Critical Access Hospitals 

Unlike hospitals that are paid under the Prospective Payment System, Medicare pays CAHs for patient services based on each hospital’s costs of providing care. Under this cost-based payment system, Medicare payments (and in many states Medicaid payments) to CAHs are based on the “covered costs” of furnishing Medicare-covered services to beneficiaries. 

Generally speaking, covered costs include “all necessary and proper costs associated with furnishing the services” plus 1%. Some examples of covered costs are:

  • General & Administrative

  • Housekeeping & Laundry

  • Dietary & Cafeteria

  • Nursing Administration

  • Medical/Surgical

  • Emergency Room

  • Cardiology

  • Pharmacy

  • Speech & Respiratory Therapies

  • Provider-Based Clinics  

  • Maintenance & Repair

  • Medical Records

  • Salary and Benefits

  • Physical & Occupational Therapies

  • Operating Room

  • Laboratory

  • Radiology

  • Medical Supplies

Also included as “covered costs” are those costs associated with the property, plant, and equipment used in providing Medicare services, thus providing to CAHs a methodology by which they can once again invest in capital assets through reimbursement of interest expense and depreciation.

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