Hospital Association of Pennsylvania > Advocacy > Federal Advocacy > Payment Policy for CAHs Comment Letter


Login to view your account.

Don't have an account? Click here.


HAP Comment Letter on Payment Policy for Critical Access Hospitals

June 30, 2016

Andy Slavitt
Acting Administrator
Centers for Medicare & Medicaid Services
U.S. Department of Health and Human Services
Hubert H. Humphrey Building
200 Independence Avenue, S.W., Room 445-G
Washington, DC 20201

Submitted electronically to

SUBJECT: Centers for Medicare & Medicaid Services (CMS) Call for Input on Payment Policy for Critical Access Hospitals

Dear Mr. Slavitt:

On behalf of The Hospital & Healthsystem Association of Pennsylvania (HAP), which represents approximately 240 member institutions, including 14 Critical Access Hospitals (CAH) that ably serve Pennsylvania’s small and rural communities, we appreciate the opportunity to offer input regarding the impact of Medicare payment policy on Pennsylvania’s CAHs.

HAP is concerned by the inclusion of legislative proposals in recent U.S. Department of Health and Human Services (HHS) budget proposals that would impact CAHs. Specifically, the fiscal year 2017 HHS budget calls for reducing CAH reimbursement from 101 percent of reasonable costs to 100 percent of reasonable costs. The budget indicates the proposal would result in a savings of approximately $1.7 billion over 10 years. Estimates also indicate the policy would result in a reduction of payments to Pennsylvania CAHs by more than $7 million over 10 years.

Pennsylvania, like states across the country, is facing challenging circumstances in protecting access to care in rural communities, and improving rural health.

Pennsylvania is considered to be one of the most rural states in the nation with 3.5 million or 27 percent of the population living in areas that are designated as rural. Forty-eight (48) of the state’s 67 counties are predominately rural.

Nearly half of rural hospitals in Pennsylvania reported negative operating margins in 2015, with 70 percent reporting operating margins of three percent or less. One in five hospitals reported negative operating margins for each of the last three years.

Pennsylvania CAHs face systemic underpayment, dependence on government payers, and inherent revenue volatility:
  • In 2014, Pennsylvania’s CAHs were subject to a negative 2.62 percent margin for Medicare—a margin that has steadily eroded to the negative over the last ten years.
  • CAHs already are impacted by two percent sequestration, which sets current reimbursement at approximately 99 percent of cost. Sequestration is in effect through at least 2025. The budget proposal would reduce that number to 98 percent.
  • When considering the full scope of expenses, CAHs’ reimbursement rate is even less than 99 percent of reasonable costs given that 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.
  • CAHs have had their Medicare bad debt expense reimbursement lowered from 100 to 65 percent of cost.
  • Nearly 60 percent of the revenue for Pennsylvania’s CAHs comes from Medicare and Medicaid.
  • Given low patient volume, even small changes in patient volumes could jeopardize the financial viability of CAHs serving small and rural communities.

Current policy providing 101 percent cost-based reimbursement is a keystone in holding together the vigilantly managed budgets of these financially strained community providers. Any payment reductions to Medicare or Medicaid would have an immense impact on CAHs’ ability to provide access to bene¬ficiaries in rural communities.

Pennsylvania recently saw the strain placed on CAHs during a prolonged budget impasse where state and, subsequently, federal payments were delayed. Functioning on razor-thin budgets, the lag in payments sent CAHs into serious distress. This episode was a stark reminder of the very real consequences and importance of every revenue dollar for CAHs.

Rural Health Care Transformation

Both at the federal and state level, Pennsylvania’s rural hospitals are considering ways to reshape the delivery of care and payment, taking into account inherent challenges in serving rural communities—geographic location, lower patient volume, workforce recruitment, technology adoption, and strained financial resources.

Earlier this year, HAP issued comments to CMS in response to a request for information into the design and implementation of a multi-payer prospective budget approach that could allow rural providers to successfully participate in population health.

HAP also has been engaged with Pennsylvania’s Secretary of Health Karen Murphy as the commonwealth works to move forward with a proposal to develop and implement a multi-payer global budget initiative in rural Pennsylvania. The proposal is intended to provide rural hospitals with consistent and predictable revenue so they can marshal resources to implement strategies that improve the health of the community.

As Pennsylvania’s rural providers continue to work together to reshape both the delivery and payment systems in order to support improved rural care, it is essential that state and federal payment policy remain, at a minimum, stable and predictable. This transition from fee-for-service to value-oriented care will be costly and time-consuming; from a policy perspective, it is critical that these hospitals have a stable foundation from which to launch the transformation.


Jeffrey W. Bechtel
Senior Vice President, Health Economics and Policy

« Close