RWHC-Index of Related Papers & Presentations

Opinions-Commentary: The way to pay for rural care

by Tim Size in Modern Healthcare, August 5th, 2002

There are hundreds of small and rural hospitals across the country that are ``too busy'' to be eligible for the critical-access hospital program but not busy enough for the fixed-cost assumptions inherent in the prospective payment system. Many of these hospitals don't have Medicare-dependent hospital or sole community hospital status and of those that do, many don't receive significant assistance. As a group, small rural hospitals are heavily Medicare-dependent with negative Medicare margins and meager or nonexistent operating margins.

This is why we need to create a new payment classification for rural community hospitals with 50 or fewer beds, enhance the critical-access hospital program and protect the core infrastructure of rural healthcare in America. Legislation to do just that, the Rural Community Hospital Assistance Act, is being sponsored in the House by U.S. Reps. Jerry Moran (R-Kan.) and Jim Turner (D-Texas) and in the Senate by Sens. Frank Murkowski (R-Alaska) and Paul Wellstone (D-Minn.). I worked with a joint task force of the American Hospital Association, the National Rural Health Association and the Texas Organization of Rural Community Hospitals that developed the plan.

As written, the bills would not undermine or contradict the public policy inherent in the Medicare PPS. Rural hospitals, on average, are paid 9.6% less than their reasonable costs (as defined by Medicare) for providing services to Medicare beneficiaries. Rural hospitals with 50 or fewer beds that are not eligible for an existing supplemental payment are reimbursed at 14.2% less than their reasonable costs, according to the Medicare Payment Advisory Commission. In 1999, 54.5% of these hospitals had a negative inpatient Medicare margin; almost all lost money on their outpatient services, according to MedPAC.

Fixing this situation won't break the bank. Rural hospitals with 50 beds or fewer account for about 2% of inpatient PPS payments and presumably roughly the same share of all Medicare payments. Saying that Medicare simply doesn't work for the communities served by these hospitals is not a threat to the overall PPS.

Under the plan small rural community hospitals not eligible for critical-access designation would get cost-based reimbursement for inpatient and outpatient services plus a technology and infrastructure add-on; cost-based reimbursement for home health services where the provider is isolated; cost-based reimbursement for ambulance services; and the restoration of 100% of Medicare bad-debt payments. Meanwhile, critical-access hospitals would enhance their reimbursement through an add-on payment for infrastructure and technology improvement and cost-based reimbursement for additional post-acute-care services, including skilled-nursing, home health and geriatric psychiatric services (10 or fewer beds).

Some have argued against this initiative based upon a Darwinian notion of the ``survival of the fittest''-that any assistance to rural hospitals inappropriately rewards inefficiency. Although these same commentators seldom note other longstanding urban-based Medicare subsidies that dwarf what rural communities are asking for, their arguments are worth further discussion.

When critics of the plan use the word inefficient, I assume they are talking about hospitals not producing the results that other, comparable facilities are achieving. But small rural hospitals, on average, are losing money on Medicare, which means it must be the payment system, not inefficiency, that is the issue.

There are also concerns that without prospective payment, rural hospitals will be able to be repaid for clearly inappropriate expenditures. However, in other federal reimbursement schemes there are mechanisms for holding the line on spending, such as policing ``reasonable and allowable'' expenses. There is no reason to expect that it would be any different for a relatively small group of rural hospitals that would qualify for the new payment classification.

Finally, if a hospital receives cost-based reimbursement from Medicare it still has to operate in a community where much of its revenue from other payers is not ``cost-based.'' This provides an ongoing major external incentive to keep rural community hospitals mindful of costs.

Medicare beneficiaries, like everyone else with health insurance, benefit only when they can access services. To be useful, services that are covered as insured benefits must be accessible, which means close enough that the beneficiary and his or her family can reach the facility quickly and conveniently. For rural hospitals to be able to offer essential services to Medicare beneficiaries when they need them, they must be viable financially.

In most of America, healthcare for Medicare beneficiaries is paid for by the federal government and the beneficiaries themselves. In rural America there is a third payer-the ``hidden tax'' of the cost shift to the private sector and private insurers. As Medicare reimbursement for rural hospitals has declined but costs have not, private coverage has been asked to make up the difference. But employers are no longer willing or able to increase their healthcare costs, and are asking workers to take on more of the costs. Something has to give, and in many cases that means rural hospitals don't survive.

In a time when providers as a whole are asking for billions of dollars in Medicare payment relief, it is worth noting that the Rural Community Hospital Assistance Act would cost less than $500 million per year, about one half of 1% of annual Medicare expenditures.

That's a good price to ensure stable health services for America's rural communities.