Rural Health Clinics: Rising Program Expenditures Not Focused on
Improving Care in Isolated Areas (Testimony, 02/13/97, GAO/T-HEHS-97-65).

GAO discussed its recent report on the Rural Health Clinic (RHC)
program, one of the few federal programs that addresses underservice in
small communities that do not have a traditional health care system in
place.

GAO noted that: (1) the RHC program needs to be refocused; (2) while
some clinics clearly meet the program's initial focus of serving
Medicare and Medicaid populations having difficulty obtaining primary
care in isolated rural areas, most clinics are in fairly well-populated
areas that already have extensive health care delivery systems in place;
(3) controls over the amounts that these clinics receive from Medicare
and Medicaid are weak or nonexistent, resulting in reimbursements that
are in some cases over five times higher than those paid to other
providers; (4) these financial benefits are provided indefinitely, even
after an area may no longer be rural or uderserved; and (5) success in
meeting the original purpose of RHCs requires more active management at
the federal, state, and local levels to identify specific locations
where clinics are needed and to determine when financial assistance can
reasonably be discontinued.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  T-HEHS-97-65
     TITLE:  Rural Health Clinics: Rising Program Expenditures Not 
             Focused on Improving Care in Isolated Areas
      DATE:  02/13/97
   SUBJECT:  Community health services
             Health resources utilization
             Health centers
             Health services administration
             Eligibility criteria
             Economically depressed areas
             Health care programs
             Health care cost control
             Internal controls
             Medical expense claims
IDENTIFIER:  HHS Rural Health Clinic Services Program
             Medicare Program
             Medicaid Program
             Alabama
             Kansas
             New Hampshire
             Washington
             
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Cover
================================================================ COVER


Before the Subcommittee on Human Resources, Committee on Government
Reform and Oversight,
House of Representatives

For Release on Delivery
Expected at 1:00 p.m.,
Thursday, February 13, 1997

RURAL HEALTH CLINICS - RISING
PROGRAM EXPENDITURES NOT FOCUSED
ON IMPROVING CARE IN ISOLATED
AREAS

Statement of Bernice Steinhardt, Director,
Health Service Quality and Public Health Issues

GAO/T-HEHS-97-65

GAO/HEHS-97-65T

Rural Health Clinics

(108312)


Abbreviations
=============================================================== ABBREV

  HCFA - Health Care Financing Administration
  HHS - Department of Health and Human Services
  RHC - Rural Health Clinic

RURAL HEALTH CLINICS:  RISING
PROGRAM EXPENDITURES NOT FOCUSED
ON IMPROVING CARE IN ISOLATED
AREAS
============================================================ Chapter 0

Mr.  Chairman and Members of the Subcommittee: 

We are pleased to be here today to discuss our recent report on the
Rural Health Clinic (RHC) program.\1 This program, established two
decades ago, allows higher Medicare and Medicaid reimbursement as a
way to support health care professionals, including nurse
practitioners and physician assistants, in underserved areas that may
be too sparsely populated to normally sustain a physician practice. 
The RHC program is one of the few federal programs that addresses
underservice in small communities that do not have a traditional
health care system in place. 

The program is administered by the Department of Health and Human
Services' (HHS) Health Care Financing Administration (HCFA), which
must certify as RHCs all Medicare-certified primary care providers
requesting such status if they practice in a rural and underserved
area.  At the time of our review, there were nearly 3,000 RHCs in the
program and their numbers were growing by more than 30 percent a
year.  At this rate of growth, Medicare and Medicaid will pay RHCs
more than $1 billion a year by 2000.  This rapid growth has raised
concerns about the benefits that program expenditures are providing. 

At this Subcommittee's request, we undertook our review, which used
available national statistics that we supplemented with a detailed
review of 144 RHCs in four states--Alabama, Kansas, New Hampshire,
and Washington.  We focused our review on two main questions: 

  -- Is the program serving a Medicare and Medicaid population that
     would otherwise have difficulty obtaining primary care? 

  -- Are adequate controls in place to ensure that Medicare and
     Medicaid payments to RHCs are reasonable and necessary? 

In brief, the answer to both questions is no.  The program needs to
be refocused.  While some clinics clearly meet the program's initial
focus of serving Medicare and Medicaid populations having difficulty
obtaining primary care in isolated rural areas, most clinics are in
fairly well-populated areas that already have extensive health care
delivery systems in place.  Controls over the amounts that these
clinics receive from Medicare and Medicaid are weak or nonexistent,
resulting in reimbursements that are in some cases over five times
higher than those paid to other providers.  These financial benefits
are provided indefinitely, even after an area may no longer be rural
or underserved. 


--------------------
\1 Rural Health Clinics:  Rising Program Expenditures Not Focused on
Improving Care in Isolated Areas (GAO/HEHS-97-24, Nov.  22, 1996). 


   PROGRAM OFTEN IS NOT TARGETING
   UNDERSERVED POPULATIONS
---------------------------------------------------------- Chapter 0:1

Some RHCs clearly provide benefit to rural communities.  Such RHCs
were generally those in communities without Medicare or Medicaid
providers or in sparsely populated areas such as those with fewer
than 5,000 people.  For example, Wadley, Alabama, a community of just
over 500, was unable to support a primary care practice until a
nearby hospital set up an RHC staffed by a part-time nurse
practitioner.  Nearly 40 percent of the clinic's Medicare patients
reduced their distance to care by a median of 18 miles.  Similarly, a
hospital district in eastern Washington uses three family physicians
and two physician assistants to operate an RHC and two satellite
clinics 15 to 30 miles away, reducing distance to care for at least
80 of the 507 Medicare patients by a median of 48 miles. 

We did not find much evidence of efforts to establish RHCs in such
locations, however.  In the four states we reviewed, neither HCFA nor
the state rural health offices were aware of any efforts to actively
target and establish RHCs in areas with 5,000 people or less, though
many of these areas had no Medicare or Medicaid primary care
provider. 

While sparsely populated areas of the country may be underserved, as
shown in figure 1, RHCs are increasingly being certified in larger
communities, many with 50,000 or more people living within 15 miles
of the clinic. 

   Figure 1:  RHCs by Population
   and Year Certified, 1991-95

   (See figure in printed
   edition.)

We found that these larger communities already have a number of
health care providers and facilities in place.  For example, one
clinic we reviewed was recently certified in a location that had
25,000 people, 17 practices with primary care providers, a number of
specialty practices, a hospital, two skilled nursing facilities, a
mental health facility, a hospice, and a home health agency. 

Also, RHCs generally do not appear to enhance the availability of
health care in these larger communities.  In the four states where we
reviewed clinics, the availability of health care did not change
appreciably for at least 90 percent of the Medicare and Medicaid
patients using them.  A significant reason was that two-thirds of the
RHCs were simply conversions of existing physician practices.  For
most clinics, the primary change was the higher level of Medicare and
Medicaid payments that they received, and not the number and mix of
patients treated. 


      BROAD ELIGIBILITY CRITERIA
      ALLOW GROWTH IN AREAS WHERE
      NEED IS MINIMAL
-------------------------------------------------------- Chapter 0:1.1

Why are many RHCs being approved in areas where they are unlikely to
improve access to care?  One reason is the broad criteria used for
defining rural.  While the Bureau of the Census generally defines
rural areas as those with fewer than 2,500 people, the law
authorizing the program allows for including areas with up to 50,000. 
However, the census boundaries may not account for all the people
living within 15 miles of the RHC, which HHS has defined as the
maximum distance people should have to travel for care under the
worst road conditions.  Therefore, the law allows RHCs to be near
other cities that constitute an even larger patient base, as many as
1 million or more. 

A second reason, that we have pointed out in other recent work,\2 is
that the definitions of underserved areas results in an undercount of
the number of medical providers already present.  To become
certified, an RHC must be located in an area that HHS has determined
to have health care shortages.  However, we found that more than half
the underservice designations may be invalid because they are
outdated or do not count a significant number of primary care
providers, such as nurse practitioners or physician assistants. 

A third reason is that there is no requirement to use the benefits of
the RHC program to expand services to whoever is underserved in the
community.  While HHS often designates an entire community as
underserved, most RHCs said that the uninsured poor make up the
majority of underserved people in their community.  Nevertheless,
only 16 of 73 RHCs we contacted said that they offered services on a
sliding fee scale, based on the patient's ability to pay for care. 
Similarly, over 85 percent of RHCs said that the program had no
influence on the number or type of patients they serve, even when
located in areas with specified underserved population groups such as
migrant farmworkers or Medicaid patients. 


--------------------
\2 Health Care Shortage Areas:  Designations Not a Useful Tool for
Directing Resources to the Underserved (GAO/HEHS-95-200, Sept.  8,
1995). 


   CONTROLS ARE NOT IN PLACE TO
   ENSURE REASONABLE COSTS AND
   EFFECTIVE TARGETING OF FUNDS
---------------------------------------------------------- Chapter 0:2

Despite the fact that many RHCs provide little additional benefit to
Medicare and Medicaid patients, these RHCs continue to receive
significant financial benefits from these programs.  RHCs are
generally reimbursed by Medicare and Medicaid for the costs they
claim in providing services, rather than by the lower set fees for
these services that would otherwise apply.  Using 1993 claims data,
we estimate that Medicare paid at least 43 percent more for services
at RHCs than it paid to other providers, while Medicaid paid at least
86 percent more.  Assuming that this same percentage held true in
following years, the RHC program cost Medicare an additional $100
million and Medicaid about $195 million in 1996. 

Because the RHC program is more generous, adequate controls over
claimed costs are particularly important to safeguard Medicare and
Medicaid expenditures.  However, such controls are not in place to do
so.  RHCs that are independently operated are limited to an annually
adjusted amount currently set at $56 per Medicare or Medicaid
visit.\3

However, there are no limits on payments to RHCs operated as part of
a hospital or other facility, even though almost half the RHCs are
operated by such facilities, and this percentage is rapidly
increasing (see fig.  2). 

   Figure 2:  RHCs by Ownership
   Type, 1978-95

   (See figure in printed
   edition.)

HCFA has not determined how much more Medicare and Medicaid pay for
services at facility-operated RHCs as a result, but indications are
that the costs are sometimes substantially higher.  For example, our
review of cost reports for 28 of these RHCS shows that they received
up to $214 per visit, or four times the maximum amount paid for a
visit to an independent RHC.  HCFA has established a working group
that is addressing the issue of payment limits for facility-operated
RHCs, but had no estimate of when regulations will be issued. 

Second, HCFA has not implemented screening guidelines to assess
whether claimed costs are reasonable.  Because such guidelines were
never implemented, RHCs have no apparent limits on the amount or type
of costs they claim for Medicare and Medicaid reimbursement.  Our
review of 228 cost reports for independent RHCs found that one-fourth
were paying physician salaries of up to 50 percent or more than the
national mean of $127,000.  Our review of 28 cost reports at
facility-operated RHCs shows that hospitals sometimes claimed
overhead costs that were more than 100 percent of the direct costs of
operating the clinic. 

Third, under current law the RHCs receive the extra Medicare or
Medicaid reimbursement indefinitely, even if the area is no longer
rural or underserved.  Many areas of the United States that were
considered rural in 1978 are now part of an urbanized area, and areas
considered underserved 15 years ago may now have an adequate number
of primary care physicians.  This aspect of the program--the lack of
recertification--means that the program cannot effectively target
reimbursement only to the clinics that need it.  Most of the clinics
we called said that they were financially viable without the added
reimbursement, while some said that it was only needed in their first
few years as a new clinic until an adequate patient base was
established.  Most clinics, however, thought that the higher
reimbursement should continue because it helped them to compete for
patients with other providers moving into the area and assisted in
offsetting the negative effects of Medicare and Medicaid
reimbursement reform. 


--------------------
\3 This amount is still substantially higher than the average payment
providers received for similar services on the Medicare fee
schedules. 


   CONCLUSIONS AND RECOMMENDATIONS
---------------------------------------------------------- Chapter 0:3

Our work clearly demonstrates that the RHC program is adrift.  It
lacks a clear focus on its original goal of assisting underserved
rural communities and also lacks controls over costs to the Medicare
and Medicaid programs.  As it continues to grow--often in populated
areas with established health care systems--there is little evidence
to demonstrate that this growth is directed at improving access to
care on the part of Medicare and Medicaid beneficiaries or other
underserved segments of the population. 

What does the program need?  One thing is a new definition for the
types of areas that are eligible for the higher Medicare and Medicaid
payments.  The rural and underserved criteria by themselves are
insufficient to ensure that its most attractive feature for
providers--cost reimbursement--is used by clinics needing it to meet
a clear program goal, rather than obtaining a competitive advantage
or avoiding the effects of Medicare and Medicaid payment reforms.  A
second need is for controls over the reimbursement costs claimed by
clinics to ensure that they are reasonable.  Success in meeting the
original purpose of RHCs requires more active management at the
federal, state, and local levels to identify specific locations where
clinics are needed and to determine when financial assistance can
reasonably be discontinued. 

Accordingly, our report contains recommendations for both the
Secretary of Health and Human Services and the Congress to accomplish
these needed improvements. 

First, for those RHCs that continue to receive higher Medicare and
Medicaid reimbursement, the Secretary of HHS should direct the
Administrator of HCFA to revise Medicare payment policy to hold all
RHCs to the same payment limits and reporting requirements and
reimburse them for only the reasonable costs incurred in providing
care to Medicare and Medicaid beneficiaries.  HHS agreed with our
recommendations and stated that it would begin to take actions to
implement them. 

In addition, we recommend that the Congress assist in refocusing the
RHC program to meet its original purpose by

  -- restricting higher Medicare and Medicaid reimbursement to (1)
     RHCs in areas with no other Medicare or Medicaid providers or
     (2) RHCs that can demonstrate that existing providers will not
     accept new Medicare or Medicaid patients and that the funding
     will be used to expand access to them and

  -- requiring periodic recertification to continue higher payments
     only to the clinics that need it for this purpose. 


-------------------------------------------------------- Chapter 0:3.1

This concludes my statement.  I would be happy to answer any
questions you have. 


   CONTRIBUTORS
---------------------------------------------------------- Chapter 0:4

This testimony was prepared under the direction of Bernice
Steinhardt, Director, Health Service Quality and Public Health
Issues, who may be reached at (202) 512-7119 if there are any
questions.  Other key contributors include Frank Pasquier, Assistant
Director, and Lacinda Baumgartner and Stan Stenersen, Evaluators. 


*** End of document. ***