Two Rural Hospital Funds May Dry Up

Two sets of payments that are part of a patchwork of funding that make it possible for hospitals to operate in small communities are set to expire at the end of September. 

One is the Medicare Dependent Hospital Program. It funds rural hospitals that have 100 or fewer beds and where 60% or more of inpatient days or discharges are paid for by Medicare. The hospitals receive the prospective payment system reimbursement, plus half of the amount that Medicare costs for care exceeds the PPS rate. 

The Low-Volume Adjustment is the other funding source. The Centers for Medicare and Medicaid Services provide additional payments to hospitals with a low number of discharges. These hospitals have fewer than 200 discharges per year and are 25 miles from another hospital. 

The funding sources have different impact in various communities. Wisconsin has 15 affected hospitals that could lose nearly $13 million in funding from the cuts. 

In South Dakota, which is predominantly rural, most of the state’s 52 hospitals are critical access and ineligible for the funding. None receive excess Medicare payments and only two receive low-volume payments; they would lose a total of $1 million. 

“Their margins are tight and every time even some dollars go away, they have to find a way to replace them or make cuts,” said Dave Hewitt, president of South Dakota Association of Healthcare Organizations. “$1 million to two hospitals equals 10 physicians.”

The North Carolina Rural Health Research & Policy Analysis Center at UNC-Chapel Hill recently compared MDH hospitals with ones that don’t qualify to get an idea of how they compare. Qualifying hospitals, on average, have higher portions of Medicare patients than traditional hospitals, fewer beds, less utilization, and live in communities with smaller populations, and more seniors. 

These hospitals are too big to be critical access (no more than 25 beds) but have 50-80 beds and are located in communities of 15,000 to 25,000 people – what Hewitt calls “tweener hospitals.” Many don’t perform services like surgery or have birthing units, but they provide needed emergency or inpatient services for people in rural communities. 

The reason the prospective payment system doesn’t work for these hospitals is because it is based on efficiency and volume. It was created with larger, urban trauma centers in mind, said John Eich, director of the Wisconsin Office of Rural Health. 

The adjustments were created in the 1980s in response to a wave of rural hospitals closing, according to Eich. The extra funding was created to “stop that bleed,” he said.

The patchwork of extra payments combine to create a workable funding source, he said. 

“It’s the adjustments to this legislation that makes it work in different scenarios,” Eich said. “In rural areas, we have a similar capital outlay with lower patient volume to pay for it. If you want to have a safety net in rural areas, you have to fund it differently.”

Benefits of rural care

As the Affordable Care Act progresses, there is a movement toward higher quality, less expensive care with an increase in the use of primary care. All of these seem to be encompassed in rural healthcare’s current model. 

Eich said rural care is based on primary care. Not wholly by choice – because of distance from and access to specialists, primary care physicians often do the yeoman’s share of care instead of referring to specialists. This avoids the fees specialists charge and reduces the price spent on care.

“The cost of care for a rural Medicare resident across the country is 3% less than in urban areas,” he said. “In Wisconsin, is it 7% less. We are more of a medical home model, which is what everyone else is getting to.”

IVantage, a health analytics provider, released a report in June examining rural healthcare. The organization found that Medicare costs per beneficiary were 3.7% lower in 2010 than in urban areas. It estimated that $9.4 billion could be saved annually for Medicare if urban patients received the same treatment provided in rural areas. 

The benefits are not restricted to cost, either. The report found that rural hospitals have better HCAHPS scores than their urban counterparts. Also, emergency room wait times are shorter and patients spend less total time in the ED in rural hospitals. 

Politics

U.S. Sens. Charles Schumer, D-N.Y., and Charles Grassley, R-Iowa, have made an effort to extend the payments for a year through the Rural Hospital Access Act. 

Hewitt said support for all rural issues tends to be found in the Senate, where representation is based on “geography, and not the number of people.” That is where these states have a greater voice. 

But Eich worries that support for rural providers is waning in Wisconsin. During the previous round of elections, he said the state “lost a bunch of moderates,” who tend to understand that some expenses are necessary to keep rural providers running. 

“The bill (by Schumer and Grassley) is asking for an extension, and a year from now, who knows what healthcare is going to look like,” he said. “A year is enough; we just need to make sure we still have the same hospitals around to be experimenting within a year.”