Strategic Partnerships Mergers and Acquisitions

For rural hospitals, affiliations with large health systems can be a mixed bag

March 12, 2021 10:08 pm
  • Significant declines in inpatient admissions among rural hospitals may be a consequence of affiliations with health systems.
  • Medicare beneficiaries in rural areas can find out-of-market options for some services, but policies are needed to address the void of emergency care that can result from closures.
  • Risk adjustment is not viable when seeking to assess utilization among beneficiaries in rural areas compared with urban areas.

The volume reductions that some rural hospitals have experienced for years stem in part from affiliations with larger health systems, according to insights from a recent Medicare policy meeting.

Examining rural hospital closures over a decade-long period, analysts with the Medicare Payment Advisory Commission (MedPAC) found large declines in inpatient admissions at those hospitals in the years before they closed. Decreases were 53% across payers and 61% in Medicare fee-for-service.

“Most of the decline in admissions was due to beneficiaries bypassing their local hospital for inpatient care,” MedPAC senior analyst Brian O’Donnell said during a presentation at the commission’s March meeting. “This finding was consistently echoed in our conversations with stakeholders from rural communities that recently experienced a hospital closure.”

Brian DeBusk, PhD, a MedPAC commissioner and the CEO of DeRoyal Industries, said patients are more likely to bypass their local hospital when it is part of a larger system.

“Did affiliation help the hospital, or did it actually accelerate the bypassing of the hospital?” DeBusk said. “I think these affiliations are very well-intended, and in some cases, they are absolutely necessary.

“But just empirically, my observations are that it seems to actually accelerate the hollowing out of the hospital and the bypassing, just because those services are seen as attractive or lucrative or that they have the staffing  in the urban area to perhaps do those services better.”

The issue is linked to workforce concerns. DeBusk and other commission members said Congress should examine whether policies can be implemented to ensure sufficient staffing in regions that are more remote.

The geographic distribution of physicians is “terribly out of balance,” DeBusk said. “Are we producing physicians in the correct proportion to meet rural and urban needs? If no, I think we should ask ‘Why?’ because Medicare is paying the vast majority of these medical education bills.”

Access-related issues for rural areas

The discussion took place as MedPAC prepares to release an interim report in June on the issue of care access for rural Medicare beneficiaries. The report is being developed at the request of the House Ways and Means Committee.

Rural beneficiaries do not report significant differences in delaying or forgoing care compared with urban beneficiaries, according to 2018 survey results presented during the discussion. However, they may have more difficulty getting to specialty care or find that care is less available on nights and weekends.

Variances in utilization between rural and urban beneficiaries are not as significant as differences across states, MedPAC analysts reported. In 2018, inpatient use was similar among rural and urban beneficiaries, while rural beneficiaries had higher outpatient use on a per capita basis.

A bigger difference was seen in E&M encounters, for which utilization was lower in rural areas. The disparity was driven mostly by fewer encounters with specialist physicians.

In the most remote rural areas (i.e., designated frontier regions), the median distance between a beneficiary’s residence and the site of specialty care is 58 miles, according to the presentation. That compares with nine miles for urban beneficiaries and 26 miles for designated micropolitan rural areas.

The disparity in distance to primary care is much less significant: seven miles for urban beneficiaries, nine for rural micropolitan areas and 13 for frontier areas.

“I think there are many services where it is probably appropriate and reasonable that folks are traveling longer distances,” said Jaewon Ryu, MD, JD, a commission member and the president and CEO of Geisinger. “Transplants might be a great example.”

New category of hospital may fill some gaps

While there was a significant drop-off in inpatient activity at rural hospitals that eventually closed, outpatient care at those hospitals declined only slightly and emergency department (ED) volumes increased leading up to the closure. Those trends suggest that the closures left a void of emergency services.

However, compared with inpatient care, outpatient visits can shift more easily to other settings. For example, from 2014 to 2018, E&M encounters increased notably more at federally qualified health centers and physician offices in rural markets with a closure than in other rural areas.

A recent policy initiative may help address the potential vacuum of ED care in rural markets in which a hospital closed. The Consolidated Appropriations Act of 2021 created a new category of hospital, known as rural emergency hospitals (REHs), that will be implemented in 2023. These hospitals will not furnish inpatient services and must maintain a 24/7 ED.

REHs will receive a monthly payment to cover fixed costs and a 5% add-on payment for all services paid through the Outpatient Prospective Payment System.

“Rural beneficiaries have increasingly bypassed their local hospitals for inpatient care but continued to rely on them for ED and outpatient care,” O’Donnell said. “In that sense, the new REH designation adapts the Medicare program to changes that have already been occurring in the private market for many years and may allow rural hospitals to eliminate low-volume inpatient units while still meeting the needs of their communities.”

Risk adjustment processes need improvement

Risk adjustment is tricky to incorporate when comparing healthcare utilization among beneficiaries in different types of markets, analysts said. For example, among surveyed beneficiaries, a higher share of rural residents reported that their health was “fair” or “poor,” and life expectancy is slightly lower for rural beneficiaries. Yet based on claims data, they have lower risk scores than urban beneficiaries.

“This discrepancy leads us to believe that risk-adjusting our beneficiary utilization [rates] using comorbidities from claims or risk scores could produce misleading results that suggest rural beneficiaries are less in need of care,” said MedPAC research assistant Carolyn San Soucie.

For some commission members, that issue signals a need to improve Medicare coding more broadly.

“There are beneficiaries, disproportionately in rural areas, who have clinical conditions, who have medical complexity, that the program isn’t even aware of from a macro level,” DeBusk said. “When we talk about population health and when we talk about some of the things that we want to do at a macro level in Medicare, I don’t see how we get that done if don’t even know the conditions that are there.” 


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