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Testimony on Rural Health Clinics by Kathleen A. Buto
Associate Administrator for Policy
Health Care Financing Administration
U.S. Department of Health and Human Services

Before the House Committee on Government Reform and Oversight, Subcommittee on Human Resources and Intergovernmental Relations
February 13, 1997

Mr. Chairman and Members of the Subcommittee:


Good morning. I am Kathleen Buto, the Associate Administrator for Policy at the Health Care Financing Administration (HCFA). I am pleased to have the opportunity today to discuss rural health clinics (RHCs) and to respond to the concern raised by the General Accounting Office (GAO) and the Office of the Inspector General (OIG) that the RHC program is not improving access to primary care services in underserved areas.

The GAO and OIG reports indicate that while the number of RHCs has grown rapidly in recent years, their proliferation has not necessarily been in areas where Medicare and Medicaid beneficiaries face access problems. Rather, many clinics are being ed as RHCs in areas where other RHCs already exist or where beneficiaries have other sources of medical care. The reports cite two primary reasons for this -- the current shortage area designation process does not adequately identify underserved areas; and Medicare's current cost-based payment methodology encourages providers to seek RHC status. HCFA generally agrees with the findings of the reports and is working with the Public Health Service (PHS) to correct these problems. Before discussing how we are addressing these issues, I would like to provide some background information on the RHC program.


The Rural Health Clinics Act (RHCA) (P. L. 95-210) was enacted by Congress in 1977 and implemented in 1978 to increase access to primary health care services for Medicare and Medicaid beneficiaries living in rural areas. The RHCA also created a cost-based payment mechanism to ensure the financial viability of RHCs and encouraged the utilization of mid-level practitioners by providing payment for their services, even in the absence of a full-time physician.

To be classified as an RHC by HCFA, clinics must be located in a rural area and a shortage area as designated by the Public Health Service or by a Governor and approved by PHS. In addition, an entity applying for RHC designation under Medicare must meet specific conditions of participation set out in the Medicare statute, including staffing requirements, laboratory requirements and other criteria appropriate to a setting for primary health care. Under the Medicare statute, HCFA must continue to designate existing clinics as RHCs even if the area in which they are located is no longer considered a shortage or rural area. Certification by Medicare as an RHC leads to corresponding RHC status under Medicaid if the clinic elects to serve Medicaid beneficiaries.

RHCs are required to provide a core set of services. The scope of the services furnished by RHCs is comparable to services provided in a physician's office. These services may be provided by physicians and mid-level practitioners, including physician assistants, nurse practitioners, and certified nurse midwives. Core services also include outpatient mental health services furnished by clinical psychologists and clinical social workers.

Medicare RHC regulations distinguish between two types of RHCs -- independent and provider-based. Independent RHCs are freestanding practices that are not part of a hospital, skilled nursing facility (SNF) or home health agency (HHA). Providers-based RHCs are integral and subordinate parts of hospitals, SNFs, or HHAs, and under common licensure, governance and professional supervision.

The RHC benefit has allowed many communities in rural America to establish and maintain rural health clinics. Communities located primarily in the western United States, such as Idaho and Montana, rely heavily on Medicare and Medicaid support to provide primary and emergency care to beneficiaries living in remote and mountainous areas. While some RHCs serve primarily Medicaid beneficiaries, most RHCs are an essential source of care for the entire community -- including patients with Medicare, Medicaid, private insurance, as well as the uninsured. RHCs often provide care free of charge to patients who are unable to pay.

When the RHCA was passed in 1977, projections of participation were optimistic. By October 1990, only 581 clinics participated in the RHC program. Recognizing the importance of RHCs in improving access to vital health services, Congress enacted several amendments to the original RHC law to encourage participation of providers in the program. For example, OBRA 1987 mandated increased payment of providers in established annual updates to these caps based on the Medicare Economic Index. OBRA States, thereby increasing the number of areas where RHCs could potentially locate. This law also required that HCFA disseminate RHC application materials to all Medicare providers (hospitals, skilled nursing facilities, and home health agencies) as a way of promoting participation in the program. OBRA 1990 legislation required HCFA to expedite the approval time for RHC certification.

In part due to these changes instituted by Congress, the number of RHCs has grown significantly in recent years -- 947 in 1992 to 2,708 in early 1996. As of January 1997, HCFA counted 3,270. Much of the growth in RHCs has occurred in States with large rural areas that for many years had few or no RHCs, including Texas, Missouri, Kansas, Nebraska, Oklahoma, North Dakota, Michigan, and Mississippi. The GAO and OIG are concerned, however, that while increases in the number of RHCs may improve access to health care in certain geographic areas, RHCs are also locating in areas where Medicare and Medicaid beneficiaries already have adequate access to primary care services.


Today I would like to discuss several activities HCFA and the Department are pursuing to address their concerns including:

  • A HCFA workgroup charged with monitoring the growth in RHCS;

  • The PHS' plans to reevaluate the shortage area designation process to better identify areas with care access problems;

  • A proposed regulation that would consider a new payment methodology for RHCS;

  • A study underway to evaluate access to RHC services; and

  • A legislative proposal that would give States flexibility in establishing new Medicaid RHC rates.

Like the OIG and GAO, HCFA is concerned about the inappropriate proliferation of RHCs in recent years. The agency first received reports from State Medicaid agencies that the number of RHCs was growing rapidly in 1994 and was able to correct and analyze data to confirm the States' claims. As the dramatic increase in RHC certifications became apparent, HCFA staff responsible for RHC policy making established a workgroup to analyze and propose solutions related to proliferation and other issues impacting the RHC program. Representatives from PHS' Health Resources Services Administration also participate in this group. The RHC workgroup periodically meets with representatives from the RHC community to solicit input and to gauge industry reaction to HCFA's proposals to modify the RHC program.

One of the first issues addressed by the focus group, also identified by the GAO as an area of concern, is the method by which the Department designates clinics as RHCs. As indicated earlier, to be classified as an RHC, a clinic must be located in a rural area and a shortage area. The RHCA mandated the definition of "rural" as "an area that is not urbanized"' as defined by the Bureau of the Census. Three types of shortage areas are relevant to RHCs--health professional shortage areas (HPSA), medically underserved areas (MUAs) and Governor-designated shortage areas. HRSA determines if an area is a BPSA or MUA based on information submitted by the States. Governor-designated shortage areas must also be approved by HRSA. The RHCA requires HCFA to use the shortage area determinations made by HRSA in evaluating RHC applications.

HCFA is aware that the current process for determining shortage areas does not always result in increased access to care in those areas. HCFA is concerned that the current method to establish shortage areas measures only the number of primary care physicians to the population base. Mid-level practitioners who typically provide the majority of services in RHCs, however, are not included in this calculation. We understand that HRSA is investigating the possibility of counting mid-level practitioners in the shortage area designation calculation. This is important, particularly in light of recently-enacted State laws that broaden the scope of practice for non-physician practitioners.

HCFA is concerned that all shortage area designations are not periodically updated by HRSA and as such, an RHC may be established in an area that was designated years ago but would no longer meet the criteria for a shortage area. We understand that HRSA is considering revising the designation process to address this issue.

HCFA is evaluating whether to subject clinics and physician's offices to "additional tests of need" before granting RHC status. HCFA could consider a variety of other factors, in addition to the rural and underserved location, before approving a clinic's or physician's office RHC application. For example, HCFA could consider the number of RHCs already located in a given area, as well as the number of non-physician personnel such as physician assistants and nurse practitioners practicing in that locality. We believe that additional tests and better measures of need will limit RHC growth to areas that are truly underserved.

The GAO and IG reports identified the current statutorily mandated cost-based payment system as another factor contributing to the rapid growth of RHCs in recent years. We agree that a significant reason for RHC growth is the reasonable cost-based payment method used to pay for RHC services, particularly for provider-based RHC services. As I mentioned earlier, HCFA's current payment methodology that allows for different payments for "free-standing" and "provider-based" entities, may be driving the increase in RHCS, particularly the provider-based type. Unlike independent RHCs, provider-based RHCs are not subject to a per visit payment cap. With the growth of integrated delivery systems, HCFA has received numerous requests from entities requesting provider-based status.

In August 1996, we issued guidance to our regional offices on determinations of "provider-based," reiterating various elements of our policy that have been issued in regulations and other program issuances. Our policy on "provider-based" designations applies across the board, to all Medicare participants, including physicians' practices or clinics that state they are part of a provider.

In addition, we are preparing a proposed regulation to address the issue of inequity of payment between provider-based and independent RHCS. We are considering several issues, including payment limitations for both independent and provider-based RHCs, and requiring physicians to separate RHC practices from private practices. Because we are aware of the impact any payment policy change may have on access to care, we are seeking input from the public about how payment rates should be established. In the development of this proposed regulation, HCFA is making every effort to ensure that a policy change does not impede beneficiaries' access to necessary medical care.

We are seeking to gain additional information about the relsiderably higher than most States pay for comparable physician or clinic services. Several States report dramatic increases in requests for RHC designation largely due to an influx of "physician-owned and operated clinics." These private doctors can avoid the State's physician fee schedule, which is typically less than cost reimbursement, by becoming an RHC.

The President's 1998 Budget includes a Medicaid provision that would phase-out cost reimbursement for RHCs in one year. In place of reasonable cost reimbursement, we are developing a proposal to provide supplemental payments to RHCs to ease the transition. We believe that these proposals, if enacted, would reduce the incentive of some clinics to convert to RHC status while continuing our support of these critical providers.


HCFA agrees with the conclusions of the OIG and GAO reports. The increase in the number of RHCs has not always resulted in improved access to care because many new RHCs are not located in areas where beneficiaries are experiencing access problems. We are working with our colleagues in PHS to eliminate unnecessary growth in the RHC program while continuing to provide critical support to providers located in isolated and underserved areas. Revisions to the shortage area designation process, along with additional tests of need should limit the growth of RHCs to areas where their presence is justified. Results from the evaluation project being conducted by Mathematica should help us in this effort. In addition, the proposed Medicare payment regulations we are developing should eliminate financial incentives for some providers to convert to RHC status. Finally, our Medicaid RHC proposal if enacted, will reduce expenditures for RHC services provided to Medicaid beneficiaries. These initiatives will improve our ability to limit RHC proliferation to truly rural and underserved areas, thereby slowing expenditure growth.

Mr. Chairman, thank you for allowing me to explain our activities concerning RHCs. I would be pleased to answer any questions.

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