States’ Use of Cost-Based Reimbursement for Medicaid Services at Critical Access Hospitals

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States’ Use of Cost-Based Reimbursement for Medicaid Services at Critical Access Hospitals overview

Critical Access Hospitals (CAH) are reimbursed by Medicare at 101% of allowable cost for both inpatient and outpatient services. State Medicaid agencies, however, are not required to reimburse CAHs on a cost-basis and have flexibility in determining how CAHs are paid for providing services to Medicaid enrollees. This brief documents which of the 45 states with CAHs utilize a cost-based reimbursement methodology for Medicaid. Information was collected in 2009 from a variety of sources including telephone calls with Flex Program Coordinators and chief financial officers of CAHs, and reviews of state Medicaid manuals available on the internet. Medicaid reimbursement policies are an important factor in CAH financial status. Twenty-eight states provide Medicaid reimbursement based on cost for either inpatient or outpatient services or both. For the 17 states where cost-based reimbursement is not used at all CAHs are usually reimbursed for Medicaid services in the same manner as the PPS hospitals in their state. The type of reimbursement that is most advantageous for a small rural hospital depends upon multiple factors including an individual hospital’s cost structure, payor mix and service lines, as well as general Medicaid payment policies, and whether other types of incentives are offered to rural hospitals in their state.