A proposed bill would cut $1.2 billion annually from critical access hospitals.


Nov. 22—Legislation intended to support rural hospitals actually would cut Medicare payments and accelerate the closings of rural hospitals, rural health experts predict.

At least 82 rural hospitals have closed since the 2010 passage of the Affordable Care Act (ACA), according to the North Carolina Rural Health Research and Policy Analysis Center at the University of North Carolina. Additionally, 38  percent of rural hospitals reported negative total margins in 2016, according to a recent Medicare data analysis by the center.

The bill proposed by Rep. Kevin Brady, chairman of the Ways and Means Committee (R-Texas), would extend several Medicare payment provisions sought by rural hospitals. But rural hospitals’ advocates object to the bill’s spending offset, which would cut swing bed payments—a widely used program on which numerous critical access hospitals (CAHs) depend. And the current House and Senate versions of tax reform legislation also could sock rural hospitals with sequestration-required payment cuts.

The bill would extend the Medicare Dependent Hospital Program, the Low-Volume Adjustment Program, and payments for rural ambulance service and home health services, which are “key aspects of rural health care,” said Lori Wink, a healthcare attorney for Hall Render, Wisconsin, who represents rural hospitals.

“At least for now, CMS [the Centers for Medicare & Medicaid Services] and other agencies have not made the strong push for reducing the number of CAHs, as they have in past years,” Wink said in an interview.

Thomas Nickels, executive vice president of the American Hospital Association (AHA), said in an emailed statement that the association strongly opposes any cuts to CAHs to pay for the Medicare extensions.

“CAHs are often the only source of health care in their communities and swing bed services allow seniors to stay close to home to receive care, rather than being transferred to another facility,” Nickels said. “This is the time when Congress should be looking to stabilize access to care, rather than reducing payments for critical healthcare services in our most vulnerable rural communities.”

Rural Trends

George Pink, professor of health policy at UNC Chapel Hill and the deputy director of the NC Rural Health Research Program, said recent data analysis paints a challenging financial picture ahead for rural hospitals.

Most of the rural hospitals closing are located in Southern states, most of which did not accept Medicaid expansion under the ACA, Pink said.

“There are many different factors at play,” Pink said in an interview. “Many rural hospitals in the South have been unprofitable for many years before the ACA. The lack of Medicaid expansion could be a contributing factor, but I’m reluctant to say it caused it. The South on average has sicker, older, and poorer residents than other regions. Payer rates are lower and their reliance on Medicare and Medicaid is higher. Levels of uninsured and underinsured also are higher in the South.”

The closed rural hospitals Pink has studied shuttered their doors for many reasons, including market factors (declining population, high unemployment, and high levels of uninsured and underinsured patients), facility problems (such as difficulty obtaining emergency specialty care like OB/GYN, low patient census, and deteriorating physical plant), and financial factors (such as high levels of bad debt and historic low profit margins).

“Some closures are inevitable because population shrinkage makes it unsustainable to support a hospital,” Pink said.

Swing bed payments are extremely important to CAH hospitals, Pink said.

“Any proposal that would substantially reduce swing bed reimbursements will not be good for rural hospitals and could accelerate the rate of closures,” Pink said.

Maggie Elehwany, vice president of Government Affairs and Policy for the National Rural Health Association (NRHA), said even as rural hospitals are closing or losing money, Congress has imposed a series of cuts on CAHs.

“It’s good that they’re extending these Medicare provisions,” Elehwany said in an interview. “But by eliminating the swing bed payments, they’re robbing Peter to pay Paul.”

Driving the Bill

In 2015, the U.S. Department of Health and Human Services’ Office of Inspector General (OIG) issued a report suggesting that Congress could save billions of dollars by reducing swing bed payments if Medicare used the skilled nursing facility (SNF) prospective payment system instead of the current cost-based reimbursement.

“Rural health researchers found fatal flaws in the OIG methodology, but this is what’s driving the Brady bill’s reduction of swing bed payments,” she said.

Researchers from the NC Rural Health Research Program concluded in an analysis that “the OIG has made methodological choices that resulted in errors, and therefore, the conclusions and policy recommendations are suspect.”

Elehwany said the bill would reduce swing bed payments to CAHs by 1 percent. 

“Such a cut may sound minor, but will still result in millions of dollars in cuts and will trigger a reduction in Medicare Advantage private insurers payments as well,” she said. 

Rural hospitals also worry about the proposed tax reform bills, which, as now written by both the House and the Senate, will increase the federal debt without revenue to offset those cuts.

“That will trigger increases in current sequestration calling for an additional $25 billion in Medicare cuts, which would be devastating to CAH hospitals,” she said.

Average Impact

Michael Topchik, National Leader for the Chartis Center for Rural Health, said a Chartis analysis found the reduction of swing bed payments could cost 1,330 CAH hospitals $1.2 billion annually.

“That’s nearly a $1 million average loss among hospitals whose operating margins average around zero,” Topchik said in an interview.

He pointed out that the Chartis research was formulated based on previous OIG recommendations that may not be reflective of the current pending legislation.

 “What we’re seeing is death by a thousand cuts and this [bill] would inflict a significant body wound if it were to happen and would really jeopardize rural health,” Topchik said.

In response to the cuts, Topchik predicted rural hospitals would likely consolidate, affiliate with larger health systems, cut services, or close.

David Pearson, president and CEO of the Texas Organization of Rural & Community Hospitals (TORCH), said 13 rural Texas hospitals have closed in recent years.

“We are hypersensitive to these payment changes,” Pearson said in an interview. “It’s really unfortunate when a rural community loses its hospital. Rural hospitals are pillars of the community, along with schools and churches. When one closes, it removes some high-paying jobs and an economic driver from the area. Healthcare providers often leave and practice elsewhere. They pull their children out of school. And it becomes more difficult for those communities to recruit new businesses because manufacturers and other employers look at local hospitals before locating plants there. It can start a downward spiral for that community.”

Pearson said the value of the swing bed payment far exceeds the value of the Low Volume and Medicare Dependent Hospital reimbursements and comprise half of his members’ total Medicare payments.

“Our members are reliant on all of these [payments] for sustaining daily operations,” he said.


Mark Taylor is a freelance writer based in Chicago. 

Publication Date: Wednesday, November 22, 2017