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Obstetrics a Money-Losing Challenge for Rural Hospitals

By John Commins  
   April 08, 2015

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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