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Pilot Program Throws Lifeline to PA Rural Hospitals

Analysis  |  By John Commins  
   January 18, 2017

State and federal officials in the Keystone State this month unveiled the Pennsylvania Rural Health Model. The question to be answered is whether a predictable, fixed funding source will provide sufficient stability to financially stressed rural hospitals.

Pennsylvania has become the latest state to take action to address the plight of rural healthcare.

Gov. Tom Wolf and state and federal stakeholders this month unveiled the Pennsylvania Rural Health Model, a comprehensive, statewide pilot project to improve access to care delivery and population health outcomes.

Under the seven-year pilot project, which went into effect last week and ends in December, 2023, as many as 30 rural critical access and acute care hospitals across the state that opt in will be paid a fixed all-payer global budget that is set in advance for inpatient and outpatient services.

They will also receive monthly Medicare fee-for-service payments and payments from commercial plans.

The Pennsylvania model is the latest in a string of innovative all-payer pilot projects designed by states with the support of the Centers for Medicare & Medicaid Services.

In 2014, Maryland launched an all-payer model that transitions to global payments rewarding value over volume. Last October, Vermont unveiled an all-payer accountable care organization model. CMS has designated Pennsylvania as a Round 2 Design State that could serve as a model for other states considering an all-payer project.


The question to be answered in this pilot program is whether this predictable, fixed funding source will provide sufficient stability to financially stressed rural hospitals that will allow them to transition into a value-based care delivery model designed to meet the specific needs of the communities they serve.

Jeffrey Bechtel, senior vice president for health economics and policy at the Pennsylvania Hospital & Health System Association, calls the model "a paradigm shift, and a move away from fee-for-service with the benefit of a predictable budget."

"The thought here is to transform the way that hospitals operate," he says.

"Rather than being on the hamster wheel of fee-for-service, they will have a predictable budget. They will be required to submit a transformation plan that will allow them to redesign their care delivery to focus on outpatient services and eliminate subscale inpatient services and ultimately share in the value creation."


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CMS has provided $25 million in seed money that will be used for data analytics, quality assurance, and technical assistance. CMS and Pennsylvania policymakers will also help local hospitals fashion care models that address the specific needs of their service area.

These innovative programs that empower states to identify and address their specific healthcare needs have been coordinated through the CMS Innovation Center, a creation of the Affordable Care Act, which Congress and the Trump Administration have vowed to repeal. (The nonpartisan Congressional Budget Office this week provides a chilling report on the likely fallout.)


Gov. Wolf and Stephen Cha, MD, director of state innovations at the CMS Innovation Center, said at a media availability last week that the Pennsylvania model will survive even if Congress repeals the ACA.


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"The agreement being signed today for this partnership is being signed by the state of Pennsylvania and the federal government, not an administration. We intend to uphold that agreement," Cha said.

"Our excitement about entering into this partnership is predicated on the strength in the model and our belief that this is the right pathway to travel for rural areas all across the country."

Wolf said the Pennsylvania model could provide a road map for improving care access across rural America. "Whether the new administration agrees with the current administration that Pennsylvania or this particular program is right, we are doing something that really transcends any one administration."

This pilot program isn't about just promoting population health. It's about improving the financial health of hospitals and the economic stimulus they spark in rural Pennsylvania.

Hospitals 'Essential' to PA Communities
"About half of Pennsylvania's hospitals lose money on patient care," Bechtel says. "One-in-three have negative total margins. Thirty percent of Pennsylvania's rural hospitals have negative three-year average total margins, and rural hospitals across the Commonwealth have observed declining margins of approximately 5% per year since 2011."

To address this worsening financial climate, hospitals have had to cut back on services. Since 2000, for example, one-third of hospitals in the state have closed their OB units.


About 70% of Pennsylvania is rural, and 20% of the population lives in rural areas. Bechtel says rural hospitals provide access to care for about 1.8 million Pennsylvanians.

In two-thirds of Pennsylvania's designated 48 rural counties, hospitals are among the top five employers. In 14 of the counties, hospitals are the largest employer.

"Not only are these rural hospitals the primary source of care access for their service area, they are often a critical economic driver for the region," Bechtel says.

"Rural hospitals support nearly 50,000 family-sustaining jobs across rural Pennsylvania. That is 27,200 through direct employment plus another 20,300 created in local economies through the economic stimulus of rural hospital spending. The bottom line is that hospitals are essential to their communities."

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


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