This report is a follow-up to the Joint Commission on Health Care's (JCHC) recent activities related to Virginia's Certificate of Public Need (COPN) Program. In December 2000, the JCHC issued a report entitled A Plan to Eliminate the Certificate of Public Need Program Pursuant to Senate Bill 337. Following the publication of that report, the JCHC introduced legislation during the 2001 Session (SB 1084 and HB 2155) which would have substantially eliminated the state's COPN program in three separate phases. Among the provisions of that legislation was language directing the JCHC, during Phase 1 of deregulation, to "study a possible state component to correspond with the federal critical access hospital program as set forth in the Balanced Budget Act of 1997, P.L. 105-33 and Title XVIII of the Social Security Act, as amended." While this legislation was not passed by the 2001 General Assembly, at its May 1, 2001 meeting, the JCHC directed the JCHC staff to complete this study.

Based on our research and analysis during this review, we concluded the following concerning critical access hospitals and the areas that they serve:

• The federal critical access hospital program is intended to assist small, rural hospitals, by providing reimbursement for 100 percent of reasonable costs from Medicare.

• Federal requirements for critical access hospital certification are based on distance from the nearest hospital, bed size, and average length of stay.

• Critical access hospitals are not required to provide the same full range of services required by Medicare of general acute care hospitals.

• The Virginia Department of Health submitted the Virginia Rural Health Care Plan to the federal government as a prerequisite for certifying certain Virginia hospitals as critical access hospitals.

• Rural localities in Virginia are confronted by numerous health care-related challenges.

• Two Virginia hospitals have already been certified as critical access hospitals, and three others are considered to be likely candidates for certification.

• The Virginia Department of Health does not believe that any other Virginia hospitals will convert to critical access hospital status.

• The federal critical access hospital program is not a panacea for all of the problems confronting rural hospitals. For example, it does little to support services such as obstetrics, pediatrics and emergency room care which are provided primarily to a non-Medicare population.

• Sixteen states, including North Carolina, Kentucky and West Virginia, provide critical access hospitals with reimbursement for 100 percent of their Medicaid-allowable costs.

• The fiscal impact of providing Virginia's critical access hospitals with reimbursement for 100 percent of their Medicaid-allowable costs would be relatively small (approximately $277,000, general funds).

• Expansion of the Medicaid Medallion II managed care program into additional localities will have potentially negative implications for the state's ability to provide Medicaid cost-based reimbursement to critical access hospitals.

A number of policy options were offered for consideration by the Joint Commission on Health Care regarding the issues discussed in this report. These policy options are listed on page 37.

Our review process on this topic included an initial staff briefing, which comprises the body of this report. This was followed by a public comment period during which time interested parties forwarded written comments to us regarding the report. The public comments (attached at Appendix A) provide additional insight into the various issues covered in this report.

On behalf of the Joint Commission on Health Care and its staff, I would like to thank the Virginia Department of Health, and the Virginia Hospital and Healthcare Association for their cooperation and assistance during this study.

Patrick W. Finnerty
Executive Director
January 2002