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Payment Cuts to Critical Access Hospitals 'Inevitable'

John Commins, for HealthLeaders Media, February 8, 2012

"Anytime you face an economic crunch when you have carve-out artificial protections, they can't last," he says. "Is it evitable? Yes. 'When' and 'how' are the questions. It could happen much more quickly than any of us think depending upon how bad the market gets, how bad the debt issues become. 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."

Orlikoff says the critical access funding cuts will likely come sequentially, rather than hit all at once. "Many critical access hospitals don't fit within the rules, so first they will be the first to lose their protected reimbursements. Then the cuts will migrate to all critical access hospitals, especially as other markets can show the efficiencies that can be taken."

In other words, if one critical access hospital can achieve savings and efficiencies with lower reimbursements, the government will assume that every other critical access hospital can do the same.

"Many of the leaders here are so embedded in that protective philosophy that they don't know what their finances are. They don't know how much inefficiency they have in the system. So when the time comes they are going to be paralyzed," Orlikoff explains. "If they start thinking about it now, maybe they can get ahead of the curve."

So what can critical access hospitals do to prepare? Rather than looking for a magic bullet, Orlikoff recommends a series of baby steps that begin with a simple question: "'If we're taken off the cost plus reimbursement and put on prospective payment system, what would happen to us? What is our percent cushion?'" Orlikoff says. "Assuming that is lost, the second question would be 'would we be able to stay in business?' For the vast majority the answer is 'no.'"

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