Small or Rural Update: Fall 2013 Issue

Small or Rural Update: Fall 2013 (PDF Version)
The AHA and its Section for Small or Rural Hospitals represents and advocates on behalf of more than 1,600 rural hospitals, including 975 critical access hospitals (CAHs). Small or Rural Update gives our members news on legislative and regulatory activities, as well as on Section programs and services. This issue of Small or Rural Update reviews the federal budget, legislative agenda and advocacy, regulatory policy, proposed and final rules for Medicare payment, and more.

The Federal Budget

When Congress agreed to temporarily reopen the government and lift the debt ceiling last month, lawmakers established several new fiscal flashpoints – and opportunities for both hospital funding cuts and health care improvements. By Dec. 13, a budget conference is tasked with resolving differences in the House and Senate budget resolutions passed earlier this year. At the same time, sequester relief could be on the table; we’d welcome relief for hospitals, but hospitals also could be eyed as a source of replacement savings. A physician payment fix to avoid large cuts will be needed by Jan. 1. Then Congress must agree on how to fund the government after Jan. 15 when the continuing resolution expires and lift the debt ceiling again sometime after Feb. 7. See the AHA Legislative Action Alert for important information on payment reductions that threaten access to care and what you can do about it.

 Fall Legislative Agenda

The AHA is working to ensure that the voice of rural hospitals – and the patients and communities they serve – is heard. Specifically, we are:

  • Working for passage of critical hospital-related legislation that will help hospitals con­tinue to fulfill their mission of caring;
  • Protecting hospital payments as legislators look for savings and potential offsets for other spending; and
  • Advocating for needed regulatory changes to increase efficiency and ease the burden on hospitals so that staff can spend more time and resources caring for patients.

Following is the fall legislative agenda for small or rural hospitals.


The Rural Hospital Access Act: Introduced by Sens. Charles Schumer (D-NY) and Charles Grassley (R-IA) and Reps. Tom Reed (R-NY) and Peter Welch (D-VT), the Rural Hospital Access Act of 2013 (S. 842/H.R. 1787) would reauthorize both the Medicare-dependent Hospital (MDH) program and the enhanced low-volume Medicare adjustment for inpatient prospective payment system hospitals for one year through September 30, 2014. The AHA worked extensively on the critical legislation and is pleased with its introduction.


The Protecting Access to Rural Therapy Services Act: Introduced by Sen. Jerry Moran (R-KS) and by Reps. Kristi Noem (R-SD) and Collin Peterson (D-MN), S. 1143 and H.R. 2801 would protect access to outpatient therapeutic services by adopting a default standard of “general supervision” (rather than “direct supervision”) for outpatient therapeutic services; creating a provider advisory panel to identify those outpatient services complex enough to require direct supervision; and holding hospitals and CAHs harmless from civil or criminal action regarding CMS’s retroactive reinterpretation.

Other priorities of AHA’s fall legislative agenda include: 

3The Medicare Audit Improvement Act of 2013: Introduced by Reps. Sam Graves (R-MO) and Adam Schiff (D-CA) and by Sens. Mark Pryor (D-AR) and Roy Blunt (R-MO), (H.R. 1250/S. 1012), the bill would establish a consolidated limit for medical record requests, impose financial penalties on RACs that fail to comply with program requirements, make RAC performance evaluations publicly available and allow denied inpatient claims to be billed as outpatient claims when appropriate. An AHA Fact Sheet on the bill provides more details.

The DSH Reduction Relief Act: Introduced by Rep. John Lewis (D-GA) and Sen. Roger Wicker (R-MS), this bill would eliminate the first two years of the Patient Protection and Affordable Care Act’s (ACA) cuts to the Medicare and Medicaid Disproportionate Share Hospital programs to allow expansion of health coverage to become more fully realized. An AHA Fact Sheet on the bill provides further details.

The Fairness in Health Care Claims, Guidance and Investigations Act: : Introduced by Reps. Howard Coble (R-NC) and David Scott (D-GA), this bill would amend the False Claims Act by: requiring that federal agencies review their own rules and regulations to determine whether a billing dispute should be pursued as fraud before launching an investigation, and assuring that unintentional billing disputes aren’t penalized as harshly as fraud. More details are available in the AHA Fact Sheet.

Advocacy Days: Plan now to attend an AHA Advocacy Day on Nov. 19, Dec. 3, or Jan. 8. You’ll have the opportunity to talk to your legislators and their staff about the challenges facing your patients and your community. Your voice in Washington is essential to our ability to deliver the message of “No more cuts to hospital funding” and garner support for critical hospital issues

Please click here to RSVP or contact Michael McCue at or (312) 422-3319, or Debra Thomas at or (312) 422-3327.

AHA’s Advocacy Alliance for Rural Hospitals: Become a member of the AHA Advocacy Alliance for Rural Hospitals and let your voice be heard. The Alliance is an additional avenue for AHA members to engage on issues on which they care deeply. The Rural Hospital Advocacy Alliance focuses on extending Medicare provisions that expired in 2012 and 2013, including the low-volume adjustment, the MDH Program, ambulance add-on payments, and the outpatient hold harmless. In addition, the Alliance will continue to work to protect CAHs and other rural hospital designations. See the AHA’s infographic on CAHs that describes the fragile financial foundation supporting CAHs and how they are essential to care in rural communities. BACK TO TOP


Rural Hospital Legislative Update

Critical Access Flexibility Act: H.R. 3444 would give CAHs needed flexibility to accommodate fluctuations in patients through the option of meeting an average annual daily census of 20. “Under the current requirements for a CAH, a hospital can have up to 25 patient beds per day,” noted AHA Executive Vice President Rick Pollack in letters of support to Reps. Greg Walden (R-OR) and Ron Kind (D-WI), the bill’s sponsors. “Unfortunately, hospitals cannot always anticipate the patient count and find that turning patients away is unavoidable. This additional flexible option would allow for hospitals to appropriately accommodate daily and seasonal fluctuations.”

Importance of Rural Health Access for American Communities: 


Reps. Jenkins (R-KS), Young (R-IN), Smith (R-NE), Kind (D-WI), and McMorris Rodgers (R-WA) recently introduced House Resolution 356 recognizing that access to hospitals and other health care providers for patients in rural areas of the United States is essential. H. Res. 356 is a companion to S. Res. 26 that was introduced earlier this year by Sens. Jerry Moran (R-KS) and Amy Klobuchar (D-MN). While non-binding, each:

(1) recognizes that access to hospitals and other health care providers for patients in rural areas of the United States is essential to the survival and success of communities in the United States;

(2) recognizes that preserving and strengthening access to quality health care in rural areas of the United States is crucial to the success and prosperity of the United States;

(3) recognizes that strengthening access to hospitals and other health care providers for patients in rural areas of the United States makes Medicare more cost-effective and improves health outcomes for patients;

(4) recognizes that, in addition to the vital care that rural health care providers provide to patients, rural health care providers are integral to the local economies and are one of the largest types of employers in rural areas of the United States; and

(5) celebrates the many dedicated medical professionals across the United States who work hard each day to deliver quality care to the nearly 1 in 5 people in the United States living in rural areas.

The AHA will continue to work with Congress and the Administration to make certain that rural hospitals and rural communities are understood and protected. We will fight to protect critical access hospital and rural hospital payments and status during the upcoming fiscal battles and in the years ahead. Cosponsors for each resolution are needed as we continue this critical period of debate on the federal budget.

The Rural Hospital Fairness Act: Rep. Bruce Braley (D-IA), introduced H.R. 2578, the Rural Hospital Fairness Act of 2013, which would reinstate the transitional outpatient “hold harmless” payments to sole community hospitals (SCHs) and rural hospitals with no more than 100 beds through Dec. 31, 2013. The “hold harmless” transitional outpatient payments (TOPs) remain critical for small, rural hospitals; however the program expired Dec. 31, 2012. The cost to reinstate the TOPS would be roughly $100 million. BACK TO TOP 

 AHA Regulatory Priorities for Rural Hospitals

Changes to Critical Access Hospital Payments: Congress and the administration have called for reduced CAH payments and the elimination of CAH designation based on mileage between CAHs and other hospitals. In a Rural Hospital Alert AHA explains how these proposals are misguided and demonstrate an unfortunate lack of understanding of how health care is delivered in rural America. 

Direct Supervision for Outpatient Therapeutic Services: The AHA is disappointed that CMS has not heeded the concerns voiced by CAHs and small rural hospitals that requiring adherence to the direct supervision requirements for outpatient therapeutic services is not only unnecessary but will reduce access to care. Additional information is available in an AHA Fact Sheet.

Changes to the 340B Drug Discount Pricing Program: The 340B program is essential to helping safety-net providers’ stretch limited resources to better serve their communities. We support the continuation of this essential program, which saves money for providers and state and federal governments. The AHA supports program integrity efforts but will continue to oppose efforts to scale back this program. An AHA Fact Sheet offers further information.

AHA’s full fall legislative and regulatory agenda is available on the AHA website at BACK TO TOP


Inpatient Prospective Payment System (IPPS) Final Rule

CMS published its fiscal year (FY) 2014 final rule for the inpatient PPS in the Aug. 19 Federal Register. AHA’s Regulatory Advisory specifically addressing Medicare inpatient PPS payment.

The final rule will increase inpatient PPS rates by 0.7 percent in FY 2014 compared to FY 2013, after accounting for inflation and other adjustments required by law. The table details the factors CMS includes in its 0.7 percent estimate. Hospitals not submitting quality data will receive an additional cut of 2.0 percentage points, resulting in an update of negative 1.3 percent.

The final rule will increase inpatient PPS rates by 0.7 percent in FY 2014 compared to FY 2013, after accounting for inflation and other adjustments required by law. The table details the factors CMS includes in its 0.7 percent estimate. Hospitals not submitting quality data will receive an additional cut of 2.0 percentage points, resulting in an update of negative 1.3 percent.

Payment Adjustment for Low-Volume Hospitals: The ACA revised the criteria for a hospital to qualify for a low-volume payment adjustment, as well as the methodology for calculating that payment adjustment, for FYs 2011 and 2012; the ATRA subsequently extended this enhanced low-volume adjustment through FY 2013. However, as of FY 2014, the low-volume payment criteria will revert to those in effect prior to FY 2011. Specifically, in order to qualify for the low-volume adjustment in FY 2014 and beyond, a PPS hospital must be more than 25 road miles from another PPS hospital and have less than 200 total discharges (Medicare and non-Medicare).

Medicare-Dependent Hospitals: CMS notes that, as required by statute, the MDH program expires on Sept. 30, 2013, which will decrease payments to these hospitals by about $127 million in FY 2014. The AHA is working to extend key rural provisions beyond 2013 and urges Congress to pass The Rural Hospital Access Act (S. 842/H.R. 1787), which includes an extension of the Low-Volume Adjustment and the MDH program.

Rural Referral Centers (RRC): If a hospital wants to become an RRC, but does not have 275 or more beds, it must meet two mandatory criteria – a minimum case-mix index and a minimum number of discharges – and one of three additional criteria relating to specialty composition of medical staff, source of inpatients or referral volume. The final rule updated the alternative criteria for RRC designation in FY 2014 to include:

  • A case-mix index that is at least equal to either the median case-mix index for urban hospitals in its census region or the median case-mix index for urban hospitals nationally (1.5526), whichever is lower; or
  • At least 5,000 discharges per year (at least 3,000 for osteopathic hospitals) or, if fewer, the median number of discharges for urban hospitals in its census region.

Critical Access Hospitals: In the proposed rule, CMS stated that it had received a number of questions about whether CAHs are required to furnish acute care inpatient services under the CAH Medicare Conditions of Participation (CoPs). CMS’s interpretation of the Social Security Act is that CAHs are required to furnish acute care inpatient services. Further, CMS believes that 99 percent of CAHs already do provide these services. Therefore, CMS proposed to change the regulations to make clear that CAHs are required to provide acute care inpatient services. CMS finalized this provision.

Hospital-Acquired Conditions (HAC): Beginning in FY 2015, the HAC Reduction Program will impose a 1 percent reduction in Medicare payments for hospitals in the top quartile of national HAC rates as determined by Total HAC Score. CMS finalized the use of two domains of measures to calculate a total HAC score – claims-based patient safety indicators (PSIs), and healthcare-associated infections (HAIs). However, instead of equally weighting these two domains, 65 percent of a hospital’s total HAC score will be based on HAIs, and 35 percent will be based on a composite PSI measure.

Readmissions: CMS will increase the maximum payment penalty for hospitals with excess readmissions to 2 percent of base Medicare payments in FY 2014, as required by the ACA. CMS also finalized a revised measure calculation approach that excludes planned readmissions. Finally, the agency will add two new readmission measures to the FY 2015 program – chronic obstructive pulmonary disease, and total hip and knee arthroplasties.

IPPS Rebilling: CMS finalized its policy on rebilling Medicare Part A claims as part of its FY 2014 hospital IPPS final rule. AHA has published a Regulatory Advisory that addresses rebilling.

The final rebilling policy allows hospitals to rebill under Part B for most services after a Part A claim has been denied because the admission was found not reasonable and necessary, although the Part B claim must be submitted within one year of the date of service. The AHA is extremely disappointed that CMS’s final rule does not fundamentally reform its policy on rebilling and continues to deny hospitals reimbursement for all reasonable and necessary services they provide to their Medicare patients. The AHA and its five hospital system co-plaintiffs recently filed a supplemental brief in their rebilling lawsuit, which was initiated last year. 

Admission and Medical Review Criteria for Hospital Inpatient Services: CMS finalized its requirements for admission and medical review criteria, or “two-midnight” policy, to generally consider hospital inpatient admissions spanning two midnights as reasonable and necessary for payment under Part A. AHA has published a Regulatory Advisory that addresses inpatient admissions and medical review criteria. In addition, since the rule was published, CMS on Nov. 1 issued additional guidance related to the admission and review criteria. The additional guidance included updated instructions on the agency’s website and two documents summarizing the technical directions CMS will issue to Medicare Administrative Contractors (MACs) regarding the “Probe and Educate” audits originally announced in the agency’s Sept. 26 guidance.  Refer to AHA’s Special Bulletin for more details.  The AHA will continue to pursue delayed enforcement of the two-midnight policy until Oct. 1, 2014 and seek additional clarifications from CMS.

Below is a summary from the final rule:

The two-midnight benchmark is guidance for admitting practitioners and reviewers to identify when an inpatient admission is generally appropriate for payment. Specifically, CMS stated that physicians or other practitioners should admit a beneficiary if:

  • They expect that the beneficiary will remain in the hospital for more than one Medicare utilization day, which CMS defines as an admission that crosses two midnights; or
  • The beneficiary requires a procedure that is specified as inpatient-only.

Conversely, if the physician expects to keep the beneficiary in the hospital for a period of time that does not cross two midnights, and the procedure is not specified as inpatient-only, the services will generally be considered inappropriate for payment under Medicare Part A. AHA helped convince CMS to revise its original proposal to allow the ordering physician to consider time the beneficiary spends receiving outpatient services.

CMS also finalized a two-midnight presumption for the purposes of medical review of hospital inpatient admissions. Specifically, CMS indicated that its external review contractors will presume that inpatient hospital claims with lengths of stay greater than two midnights after the formal physician order for admission are reasonable and necessary and generally appropriate for Part A payment. Further, these claims will not be the focus of medical review efforts absent evidence of systematic gaming, abuse or delays in the provision of care in an attempt to qualify for the two-midnight presumption. AHA helped convince CMS to restrict auditors to consider only the information available to the admitting physician at the time of admission.

CMS estimates that its policy will increase inpatient PPS expenditures by $220 million. Therefore, the agency finalized its proposed offset to this additional expenditure by permanently and prospectively reducing the operating PPS standardized amount, the capital standard federal payment rate, sole community hospitals’ hospital-specific rates (as well as Medicare-dependent hospitals’ rates if the program is extended).

Physician Order: CMS finalized its proposal that an order supported by medical information, including physician admission and progress notes, must be made by a physician (or other qualified practitioner, as provided in the regulations) and present in the medical record in order for the hospital to be paid for hospital inpatient services under Medicare Part A.

CMS issued guidance further clarifying physician certification

and order requirements for inpatient admissions. CMS’s guidance specifically reiterates the existing condition of payment for inpatient CAH services: That is, “The physician must certify that the beneficiary may reasonably be expected to be discharged or transferred to a hospital within 96 hours after admission to the CAH.  CAHs may satisfy this condition of payment by including a physician certification form or statement in the medical record. If physician certification forms or statements are not included in the medical record, CMS’s guidance also specifies that this condition of payment may be met by either physician notes or by actual discharge within 96 hours. BACK TO TOP


Outpatient PPS Proposed Rule for CY 2014

CMS released the outpatient prospective payment system (OPPS) proposed rule for calendar year (CY) 2014. The rule proposes updating OPPS payment weights and rates. AHA has published a Regulatory Advisory on the proposed rule.

OPPS Update: The proposed rule includes an ACA required productivity reduction of 0.4 percentage points and an additional 0.3 percentage point reduction to the CY 2014 market basket update of 2.5 percent. This results in a proposed market basket update of 1.8 percent for those hospitals that publicly report data on 22 quality measures. The 2014 update for hospitals that do not meet quality reporting requirements would be reduced by 2.0 percentage points, to negative 0.2 percent.

Direct Supervision of Hospital Outpatient Therapeutic Services: CMS proposes to end, as of the end of CY 2013, its prohibition on Medicare contractors enforcing the direct supervision policy for outpatient therapeutic services furnished in CAHs and in small rural hospitals having 100 or fewer beds. For CY 2014, the agency, therefore, proposes to require a minimum of direct supervision for all outpatient therapeutic services furnished in hospitals and CAHs, unless the service is on the list of services that may be furnished under general supervision or is designated as a nonsurgical extended duration therapeutic services. These lists of services are available at:

AHA remains concerned that hospitals and CAHs will have difficulty implementing CMS’s supervision requirements, even with the level of additional flexibility the agency has provided over the past several years. A number of important changes that would address these concerns are included in AHA-supported legislation, the Protecting Access to Rural Therapy Services Act of 2013 (S. 1143/H.R. 2801). Read the AHA’s fact sheet on Supervision of Hospital Outpatient Therapeutic Services for more information.

Rural Adjustment for SCHs: CMS proposes to continue increasing payments to rural SCHs, including essential access community hospitals, by 7.1 percent for all services paid under the OPPS, with the exception of drugs, biologicals, services paid under the pass-through policy and items paid at charges reduced to costs. The adjustment is budget neutral to the OPPS and applied before calculating outliers and coinsurance.

Other major proposals included in the OPPS proposed rule include:

  • collapsing the several – level of service codes for each type of hospital visit – 10 codes for clinic visits, five codes for Type A emergency department (ED) visits and five codes for Type B ED visits – and replacing each set of codes with one new code, resulting in a single level of payment for each of the three type of visits;
  • making several significant packaging changes that would shift the OPPS more definitively away from a per-service fee schedule to a prospective payment system with larger payment bundles, including introducing policies that could, over time, support movement toward bundled payment;

The final calendar year rules are typically released by Nov. 1, but CMS now plans to issue them by Nov. 27 due to the recent government shutdown. Despite the delay, the rules generally will be effective on Jan. 1.  The AHA is urging CMS to issue the final rules as soon as possible. BACK TO TOP


Medicare Physician Fee Schedule Proposed Rule for CY 2014

CMS published the Medicare physician fee schedule (PFS) proposed rule for CY 2014. Without congressional action, CMS estimates that Medicare payments to physicians and qualifying non-physician providers will decline by a mandated 24.4 percent on Jan. 1 due to the flawed sustainable growth rate formula. An AHA Regulatory Advisory is available for your reference.

In addition to updating payment weights and rates, the rule would:

  • Fully subject CAHs to the cap on outpatient therapy services, beginning Jan. 1;
  • Allow payment for telehealth services originating in certain rural areas of Metropolitan Statistical Areas, in an attempt to ameliorate the impact of nearly 100 counties being re-designated from rural to urban based on 2010 census data;
  • Implement the extension of ambulance add-ons;

Medicare Telehealth: Under current law, Medicare beneficiaries are eligible for telehealth services only when those services are provided from an originating site located outside of a Metropolitan Statistical Area (MSA) or in a rural Health Professional Shortage Area (HPSA). CMS proposes to allow rural census tracts located in MSAs to be considered rural in accordance with a methodology used by the Office of Rural Health Policy (ORHP). The effect of this change is that some rural areas within MSAs will gain access to Medicare telehealth services and CMS states that it believes this change in policy will expand access to telehealth services.

Therapy Services: The American Tax Relief Act of 2012 (ATRA) extended a number of temporary changes to Medicare outpatient therapy – physical therapy, occupational therapy and speech-language pathology services. Specifically, the law extended through Dec. 31 the current therapy cap exceptions process; the temporary application of the therapy cap to therapy services provided in hospital outpatient departments (HOPDs); and a manual medical review process for therapy cap exceptions that reach a threshold of $3,700 per year. It also required CMS to count therapy services furnished by a CAH toward the therapy cap using the amount that would be paid for the service under the PFS. However, the ATRA did not apply the therapy cap to services furnished by a CAH – meaning that a CAH could provide therapy services above the cap without following the therapy cap exceptions process.

As a result of the ATRA, CMS reassessed and now proposes to reverse its longstanding interpretation of existing statute by subjecting CAHs to the therapy cap beginning Jan. 1. In so doing, CMS differentiates CAHs from HOPDs, so that CAHs would be subject to the cap on Jan. 1 even though, under current law, HOPDs will no longer be subject to the cap on that date. Further, unless Congress acts, the exceptions process will end on Jan. 1, and claims CAHs submit for services above the cap will be denied. The AHA opposes application of the therapy caps to CAHs and will urge CMS not to finalize this flawed policy.

Extension of Ambulance Add-ons: The rule implements the ATRA’s extensions to the existing add-on payments for ground ambulance services – a 3 percent add-on for rural areas and a 2 percent add-on for urban areas – through Dec. 31. It also extends through Dec. 31 the “super rural” ambulance add-on. These provisions are retroactive to Jan. 1, 2013. BACK TO TOP


Electronic Health Record (EHR) and Meaningful Use

The last day that eligible hospitals and CAHs can register and submit attestation for the FY 2013 Medicare EHR Incentive Program is Nov. 30, 2013. Hospitals must attest to demonstrating meaningful use every year to receive an incentive and avoid a payment adjustment.

Hospitals participating in the Medicaid EHR Incentive Program need to refer to their state deadlines for attestation. Payment adjustments will be applied beginning FY 2015 (Oct. 1, 2014) to Medicare eligible hospitals that have not successfully demonstrated meaningful use. The adjustment is determined by the hospital’s reporting period in a prior year. Read the eligible hospital payment adjustment tipsheet to learn more. BACK TO TOP


Shirley Ann Munroe Leadership Award

Susan Starling, CEO, Marcum & Wallace Memorial Hospital, Irvine, KY is the 2013 recipient of the AHA’s Shirley Ann Munroe Leadership Award. The award recognizes the accomplishments of small or rural hospital chief executives and administrators who have achieved improvements in local health delivery and health status through their leadership and direction. Finalists include Marcia Dial, CEO, Scotland County Hospital, Memphis, MO; Michael Franklin, CEO, Atlantic General Hospital, Berlin, MD; and Lisa Heaton, Administrator, Johnson County Community Hospital, Mountain City, TN. Congratulations to them all for their contributions toward improving the health and health care delivery in rural America. BACK TO TOP


Call for Nominations

A 2014 Call for Nominations for the AHA Section for Small or Rural Hospitals will be posted by January 30, 2014. The Section seeks the names of CEOs interested in serving of the Governing Council or as Section delegates and alternates to the AHA Regional Policy Boards. Visit the Section for Small or Rural Hospitals web site for additional information.

The 2014 Trustee Call for Nominations will be posted on Jan. 7, 2014. The AHA is looking for trustees interested in serving on the Committee on Governance, the Regional Policy Boards, and on various governing councils and committees. Please go to to view the Call for Nominations and the Candidate Application form on January 7. BACK TO TOP


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