement, thus allowing CMS to reassess these CAHs; (2) seek legislative authority to revise the CAH Conditions of Participation to include alternative location-related requirements; (3) ensure that it periodically reassesses CAHs for compliance with all location-related requirements; and (4) ensure that it applies its uniform definition of "mountainous terrain" to all CAHs. CMS concurred with our first, third, and fourth recommendations, but did not concur with our second recommendation.

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