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CAH Status Challenge Must Consider Access

 |  By John Commins  
   August 21, 2013

A recommendation to strip critical access designation from any hospital that was given that status under a state "necessary provider" designation lacks consideration for the role of critical access hospitals in the rural healthcare safety net.

As alarming as it may have been, the federal government's call last week to review the special funding status of hundreds of critical access hospitals across the nation should not have surprised anyone paying attention.

Last year, for example, at the 25th Annual Rural Health Care Leadership Conference, James E. Orlikoff with the Center for Healthcare Governance told a hotel ballroom packed with hospitals leaders that payment cuts to critical access hospitals were "inevitable."

The outsized payments for critical access hospitals, he said, were low-hanging fruit in a cash-strapped healthcare delivery system. "Anytime you face an economic crunch when you have carved-out artificial protections, they can't last," he said then.

"Is it evitable? Yes. 'When' and 'how' are the questions… I think things are going to happen much more quickly. I tell my critical access hospitals to strategically plan on three years to be off the cost-plus model."

A year-and-a-half later, the Department of Health and Human Services' Office of the Inspector General has recommended that Congress allow the Centers for Medicare & Medicaid Services to strip critical access designation from any hospital that was given that status under a state "necessary provider" designation.

If the OIG's recommendations are acted upon they could adversely affect about 1,000 of the 1,300 critical access hospitals in 45 states that gained an "NP" exemption, which includes Margaret Mary Health in Batesville, IN.

 


Tim Putnam, CEO at Margaret Mary

Tim Putnam, CEO at Margaret Mary and the president of the Indiana Rural Health Association, says his 25-bed hospital is already reeling from the 2% cuts in Medicare mandated by the sequestrations. Further stripping the hospital of its critical access status and the funding that goes with it " would be a significant cut in reimbursement which would cause us to carefully evaluate services " for the older, sicker, poorer patient base the hospital serves.

"For us, the program has been successful. It has allowed us to remain a vibrant healthcare system. We have always felt we have been financially responsible and frugal and this will be a significant impact," Putnam says.

Critical access hospitals are paid 101% of allowable costs, which sounds great on paper. But Putnam says "allowable" narrows when you read the fine print.

"Allowable costs eliminate all costs associated with legal fees, marketing, and things that are not provided for Medicare patients, " he says. " So the square footage in the gift shop has to be carved out of our cost report. Any portion of the cafeteria that is used to provide meals for family and guests that are not provided for patients has to be carved out. "

"When you cut all of that out, he says," it ends up that most critical access hospitals receive about 95% of their costs. It varies depending upon who you talk to from 92% to 98%. But they all lose money on Medicare patients, every single one of them."

In addition, Putnam says most, if not all, critical access hospitals don't receive the market basket adjustments that urban hospitals get. So they are paid at a much lower rate for the same services. "The critical access program was designed to recognize that the (diagnosis-related group) payments were for urban hospitals and not small rural hospitals. It tried to even the playing field," Putnam says.

"I have heard that we would move from losing about 5% on Medicare patients to somewhere in the 20% range" without critical access funding.

It's also difficult to talk about "economies of scale" or "leveraging" market share with payers when you've got 25 beds or fewer. "When you have a smaller patient population, my emergency room has to be open 24 hours a day regardless of the volume. What revenue you get out of 100,000 visits in the ER is completely different from what you get off of 5,000," Putnam says.

"But you have to be ready for everything and the cost of readiness is a big aspect of it but you just don't have the volume to cover that."

Even with additional funding Putnam says that 40% of critical access hospitals lose money. "They stay in operation by donations or county funding or local taxes," he says.

"But when you start cutting this much more, then they will have very little choice but to cut access to services or close completely. When that happens, you'll never get it back. I can't tell you of one critical access hospital that closed its doors and then vibrant healthcare was provided in the community afterwards."

And when hospitals shed jobs, cut services, or close their doors, the communities they serve lose a vital economic engine.

"It creates an economic wasteland, "Putnam says." They might get a small physicians' office or a clinic, but 24/7 access is gone and multiple services are gone. You aren't going to get businesses to move into those communities."

In my opinion, nobody should disparage OIG auditors for ensuring that tax dollars are spent wisely. That is their job. And critical access hospitals should not be exempt from review to ensure that they actually need and deserve higher reimbursements.

However, rural healthcare advocates such as Putnam are correct when they protest any review that is based on cost alone. There has to be equal consideration for the role of critical access hospitals in the rural healthcare safety net. And because job growth is a critical issue in this country right now, the role of the hospital as a local economic driver should also merit some consideration.

Let's remember that critical access hospital designation was created by Congress in 1997 after a wave of rural hospital closings. With the designation 16 years ago federal policymakers demonstrated that they understood the importance of access and that what works in an urban hospital might not work in a rural hospital.

Now that OIG has called for a review of critical access hospitals, it is up to rural providers to make their care and ensure that the lessons learned in the 1980s and 1990s aren't lost.

"People say small rural hospitals need to be part of a larger system, but when you cut the reimbursement so much that they can't operate on the volumes without losing money, my question is how many systems will want to expand into rural healthcare? "Putnam says.

"That is the mindset when I talked to people in Washington. 'If it gets bad you'll have to join a system.'I tell them' that is not going to be the option you think it is.'"

John Commins is a content specialist and online news editor for HealthLeaders, a Simplify Compliance brand.

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