To qualify for CAH designation, a facility must be a Medicare participating hospital. It must also meet the statutory and regulatory critical access hospital requirements set by CMS and outlined in the CAH Conditions of Participation (CoP).  These  requirements have to be satisfied for initial designation and ongoing participation. Following are the core requirements, along with key details and exceptions hospitals considering the transition should understand.

Core Statutory Requirements that a CAH Must Meet

• Bed limit: A CAH can have no more than 25 inpatient beds for acute care. These beds can serve either inpatient care or operate as “swing beds” (see Swing beds below). Distinct part units, such as distinct psychiatric or rehabilitation units, are excluded from the overall inpatient bed count.
• Distance/rural location: A CAH must be in a rural area and meet one of the distance standards: more than a 35-mile drive on primary roads or other numbered federal highways from the nearest hospital or CAH; or more than 15 miles if the area has mountainous or secondary-road areas. “Only secondary roads” are considered when calculating travel distances for CAH eligibility. There are some exemptions for facilities designated as a “Necessary Provider” before January 1, 2006.
• Length of stay: The CAH must have an annual average patient stay of 96 hours (4 days) or less for acute inpatient care.
• Emergency services: The hospital must provide 24×7 emergency care. Staffing expectations are defined in the CoP and are sometimes also shaped by state regulations.

Hospitals need to consider basic bed, distance, length-of-stay, and emergency requirements. They must also pay attention to how the cost-based reimbursement model affects their operations. For example, to receive the full benefit of cost-based Medicare reimbursement (essentially 101 % of allowable costs for inpatient, outpatient, and swing-bed services) a CAH must go beyond payment basics and use cost-reporting to allocate costs by service line. 

This means rural hospitals must invest in strong finance and accounting systems, perhaps QuickBooks Online or Xero (even though patient volumes may be lower). They also need to be ready for settlement adjustments to capture indirect costs (for example, utilities, housekeeping, equipment depreciation). Indirect costs must be allocated appropriately among departments to maximize the minimum reimbursable amount.

Swing Beds, Staffing Flexibility, and Service Scope

• Swing beds: CAHs can use swing beds. They can also use one inpatient bed to serve for either (or transition between) acute or skilled nursing care when appropriate. These beds offer flexibility and extra revenue potential as outlined in the State Operations Manual. Swing bed reimbursement for CAHs are exempt from the Skilled Nursing Facility Prospective Payment System (SNF PPS), unlike for other rural facilities.
• Staffing flexibility (with limits): The CAH model offers some flexibility in staffing. Hospitals can adjust their mix of nurses or use telehealth clinicians as needed. A clinical nurse specialist may also be part of the qualified personnel providing care in CAHs. State licensure and federal CoPs still set the boundaries.
• Required services vs community-tailored services: CAHs must provide certain diagnostic and therapeutic services. They can design their service mix around community needs, often documented through a Community Health Needs Assessment.

Staffing models and service mix decisions also need to be aligned with the CAH model’s intent. Though a CAH has flexibility (for example, the use of nurse practitioners or telehealth clinicians), state licensure rules and the CAH Conditions of Participation (CoP) outline staffing minimums. 

Rural hospitals considering CAH designation should run scenario modeling. A few examples: 

• What will the margin look like under cost-based reimbursement if volumes drop by 10 %? 
• What if transfers increase? 

These models help keep the “bird in hand” of cost-based reimbursement tangible.

Certification, Survey Process, and Quality Reporting

Certification for CAH status is based on CMS surveys. Survey teams consist of state or federal surveyors trained by CMS to ensure compliance with Conditions of Participation. Teams review documentation, observe care, and speak with staff to confirm that the hospital meets every CoP. A review is done with the initial designation and for each recertification. Hospitals should plan to treat compliance as an ongoing responsibility rather than a one-time activity.

Quality reporting is a parallel track. CAHs often participate in improvement efforts through the Medicare Rural Hospital Flexibility Program, which includes MBQIP reporting. Hospitals use these measures to guide internal improvement work. Surveyors and funders pay close attention to how the data shapes performance over time. 

As part of quality improvement initiatives, CAHs are encouraged to collect and report data on patient engagement measures. Strong participation shows that the hospital is committed to quality and continuous improvement. CAHs also need to develop, implement, and maintain an effective, ongoing, data-driven quality assessment and performance improvement (QAPI) program.

Other Required Conditions and Operational Rules

• Medicare Conditions of Participation (CoPs): CAHs must comply with the CoPs specific to CAHs (42 CFR Part 485 Subpart F), which are part of the broader critical access hospital requirements covering clinical standards, quality, infection control, records, discharge planning, and emergency services. Not complying can affect certification and payment. CAHs must also bill professional services separately from facility fees to comply with Medicare guidelines.
• Medicare participation and state licensure: Applicant hospitals have to already participate in Medicare and hold an acute-care hospital license in their state. State rules may be stricter than federal CoPs. If they are, hospitals have to meet the stricter of the two standards.
• Transfer and network agreements: CAHs need to maintain formal written agreements for patient transfers and clinical collaboration with larger hospitals. These arrangements help ensure patients can be transferred to access higher-level safe care quickly. If CAHs provide ambulance services, their costs can be reimbursed in some rural areas.
• Governing body: CAHs must have a governing body or responsible individual that assumes full legal responsibility for the CAH’s policies and how they’re administered.
• Compliance with the Clinical Laboratory Improvement Amendments (CLIA): To ensure high standards, CAHs must comply with the CLIA, which sets requirements for laboratory testing quality and reliability. Participating in the Medicare Clinical Laboratory Fee Schedule lets CAHs get reimbursed for lab services provided to Medicare beneficiaries, which helps cover the costs of maintaining the services.
• Emergency preparedness plan: To comply with Medicare CoPs, CAHs must create and routinely update comprehensive emergency preparedness plans for a range of possible crises.

Nuances and Exceptions to Watch for

• “Primary roads” clarification: Only facilities that are on numbered federal or state highways and similar routes can qualify as being located on primary roads. That detail can affect distance calculations and has led to some denials or decertifications when a facility’s regular route differs from CMS’s route.
• Necessary Provider exemption: Facilities designated by a state as a “Necessary Provider” before January 1, 2006, may be exempt from the standard distance requirements but must still meet rural and CoP requirements.
• Recertification and ongoing compliance: Facilities undergo initial and recurring recertification (on a schedule) by a state survey agency as part of the CAH process. This ensures that a CAH continues to meet CoP compliance. If a CAH relocates or enters into a co-location arrangement, it must maintain the same services to comply with CAH designation requirements.

Finally, even though it’s not always the first thing a hospital CEO considers, the institution’s capital infrastructure matters. Because CAHs operate on thin margins, deferred maintenance or aging equipment can erode the difference between stable and unsustainable. 

The federal cost-reporting rules allow for capital improvements to be included in Medicare cost calculations, but only if the costs are properly captured and documented in the Medicare cost report. So while bed-count, rural location, and length of stay may dominate the checklist, the real operational success of a CAH often depends on the behind-the-scenes discipline of financial operations, documentation, and infrastructure readiness.