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. 

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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.