What Is a Critical Access Hospital and Why They Matter
A critical access hospital, or CAH, is a small rural hospital that meets federal criteria to receive cost-based reimbursement from Medicare. These hospitals keep emergency and essential inpatient services available in communities too small to support a full acute-care facility. They provide 24×7 emergency care, short-stay inpatient care, and outpatient services under a reimbursement model that helps them stay financially viable.
This article takes a look at what CAHs do, why they matter, how the designation developed, and what rural hospital leaders should consider when evaluating whether CAH status is the right path forward.
What Is a Critical Access Hospital?
A critical access hospital is a federally recognized rural facility created to prevent communities from losing nearby access to urgent and foundational healthcare services. They’re often an existing acute care hospital that pursues the CAH designation. The designation was established under the Balanced Budget Act of 1997 and is implemented by states through the Medicare Rural Hospital Flexibility Program, often referred to as the Flex Program.
CAHs focus on the care rural communities need most often, including emergency services, short-stay inpatient care, routine outpatient services, diagnostic testing, and rehabilitation through swing-bed programs.
Many CAHs are the only hospitals within an hour or more. Their role isn’t to replicate or replace large urban hospital systems, but to deliver critical services to keep their communities safe, supported, and connected to the broader healthcare system.
To remain eligible for Medicare funding, CAHs must meet specific hospital conditions as defined by the CMS Hospital Conditions of Participation.
Why Critical Access Hospitals Matter
Critical access hospitals are an anchor for rural healthcare. For many communities, they’re the only source of reliable emergency care, basic inpatient treatment, and diagnostic services. By keeping essential services available locally, CAHs help prevent hospital closures and maintain access to critical medical care in rural communities. Without CAHs, rural residents face longer travel times, limited access to primary and urgent care, and greater risk of delayed treatment.
CAHs matter because they fill a rural healthcare gap that can’t be solved by regional hubs alone. They help stabilize local economies and are often the largest employers in their areas. They support care coordination with larger systems, and act as the first point of access when emergencies occur. When a CAH closes, the impact often spreads beyond healthcare, affecting workforce stability, local businesses, and community identity.
The History of Critical Access Hospitals
Before CAHs, many rural facilities struggled under fee-for-service reimbursement models that didn’t account for low patient volumes, workforce shortages, and high fixed costs. The critical access hospital designation was created in the Balanced Budget Act of 1997 after years of widespread rural hospital closures.
This model introduced a structure that better matched rural realities, letting small hospitals focus on essential services while receiving cost-based Medicare reimbursement. Over time, CAHs have become a cornerstone of rural healthcare.
The Balanced Budget Refinement Act of 1999 made important changes to the CAH program, increasing flexibility and addressing issues from the original legislation.
The Medicare, Medicaid, and State Children’s Health Insurance Program (SCHIP) Benefits Improvement and Protection Act of 2000 further refined the program, providing SCHIP benefits and key medicare improvements for rural hospitals.
The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 introduced the Medicare prescription drug benefit, enhanced reimbursement, and expanded bed-size flexibility for CAHs, which increased Medicare payments to CAHs.
And in 2021, the Consolidated Appropriations Act enabled continued funding for rural hospital programs to support their sustainability.
Today, more than 1,350 CAHs operate across the United States, with the highest concentrations in the Midwest, Great Plains, and Mountain West. Some states have few or no CAHs due to geography or population density, while others heavily rely on CAHs to provide access to local care.
What Makes a Hospital a Critical Access Hospital?
The critical access hospital model’s mission is to:
- Deliver essential care services close to home
- Connect patients to higher-acuity resources when needed
The Centers for Medicare and Medicaid Services (CMS) grants the critical access hospital designation to hospitals that meet federal eligibility standards and ongoing CAH Conditions of Participation (CoP). The CoP defines the clinical, operational, and safety requirements a CAH has to maintain to participate in the Medicare program.
To meet critical access hospital requirements, a hospital has to meet core criteria tied to location, bed count, service availability, and patient-care patterns. While full regulatory requirements appear in separate CAH-specific resources, the foundational expectations include:
- Being located in a rural area and typically 35 miles from another hospital (or 15 miles when secondary roads or mountainous terrain prevails)
- Operating no more than 25 inpatient beds
- Offering 24-hour emergency services with physicians, physician assistants, nurse practitioners, and/or clinical nurse specialists on-call
- Maintaining an annual average acute-care stay of 96 hours or less
Many CAHs also choose to offer services that align with rural health needs, such as outpatient rehabilitation, swing-bed programs, and coordination with local primary-care or specialty clinics. Others operate rural health clinics under separate reimbursement structures. CAHs can also operate distinct part units, including rehabilitation and psychiatric units, with up to 10 beds each.
Common services that CAHs offer include:
- Round-the-clock emergency care
- Short-stay inpatient care
- Skilled nursing or swing-bed services; swing bed services let CAHs offer skilled nursing and rehabilitation on site, so patients don’t have to travel to other facilities for transitional care
- Laboratory and imaging services
- Outpatient visits and procedures
- Outpatient drugs, with CAHs participating as a covered entity in the 340B program
Hospitals evaluating digital infrastructure for CAH settings can explore the Azalea Hospital EHR.
How Critical Access Hospitals Are Reimbursed
Reimbursement is the financial foundation of the CAH model. Instead of receiving payment under Medicare’s Prospective Payment System (PPS), CAHs are reimbursed at 101% of their reasonable costs for treating Medicare beneficiaries. This approach creates a more predictable revenue stream, especially in areas where patient volumes are low and payer mixes are challenging.
Cost-based reimbursement helps CAHs keep emergency services open and maintain the staffing necessary for continuous operations. It supports the availability of short-stay inpatient beds even when occupancy rates fluctuate.
While this reimbursement model improves financial stability, it doesn’t eliminate every challenge. CAHs still face shrinking reimbursements (especially with OBBBA impacts), rising labor costs, workforce shortages, and the need for ongoing investments in facilities and technology. Cost-based reimbursement strengthens the financial base, but it doesn’t remove the need for careful planning and resource management.
Why Consider Critical Access Hospital Status?
Hospitals often consider CAH status when traditional reimbursement models no longer support sustainable operations. The designation can stabilize finances, protect essential services, and reduce the financial volatility caused by fluctuating inpatient volumes.
Common reasons administrators explore CAH conversion include:
- Declining inpatient volumes
- Increased operating costs that outpace reimbursement
- Community dependence on local emergency services
- Long travel distances to the nearest alternative hospital
- The need for predictable revenue in low-volume environments
For many rural administrators, CAH status becomes a strategic choice to preserve local access while building a more resilient operational model.
Maintaining CAH Status
To maintain their status, CAHs must have quality assurance arrangements with approved organizations. Programs like the Medicare Beneficiary Quality Improvement Project (MBQIP) provide resources and guidance to help CAHs collect and analyze data, identify areas for improvement, and implement changes that benefit patients. Participation in quality initiatives, such as the Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) survey, lets CAHs measure patient satisfaction and target improvements that matter most to rural communities.
The Flex Program offers funding and support for CAHs to develop and expand quality improvement efforts. By prioritizing quality assurance, critical access hospitals can deliver patient-centered care, meet the unique needs of rural areas, and demonstrate their commitment to continuous improvement.
Other Types of Rural Hospitals and Healthcare Setups
Critical access hospitals are part of a larger rural healthcare landscape. Other designations that help meet rural needs include:
- Rural emergency hospitals (REHs): Facilities focused on emergency and outpatient services without inpatient beds, supported by a monthly preset Medicare payment.
- Federally Qualified Health Centers (FQHCs): Community health centers that offer primary care, behavioral health, and dental services for underserved populations.
- Rural health clinics (RHCs): Clinics that support primary care access in rural communities and receive enhanced reimbursement.
- Traditional acute care hospitals: Facilities offering a broad range of specialty and surgical services, often located in larger towns or regional hubs.
Each model fills different gaps. CAHs remain essential when communities need local emergency access and inpatient care close to home.
Final Word
Critical access hospitals were created to keep essential healthcare services available in rural areas that can’t support full-scale acute care hospitals. They anchor emergency care, stabilize rural access to healthcare, and provide a financial model that’s ideal in areas with low patient volumes.
For administrators evaluating the feasibility of having CAHs in their communities, understanding what a critical access hospital is and how the model supports their specific healthcare services needs is key to arriving at the best decision.
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