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A Rural Health Clinic (RHC) is a clinic located in a rural, medically under-served area in the United Statesmarker that has a separate reimbursement structure from the standard medical office under the Medicare and Medicaid programs. RHCs were established by the Rural Health Clinics Act (P.L. 95-210), (Section 1905 of the Social Security Act). The program was established to address an inadequate supply of physicians serving Medicare beneficiaries and Medicaid recipients in rural areas and to increase the utilization of non-physician practitioners. As of 2003, there were approximately 3,600 RHCs in the U.S.

To encourage the development of RHCs serving rural, under-served communities, Medicare reimburses RHCs based on their reasonable and allowable costs. This is different than most medical providers in the United States, which are paid on a prospective payment system (PPS) under Medicare to lower overall costs. If a RHC is owned by a hospital with fewer than fifty beds, this cost-based payment is without a cap. If, however, the RHC owned by a hospital with more than fifty beds or is considered standalone or freestanding, the cost-based reimbursement is capped. This cap is adjusted annually for inflation and is at about $75 per visit. Medicaid reimbursement for RHCs, after the Benefits Improvement and Protection Act of 2000, is based on a state-specific PPS.

At the time of creation of an RHC, the clinic must be located in an area that has the following characteristics:
  • defined as non-urban by the United States Census Bureau
  • defined as medically under-served by one of the following characteristics:
    • Primary Care Geographic Health Professional Shortage Area (HPSA) under Section 332(a)(1)(A) of the Public Health Service Act (PHS Act);
    • Primary Care Population-Based HPSA under Section 332(a)(1)(B) of the PHS Act;
    • Medically Underserved Area under Section 330(b)(3) of the PHS Act; or
    • Governor-designated and Secretary-certified shortage area under Section 6213(c) of the Omnibus Budget Reconciliation Act of 1989.


Like other medical providers, RHCs must provide certain services in order to qualify for the program. In addition, a RHC must employ a nurse practitioner (NP) or a physician assistant (PA) and have a NP, PA, or certified-nurse midwife available at least 50 percent of the time the RHC operates.

Criticism and proposed regulatory changes

The RHC program was criticized in the 1990s for allowing enhanced reimbursement to remain for RHCs, even if that clinic is no longer in a rural or under-served community. The Government Accountability Office and the HHS Office of the Inspector General both released studies that showed that RHC status was being used by non-rural clinics to retain enhanced reimbursement. Congress changed this in the Balanced Budget Act of 1997 (BBA) by eliminating a grandfather clause for RHCs that had allowed them to retain their status despite no longer qualifying for the program.

The Centers for Medicare and Medicaid Services (CMS) released final regulations more than three years after a proposed rule to implement the BBA requirements eliminating the grandfather clause. Before the rule could take effect, lobbying groups, such as the American Medical Association (AMA), National Rural Health Association (NRHA), American Academy of Family Physicians (AAFP), and the National Association of Rural Health Clinics (NARHC), put pressure on Congress to change the law. Within the Medicare Modernization Act of 2003 (MMA), Congress included a requirement that CMS finalize any rule within three years of releasing a proposed rule to effectively kill the proposed rule.

On June 26, 2008, CMS released a second proposed rule to implement the BBA required elimination of the grandfather clause and to make changes to the RHC and Federally Qualified Health Center (FQHC) conditions of participation. These changes to the conditions of participation included a new quality assessment program, infection control, and changes to the Medicare payment program. Advocacy groups, such as the AMA, NRHA, and NARHC, responded with opposition to the changes in payment.

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