A federal program meant to help rural hospitals is broke, and the government needs to fix it, the Inspector General of the Department of Health and Human Services said Thursday.

The Critical Access Hospital program was created to financially help hospitals in rural areas by reimbursing them at high rates. CAHs receive 101 percent of their "reasonable costs" for most services they provide, the IG reported.

There are currently 1,329 CAHs around the country.

Some of the requirements to get into the CAH program include having 25 or fewer beds and being at least 35 miles from another hospital — otherwise known as the "distance requirement." However, in 2006, states could ignore the "distance requirement" and begin to label any hospital as a "necessary provider," regardless of location to a community or other facility.

The IG found that 849 — or nearly 64 percent — of the CAHs do not meet the location requirements to be in the program and reenroll in Medicare.

If the Center for Medicare Services decertified some CAHs in 2011, the IG said $860,000 per hospital could have been saved.

"For example, if CMS had decertified all CAHs located 15 or fewer miles from their nearest hospitals or other CAHs, Medicare could have saved an estimated $268 million in 2011. Additionally, if CMS had decertified half of all CAHs that would not meet the location requirements, Medicare could have saved an estimated $373 million in 2011," according to the report.

Medicare beneficiaries pay an extra $485,000 extra in coinsurance per wrongly classified CAH, the report found.

The IG's office recommended Medicare revaluate the hospitals in the program to ensure all labeled as CAHs are "those that continue to serve beneficiaries who would otherwise be unable to reasonably access hospital services."