Critical access hospitals are the most common service model in rural areas due to current regulations and available payment, according to the report.


Jan. 17—New policies and legislation are needed to financially bolster critical access hospitals (CAHs), even as some such organizations may need to be downsized, according to a bipartisan report.

The Bipartisan Policy Center (BPC) and the Center for Outcomes Research and Education (CORE) this week issued a report on the financial health of rural CAHs and other rural healthcare providers, identifying a range of financial challenges and potential solutions.

The report, based on conversations with 90 industry leaders and stakeholders in Iowa, Minnesota, Montana, Nebraska, North Dakota, South Dakota, and Wyoming, found that healthcare delivery is a distinct undertaking in rural areas compared with other parts of the country.

“This distinction tends to go unacknowledged in health policy, which often puts rural areas at a disadvantage,” the report stated.

The report identified four issues affecting rural providers that most require policy attention:

  • Generating opportunities for rural communities to define their own needs and service sets
  • Creating funding mechanisms that account for rural realities and allow for innovation
  • Optimizing the full array of healthcare professionals to support a more sustainable and diverse workforce
  • Providing healthcare professionals with the tools and technology for success

Making Value Models Work

Federal payment changes have had a disproportionate impact on rural hospitals, with some survey participants estimating that 80 percent of rural hospital payments come from Medicare and Medicaid. That means cuts in those programs—such as those that recently were implemented for Medicaid disproportionate share hospital payments—particularly affect the country’s 1,341 CAHs, which are the most common service model in rural areas.

The Affordable Care Act’s (ACA’s) Medicaid expansion helped prevent some CAHs from closing by reducing their bad debt, but representatives of CAHs in non-expansion states reported “significant problems” from high rates of unpaid care.

To improve CAH participation in Medicare value-based models, the authors urged the creation of rural-specific metrics or the provision of some protection against downside risk in those models.

Another improvement would be the creation of “innovative payment models” that take into account CAHs’ smaller patient populations. Many CAHs were unable to participate in many Medicare models because they lacked the minimum number of patients required to participate.

Heidi Duncan, MD, physician director of health policy for the Billings Clinic, said her organization had to withdraw from a Medicare bundled payment program after a few outlier cases undercut its overall performance.

“We need to be creative about how can we do programs like these in areas with low volumes,” Duncan said.

Keith Mueller, PhD, interim dean at the University of Iowa College of Public Health, said the Medicare Shared Savings Program (MSSP) accountable care organizations (ACOs) have garnered wide acceptance in rural areas. In 2018, 421 CAHs will participate in MSSP ACOs, according to a Medicare report. However, he noted that many of those are in Track 1, which carries only upside risk.

“So it is not yet a full risk-bearing model,” Mueller said.

Additionally, Medicare’s cost-based payment approach for CAHs can prevent hospitals from investing in population health programs, which are not reimbursable and can decrease patient volumes, the report’s authors noted.

Potential solutions include draft legislation backed by the National Rural Health Association, which would create an entry point into value-based care models for CAHs. Such hospitals that voluntarily participate would receive a 2 percent increase in Medicare pay for submitting quality data. The additional pay aims to prepare CAHs to join an ACO within five years.

One possible model for CAH value-based purchasing, according to the authors, is the Pennsylvania Rural Health Model, which was launched in 2017 to create global budgets and community-specific transformation plans. Hospital officials, however, cautioned that Pennsylvania’s experience should be carefully evaluated since its impacts are still unclear.

The small overall programmatic savings that are available from bundles and ACOs will have little effect on bending the healthcare cost curve, Mueller said.

“We really need to be looking at the total package of expenditures, so models like global budgets begin to make more sense,” he said.

Seema Verma, administrator of the Centers for Medicare & Medicaid Services (CMS), said this week that she has begun having every new CMS policy examined based on its expected impact on rural providers.

“I understand that they might just need more time, or more technical assistance around implementation, or some things may not make sense in a rural area,” Verma said.

However, she noted that federal law limits the amount of rural “flexibility” CMS can offer.

Beyond CAHs

The report also concluded that not every rural community needs a CAH. Instead, rural communities need to examine current and future healthcare needs and “right-size their local delivery systems.”

Phasing out CAHs would significantly change federal policy, which in 1997 authorized payment of inpatient and outpatient services on a “reasonable cost basis” for hospitals designated as CAHs.

CAHs are the most common service model in rural areas due to current regulations and available payment, the authors noted.

“Participants in this project struggled to reconcile their opinions that CAHs are no longer the most efficient way of delivering care in rural areas with concerns that closing the hospitals would still create access issues for communities and would have a negative effect on local economies,” the report stated.

However, rural provider representatives who were interviewed generally agreed that a full-service hospital may not be appropriate for every community. Instead, other approaches may be needed to maintain vital emergency services.

Some rural hospital officials said they would welcome, rather than resist, the opportunity to shift their service set, according to the report.

Among legislation that would encourage such a shift is the Rural Emergency Acute Care Hospital (REACH) Act, which would allow CAHs and prospective payment system hospitals with 50 or fewer beds to convert their classification to rural emergency hospitals (REHs) and continue providing necessary emergency and observation services. REHs would receive an enhanced Medicare payment rate of 110 percent of reasonable costs. The REACH Act also provides enhanced pay rates for the transportation, when appropriate, of patients to acute care hospitals in neighboring communities.

The bipartisan legislation has drawn the support of the American Hospital Association, although the organization has sought changes.


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

Publication Date: Wednesday, January 17, 2018