New legislation should be introduced to significantly change the way rural-based hospitals are reimbursed for care provided in post-acute care swing beds, the Department of Health and Human Services’ Office of Inspector General told the Centers for Medicare & Medicaid Services this week.

In its report to Congress, the OIG found that the agency could have saved more than $4 billion over a six-year period by reimbursing critical access hospitals (CAHs) under the conventional skilled nursing facility prospective payment rate. The OIG recommended that the agency switch CAH reimbursement to the SNF prospective payment rate as soon as possible.

LeadingAge representatives reacted to the recommendations by pleading for CMS not to squeeze reimbursements or create undue competition between CAH and skilled nursing facilities since both are needed for rural health care to thrive.

“We believe that there are critical access hospitals essential to the health and stability of many rural communities,” Larry Minnix, president and CEO of LeadingAge, told McKnight’s. “We also believe that there are critical access nursing homes in many counties in rural America, as well. Often, these facilities are the major health resource available to otherwise isolated, vulnerable people — especially seniors. Anything that threatens their viability or attempts to divide them is looking for money in all the wrong places.”

OIG found problems stemming from the 18-year-old Rural Flexibility Program that established remote critical access hospitals as places rural populations could obtain a wide range of needed services, including post-acute skilled nursing care. The facilities typically were situated a certain distance from conventional acute care facilities. Prior to 2006, few states used their statutory discretion to designate CAH facilities that did not meet the distance requirement as “necessary providers,” and consequently, the number of CAH facilities, and reimbursement levels, grew rapidly, the OIG noted in its March 9 report.

Around that time, the Medicare Payment Advisory Commission warned Congress that cost-based reimbursements were fueling more rapid cost growth among CAHs than other rural hospitals. CAH swing-bed usage increased from about 789,000 days in 2005 to about 914,000 days in 2010.

While CMS acknowledged the OIG’s finding that CAH utilization increased significantly, it disagreed with the OIG’s recommendation to switch reimbursement to a SNF PPS rate structure, chiefly due to concerns it had with the report’s savings projections and the availability of skilled nursing services in nearby alternative facilities.

American Hospital Association’s senior associate director of policy, Priya Bathija, said in a prepared statement that the report “demonstrates an unfortunate lack of understanding of how healthcare is delivered in rural communities. It inappropriately focuses on potential savings Medicare could realize, rather than the needs of individuals living in rural America. The AHA continues to strongly advocate for maintaining the CAH program as it is currently structured.”