Re: Cost report changes for Critical Access Hospitals

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Wednesday, June 12th 2002

The Honorable Thomas A. Scully
Centers for Medicare & Medicaid Services
200 Independence Avenue, S.W.
Washington, DC 20201

Dear Administrator Scully:

On behalf of the American Hospital Association's (AHA) 5,000 hospital and health system and other provider members and on behalf of more than 600 Critical Access Hospitals (CAH) and the communities they serve, we urge you and the Centers for Medicare and Medicaid Services to reverse announced changes to the cost report that will be devastating to CAHs and their financial sustainability.

At the CMS Hospital Open Door Forum on June 5, CMS staff announced a cost report change in beneficiary co-insurance for outpatient services provided by CAHs. Current law requires the Medicare program to pay CAHs 80% of outpatient costs and beneficiaries pay 20% of charges, which might be greater than 20% of cost. CMS is seeking changes designed to limit CAHs' total payments from both Medicare and co-pays to 100% of costs. This change is a departure from current practice and reverses policies in place since the creation of the CAH program. Even more troubling, CMS staff said this change would be applied retroactively to past CAH payments, suggesting CMS would attempt to recoup payments already made to CAHs.

As we understand it, the change will be made and then communicated to hospitals as part of Transmittal 9. However, we understand that some fiscal intermediaries have already implemented this change before the issuance of instructions from CMS to do so through Transmittal 9. We do not believe CMS has authority to make this change and request that CMS produce the statutory or regulatory language that would allow this discretionary change. This is a major change in Medicare payment policy without a process that includes official notice of proposed rulemaking or public comment.

Because we believe no changes of this nature should be made, we were encouraged by your comments at the conclusion of the forum meeting. During the discussion, you stated that any changes to this policy should be made on a prospective basis and that a transitional process like that agreed to and used to reduce beneficiaries' coinsurance in the outpatient prospective payment system might be appropriately applied to CAHs. While we strongly disagree with this change, if CMS believes change is necessary, this may be a more appropriate approach.

It is clear you understand the importance of CAHs to the rural communities they serve and the harm this policy could pose to their financial sustainability. We ask that you reverse the decisions of your staff and help them understand the gravity of the change they are planning to make.

Again, we believe, no changes to the cost report should be made in Transmittal 9. We do not believe CMS has authority to make this change nor has proper notice been provided to all those affected.

Please call me or Carmela Coyle at (202) 626-2266 to discuss this issue in more detail. Thank you.


Rick Pollack
Executive Vice President


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