On January 3, 2025, OIG posted the results of an audit that found that Medicare could have saved $7.7 billion if critical access hospitals’ (CAH) payments for swing-bed services were similar to those of the fee-for-service (FFS) prospective payment system. CAHs were established by the Rural Flexibility Program under the Balanced Budget Act of 1997 and provide hospital services to enrollees located in rural areas. CMS may also grant a CAH approval to provide swing-bed services in its inpatient beds, which include services similar to those offered at skilled nursing facilities (SNFs). Under the Rural Flexibility Program, Medicare reimburses CAHs at 101% of their reasonable costs. On the other hand, the Medicare prospective payment system and Medicare fee schedules are used to reimburse alternative facilities, including SNFs and acute care hospitals that offer skilled nursing services.
In the audit, OIG found that swing-bed use for skilled nursing services increased about 2.8% from 2015 through 2020, while the average daily reimbursement for swing-bed services increased by 16.6% over the same timeframe. OIG also considered data from a sample of one-hundred CAHs and found that 87 out of the 100 CAHs were within 35 miles of an alternative facility that had the same skilled nursing services available. OIG recommended that CMS seek a legislative change to allow CAH reimbursement rates to be reimbursed at the rate of alternative facilities when similar services are available at alternative facilities. CMS cannot alter CAH payment on its own, but rather needs legislative action.
CMS did not concur with OIG’s recommendation. CMS expressed concerns about OIG’s methodology of determining the availability of skilled nursing services at alternative facilities and the impact of payment reductions to CAHs on rural communities.
A copy of OIG’s report is available here.
