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Abstract

This study used a stochastic frontier cost model to analyze whether the policy changes that created Critical Access Hospitals (CAHs) caused an increase in the cost inefficiency of these hospitals or their cost inefficiency was brought about by other factors that were similar to all rural hospitals. The estimated mean cost inefficiency of CAH was 25 percent while that of non-CAH rural hospitals was 17.6 percent. However, the estimated results did not provide sufficient evidence to conclude that Medicare cost-based reimbursement was the main cause of higher cost inefficiency of CAHs. There might be other causes that can explain the higher cost inefficiency of CAHs such as the larger number of Medicaid and uninsured patients and the higher levels of uncompensated care that CAHs provide.

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