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Obstetrics a Money-Losing Challenge for Rural Hospitals

 |  By John Commins  
   April 08, 2015

A perverse formula encourages critical access hospitals to dump obstetrics, even though there is ample evidence of the physical and psychological risks associated with eliminating this vital link in the population health chain.

Pick any issue adversely affecting urban hospitals and that issue is almost always more difficult for rural hospitals. There are fewer economies of scale to provide an offset.

Obstetrics, for example, is expensive and difficult for rural providers, to the point where many smaller hospitals have abandoned those services and referred patients to larger providers in more-urban settings.

In Tennessee, only one of the state's 16 critical access hospitals provides "active" obstetric services. "From a rural perspective, it is an ongoing challenge," says Joe Burchfield, spokesman for the Tennessee Hospital Association. "Many hospitals are looking at eliminating it because, while it is definitely a community benefit, it is costly. That's the reality that we are seeing here."

A recent study in the Journal of Rural Health surveyed 306 rural hospitals in nine states and found that hospitals with fewer than 240 births per year had to flex their staff and have family physicians and general surgeons attending births, while higher-volume hospitals were more likely to have obstetricians and midwives at the delivery.

"We saw in small rural hospitals a lot more clinicians for whom obstetrics was only a part of the services they provided, as well as using facilities for which obstetrics was only part of the services that were provided," says study author Katy Kozhimannil, an assistant professor in the division of health policy and management at the University of Minnesota School of Public Health.

"For example, many small rural hospitals had one operating room, or it was shared between obstetrics and other service lines. Does that affect care? Sure it does."

"They're flexing those resources, but there are the trade-offs. If you are a family physicians who does eight deliveries a year and there is a volume/outcome relationship. You are not going to be as tuned in as someone doing eight deliveries a day. Problems may be more difficult to detect."

Still, Kozhimannil is sympathetic to the challenges that rural hospital face keeping these services available.

'In the Business of Staying in Business'
"We need to recognize that hospitals and hospital administrators are in the business of staying in business, so of course they are going to look at where they can be efficient with their use of resources," she says.

Tim Putnam, CEO of Margaret Mary Health, a critical access hospital in Batesville, IN, says his hospital delivers about 450 to 500 babies a year, even though it's a money loser.

"Almost every hospital administrator I've talked to says their biggest payer in obstetrics is Medicaid, which doesn't pay anywhere near the costs. That's the start of the issue," Putnam says. "The other thing is that there are a lot of fixed costs to obstetrics because of the requirement to have anesthesia on-call. You have your obstetrics team be able to do a C-section at a moment's notice."

OB's Fixed Costs a Drag on Bottom Line
Putnam says there is a perverse formula in place that encourages critical access hospitals to dump obstetrics.

"Let's say you're cost-based on Medicare and your biggest payer on obstetrics is Medicaid. If you eliminate your obstetrics service, you have eliminated a high volume of low-paying insured space and by definition your percentage of Medicare patients goes up, your fixed costs have gone down tremendously, and your Medicare percentage of cost has gone up," he says.

When a small hospital eliminates obstetrics, it's likely cutting a considerable chunk of fixed costs and thus, increasing net revenues. "Eliminating obstetrics service is one of the single most effective things to improving low-volume, critical access hospitals' bottom line," Putnam says.

Margaret Mary Health is able to offer obstetrics, in part, because it has a built a good reputation for delivering babies, and it is located in a growing area with a younger population than most critical access hospitals.

"Doing it well helps us keep the volume up," Putnam says. "A lot of critical access hospitals, when you look at their volumes, it's below 200. When you're below 200 and you look at a 10% to 20% C-section rate, do the math. That's less than one a week. And one of the challenges that critical access and rural hospitals have is maintaining competency in complex deliveries."

But even with a good reputation and healthier delivery volumes, obstetrics is a money-loser at Margaret Mary. Still, Putnam says they'll continue to provide the service because it is vital to the community here and now, and for the future.

Impact on Pediatric Services
"I wish obstetrics services were covered from a cost-based standpoint for critical access hospitals because once you lose obstetrics services, your ability to keep solid pediatric services is limited and your young families have to go someplace else to deliver," he says. "It seems to start the ball rolling of having limited resources for young children in a community."

From a practical standpoint, when hospitals cut obstetrics, they put the health of the women and infants at greater risk.

"We have piles of evidence showing that the further women have to travel for maternity care, specifically labor and delivery, the higher the rates of maternal and infant morbidity and mortality," Kozhimannil says. "The farther women have to go, the riskier it is, in part because labor is inherently unpredictable."

From a psychological standpoint, Putnam says cutting obstetrics "can be one of those things that is really difficult for a community recover from, and it is something that community is emotionally connected to. Saying 'I was born at that hospital' means a lot."

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

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