Overview

Critical Access Hospitals were created under the Balanced Budget Act of 1997 to ensure that rural communities would not lose access to essential medical services. These hospitals are designed to be small, flexible facilities that meet the immediate needs of rural patients while staying financially sustainable through Medicare’s cost-based reimbursement system.

Key Characteristics

• Maximum of 25 acute care inpatient beds

• Average patient stay ≤ 96 hours (short-term, not long-term)

• 24/7 emergency department required

• Located more than 35 miles from another hospital (with exceptions for geography and travel conditions)

• Eligible for cost-based Medicare reimbursement (101% of allowable costs)

Benefits

• Keeps healthcare accessible in remote areas

• Strong community ties — often the only hospital within miles

• More predictable financial support from Medicare

• Flexibility to provide swing-bed services (can use beds for skilled nursing when inpatient demand is low)

Limitations

• Small size restricts specialty services

• Heavy dependence on federal reimbursement

• Workforce shortages can be more severe than in urban hospitals

• Infrastructure often older and limited compared to larger facilities

Impact on Communities

CAHs are frequently described as the “lifeblood” of their towns. They not only provide emergency and inpatient care, but often act as employers, community centers, and stabilizers for local economies. Without CAH status, many rural hospitals would have been forced to close decades ago.

Historical Context

• Established in 1997 under the Balanced Budget Act.

• Created to stop the wave of rural hospital closures in the 1980s–90s.

• Intended to give small, low-volume hospitals a financial safety net through cost-based reimbursement.

• Today, there are over 1,300 CAHs operating across the United States.

Quick Facts

• Bed Limit: 25 acute care inpatient beds

• Average Stay: ≤ 96 hours

• Emergency Services: Required 24/7

• Location Rule: ≥ 35 miles from another hospital (exceptions for terrain)

• Medicare Reimbursement: 101% of allowable costs

• Swing Beds: Can convert inpatient beds into skilled nursing beds when demand is low

Community Impact

• Often the largest employer in rural towns.

• Keeps healthcare within reach for communities of <10,000 residents.

• Without CAH status, many of these hospitals would not survive financially.

• Patients can access emergency care minutes away instead of hours.

FAQs

Why do CAHs have a 25-bed cap?

The cap ensures CAHs remain small, community-based facilities while limiting Medicare’s financial exposure.

Can a CAH expand beyond 25 beds?

Not while keeping CAH designation. If expanded, the hospital must convert to PPS reimbursement.

Do CAHs provide specialty care?

Most focus on general inpatient, emergency, and outpatient services. Specialty care is often referred to larger PPS hospitals.

How do swing beds work?

CAHs can use beds for skilled nursing when not needed for acute inpatient care, maximizing flexibility.