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October 13, 2014 - Kim Moore [see other posts]

Reality Still Exists? Facts or Fiction About the ACA

Rural Health Care: Whither Thou Goest...

Recently I attended the National Rural Health Association's conference on Rural Health Clinics (RHCs) and Critical Access Hospitals (CAHs). From our work in rural health systems, I was vaguely familiar with these terms and their fundamental meanings. In case you aren't, let me first explain that these are simply payment designations for Medicare and Medicaid. With these designations, the providers (small hospitals and physician groups, respectively) receive "cost-based reimbursement" proportional with their Medicare/Medicaid volume instead of fee for service. My rural friends will want me to let you know that they don't really get reimbursed their costs (what they spend). There are numerous reductions and limitations on the cost-based reimbursement, but it still must be viewed as more generous than fee for service when provided in these low volume--limited number of patients and visits--situations. This CAH/RHC payment structure is why we still have hospitals and physicians in much of frontier and decidedly rural Kansas and America. Fifty-eight percent of Kansas hospitals are CAHs (76 in number).

In spite of this more generous reimbursement, rural health care is under stress in much of America and Kansas. NRHA spokespersons summarized the problem with some dismal nationwide financial statistics. 283 CAHs are vulnerable to closure now, before new tightenings in Medicare reimbursement. Forty-one percent of CAHs operate at a financial loss, and overall CAHs have an average 0.7% operating margin. Twenty-seven rural hospitals closed in the last 19 months.

The Office of Inspector General of HHS (Health and Human Services) issued a report in 2013 finding that:

"Nearly two-thirds of CAHs would not meet the location requirements if required to re-enroll. The vast majority of these CAHs would not meet the distance requirement [currently limitations in the law which states could avoid with their own designations]. CMS does not have the authority to decertify most of these CAHs, as most of these CAHs are NP CAHs [necessary provider]. However, if CMS were authorized to reassess whether all CAHs shoudl maintain their certifications and concluded that some should be decertified, Medicare and beneficiaries could realize substantial savings. If CMS had decertified CAHs that were 15 or fewer miles from their nearest hospitals in 2011, Medicare and beneficiaries would have saved $449 million."

This has sparked several proposals (at least discussions) of eliminating CAH designations for hospitals within 10 or 25 miles of each other in spite of prior state designations.

The reimbursement method itself contains implicit problems for modernizing the rural health care landscape. While there is a big push for accountable care, coordinated care, integrated care, etc., the "cost report" (vehicle for determining what Medicare will pay under CAH and RHC cost-based reimbursement) penalizes those providers when they deliver non-Medicare functions. Hospital overhead costs for administration and facilities have to be allocated away from Medicare reimbursement to these functions. For example, a Kansas study1 found that two representative Kansas CAHs operating dental clinics (as is permitted by recent Kansas statutory changes) would not only have the costs of equipment and personnel, and risk of operating loss, but would also have to take reductions of $41-42,000 annually on Medicare reimbursement due to overhead allocation. Similar problems occur when a CAH manages and houses the local health department or operates a local wellness center.

For communities deciding that the maintenance of a hospital is too expensive or of limited benefit to the health of its population, there is no federal, state or private reimbursement system for operation of a free-standing Emergency Room. All observers agree that accessible, high-quality ER services and EMS are essential for the health and viability of rural areas. Yet, an ER is not financially supportable outside a "hospital."

The Kansas Rural Health System Improvement Pilot Project began in November 2013 and is moving toward implementing some community-based, data-driven ideas for improvement of rural health care at its four sites (Cheyenne County, Ashland/Minneola Hospital Districts, Kearny County and Phillips, Smith, and Osborne Counties). We look forward to what can be learned through these efforts. To maintain and improve rural health care delivery, it will take larger and better-funded efforts to test reimbursement and operational models other than the CAH and RHC. We expect new models to be proposed by NRHA and the Kansas Hospital Association in coming months. Protecting and preserving what is in place appears to be a very time-limited strategy. Rural health providers will need cooperation from government, insurers, philanthropy, state hospital associations and medical societies and other key players to revitalize the rural health structures necessary for the 21st century. They will also need all the flexibility, pluck and vision they can muster because the task will not be easy. Wither thou goest...we plan at the Health Ministry Fund to travel with them.

1 Implementing Hospital-Based Dental Services in Rural and Underserved Kansas Communities, Kansas Hospital Education and Research Foundation, February 2013.