Regardless of how federal law affects insurance coverage, rural hospitals may need a legislative boost that incentivizes them to restructure.

March 7—Rural hospitals, which have endured declining margins in recent years, could see the biggest bottom-line hits under the Republican bill introduced this week to repeal and replace the Affordable Care Act (ACA).

“I don’t think the plan will be friendly to rural hospitals,” said Michael Topchik, national leader, Chartis Center for Rural Health.

Among the provisions that Topchik worries could especially hurt rural hospitals are those that would change Medicaid policy.

The bill, called the American Health Care Act (AHCA), ends the ACA’s enhanced federal match for Medicaid coverage on Dec. 31, 2019; gives states that have not expanded Medicaid until that time to do so; and bars adding new expansion-population enrollees after that date. The enhanced matching rate would continue to apply to those who maintain coverage after 2019 unless they have a coverage gap of greater than 30 days.

The bill would start to shift Medicaid in 2020 from an open-ended entitlement with no limits on federal matching to per capita federal funding based on a weighted average of the program’s four eligibility categories.

Topchik expected most of the 31 states that expanded Medicaid eligibility to maintain the expansion and for some of the 19 non-expansion states “to pile on board now that they have political cover.” But since the bill would freeze the total federal funding amount, the available funding would effectively shrink over time through inflation.

“Provisions that lead to losses of coverage—both public and private—have big consequences for providers, including hospitals, and to the extent that they are under more financial strain, then the impact is greater,” said Julia Paradise, associate director for the Program on Medicaid and the Uninsured at the Kaiser Family Foundation.

Another aspect of the AHCA that could hamper rural hospitals is the expected reduction in the number of low-income people covered by subsidized individual-insurance policies. That could be the result of jettisoning both the individual mandate and premium and cost-sharing subsidies. The AHCA replaces those with a 30 percent surcharge that takes effect if coverage is not maintained and advanceable age-based tax credits.

“You’re going to see less people with coverage as a result,” Topchik said in an interview. “And that’ll put pressure on rural providers that have to take care of people without healthcare coverage.”

Topchik did not expect the surcharge to spur rural populations to maintain coverage because many people in those areas are indigent, and poorer populations historically have sought charity care.

“They don’t have coverage and only go and get medical care when they have to go the emergency room; that’s expensive for hospitals,” Topchik said.

The bill’s provisions are not all bad news for rural hospitals. It proposes to reverse ACA cuts to disproportionate share hospital (DSH) payments for facilities that serve greater numbers of older, sicker, and poorer patients—as rural hospitals tend to do. Specifically, AHCA reduces planned ACA DSH cuts from $8 billion to $3 billion annually and exempts non-expansion states from even those more limited DSH cuts.

“That’s going to be helpful,” Topchik said. “That’s a funding stream that has helped rural hospitals.”

Bad Trends

The bill’s potential impacts come on top of a deteriorating financial situation for rural hospitals.

Even with the recent influx of federal funding, the share of rural hospitals with negative operating margins has increased from 35 percent four years ago to 41 percent in 2016, according to an analysis by iVantage Health Analytics. On a related note, 80 rural hospitals have closed since the ACA was enacted in 2010, according to an analysis by the Sheps Center at the University of North Carolina.

Federal legislators from across the political spectrum have acknowledged that the financial picture for rural hospitals has continued to deteriorate under the ACA.

“That is the challenge in front of us; how do we ask you to treat anyone who darkens your door but yet expect it to be paid for with magical fairy dust sprinkled somehow in your financial office,” Sen. Claire McCaskill (D-Mo.) said this week at a Washington, D.C., meeting of the Federation of American Hospitals (FAH).

Republicans highlighted such trends in calling for the passage of the AHCA.

“We know that under the status quo there will be more and more rural-hospital closures if nothing is done,” Sen. Cory Gardner (R-Colo.) said at the FAH meeting.

That erosion has stemmed from the convergence of multiple factors, such as demographic and economic trends that have left rural hospitals with older and sicker populations more dependent on public insurance. For instance, the average rural hospital’s payer mix is 61 percent government payers, which leaves those hospitals especially vulnerable to reductions in Medicare and Medicaid payments, Topchik said.

A 2016 KFF analysis of three rural hospital closures during the previous year found that hospital officials viewed the ACA’s Medicaid expansion as having the potential to increase revenue, but “it is only one of many factors that impact hospitals’ financial sustainability.”

Follow-up Fixes

Rural hospitals’ financial picture could improve if Congress follows the AHCA with legislation that rolls back previous cuts, sets higher payment rates, and incentivizes rural hospitals to focus on more-profitable care.

The KFF research indicated that “larger restructuring and reorganizing of the healthcare delivery system in rural areas is a pressing need,” Paradise said in an interview.

Such approaches could include the Rural Emergency Hospital Act, which Gardner told hospital executives he plans to introduce and which would provide payments at 110 percent of reasonable costs to rural hospitals in exchange for offering a 24-hour emergency department and outpatient care. The bill would eliminate many costly federal hospital rules tied to inpatient care.

“Let’s make sure we maintain a hospital in a rural area that is open instead of maintaining an expensive model where the hospital would otherwise close and we no longer have that hospital available at all in rural America,” Gardner said.

Topchik said his organization’s analyses of such bills have found they would improve the finances for most of the 41 percent of rural hospitals with negative margins. He also expected such legislation to have a good outlook for passage given that both parties acknowledge the plight of rural providers.

Rich Daly is a senior writer/editor in HFMA’s Washington, D.C., office. Follow Rich on Twitter: @rdalyhealthcare

Publication Date: Tuesday, March 07, 2017