Bound by bureaucracy

Any way you look at it, St. Joseph’s Community Health Services in Hillsboro, Wis., is cornered.

The hospital, located roughly 50 miles northwest of Madison, is bounded by state Highway 80 at the front and a lake in back. Restrictions from the state’s Department of Natural Resources and Transportation Department prohibit St. Joseph’s from expanding, and the design of the hospital’s current structure would not support adding to its current three stories, making it “nearly impossible and definitely prohibitively expensive,” according to the hospital’s chief executive officer.

So the only alternative for this mid-20th-century facility is to build a replacement elsewhere, which leads to the hospital’s other bind: In relocating, St. Joseph’s risks losing the coveted critical-access hospital designation it received in 2000. By definition, critical-access hospitals cannot have more than 25 beds and also receive reimbursement at 101% of costs, which can be lucrative for these small facilities.

The reason for St. Joseph’s dilemma can be found in the revised guidance for critical-access hospital relocation that the CMS issued and implemented last September. Superseding the agency’s November 2005 guidance, the revised guidelines seem to be a mixed bag, in that they could help certain hospitals, constrain others, and leave some unaffected.

According to the National Rural Health Association, the revised guidelines “appear to be a change in the positive direction” because they relax some earlier definitions, such as those regarding mountainous terrain and secondary roads, which will make it easier for some critical-access hospitals to meet criteria to relocate. But one guideline in particular has posed a great concern for the so-called “necessary provider” critical-access hospitals, including St. Joseph’s.

The issue gets convoluted pretty quickly, but begins here: Before Jan. 1, 2006, states were able to waive the requirement that a hospital applying for critical-access designation had to be located at least 35 miles from other hospitals or critical-access hospitals by designating a facility as a “necessary provider.” After that date, states were no longer permitted to use this designation, but existing critical-access hospitals that were deemed necessary providers were grandfathered. Then came the revised guidance.

Last fall, the CMS said those grandfathered “necessary provider” critical-access hospitals must not only meet a “75% test” criteria from the CMS—which requires hospitals to provide at least 75% of the same services, employ 75% of the same staff and serve at least 75% of the same area as when they were first designated as critical-access hospitals—but also meet the very same state criteria they met at that time.

In other words, these hospitals must not just re-apply for critical-access status, but re-apply as if they had not changed or grown.

“The ‘75% rule’ should take its place. Having to meet the state-certifying criteria is contrary to congressional intent to grandfather these facilities,” says Tim Fry, government affairs manager at the NRHA. “These state criteria, in many cases, are a decade old and may not be appropriate anymore. All of the criteria should rely on things that change over time.”

But according to the CMS, the grandfather status for these hospitals applied only to the location where they were first designated, leaving their status in question if they choose to move.

“If they grow over time, it’s conceivable that they are capable of functioning as a hospital and don’t really need the official financial support that a critical-access hospital gets from the CMS,” says a CMS official. “It’s not supposed to be an open-ended commitment.”

When the critical-access hospital program began in the late 1990s, the CMS allowed states to develop their own criteria. For example, Wisconsin created 10 criteria, while Illinois developed four. In the case of St. Joseph’s, the hospital was required to meet two of 10 criteria when it was designated as a critical-access hospital eight years ago because it was a “type 2” facility, meaning it was located between 20 and 34 miles from another hospital. But because hospitals were encouraged to indicate as many criteria as reasonably possible, St. Joseph’s actually checked all of the criteria it met—for a total of six.

Given the revised guidance, St. Joseph’s would have to meet those same six criteria, as well as the “75% test,” to retain its status after relocating. This is a concern for Bill Bruce, the facility’s president and CEO since 1999. Bruce says the hospital was in “dire straits financially” and employed three physicians when it received its designation eight years ago. Today, it employs six physicians.

“With that (critical-access hospital) funding, we were able to shore up the financial position and turn toward what would help people: recruiting physicians,” Bruce says, adding that it does not make “good, common sense” for the hospital to lose those physicians in order to qualify for its critical-access status. He’s referring to a provision that a hospital be located in a “health professional shortage area,” which is determined by a provider-to-population ratio.

If the determination process were held today, St. Joseph’s would likely meet the same six of 10 criteria it met in 2000, says Joe Hampe, chief credit officer at Pine Creek Healthcare Capital, which is working with St. Joseph’s for potential financing of a new hospital. Pine Creek is a subsidiary of financial services company Raymond James Financial. But the CMS says it will determine if a hospital meets the necessary requirements only after it has relocated.

So, while it would qualify today, the hospital’s circumstances could change by the time it opens. For example, if a new factory opens in town, that would help lower the community’s unemployment rate—and could also affect St. Joseph’s chances of maintaining its critical-access status if the hospital could no longer say its unemployment rate is worse than the state average, says John Eich, director of Wisconsin’s Office of Rural Health.

“First and foremost, in the regulation it says these are grandfathered,” Eich says, referring to hospitals in circumstances matching St. Joseph’s. “Having to reapply is not grandfathering,” he says, adding that if they must reapply, then they should be expected to apply in the same way.

In Wisconsin, that would mean meeting any two or five criteria, with that number depending on the hospital’s type. Char White, rural programs manager at the Office of Rural Health, explains that type 1 facilities are located 35 miles or more from the nearest hospital and did not have to apply for the necessary-provider status. St. Joseph’s is a type 2 facility, located between 20 and 34 miles from another hospital, and type 3 facilities—which were required to meet at least five of the criteria to qualify—are those located fewer than 20 miles from the next hospital.

St. Joseph’s, an independent Catholic hospital that also maintains a nursing home and three clinics, serves about 20,000 people in eight surrounding towns, Bruce says. This year, the hospital provided four-wheel-drive vehicles to transport staff to and from work because the winter’s nearly 100 inches of snowfall frequently made driving conditions difficult. Built in the mid-1950s, the facility either needs to be renovated or replaced, and research shows it was less costly—in both the short term and long term—to rebuild.

“Right now we’re proceeding ahead with our planning,” Bruce says, “but that planning will be stopped in its tracks if we don’t receive relief from CMS.”

Working for that relief is a priority for the NRHA, Wisconsin Hospital Association and Rural Wisconsin Health Cooperative. These groups accept the 75% test but view the state criteria stipulation as double-dipping, says Tim Size, the cooperative’s executive director.

“I think it’s bad policy because it’s mean-spirited,” Size says. “None of us in our roles as parents, or church, or in business would change the rules after the fact. There is a term when this is done in government: Gotcha.”

As the NRHA’s Fry explains, help could come either from a regulatory change by the CMS or through legislative action in Congress. Neither seems to be a viable option now, he says, and it is going to take “more impact” nationwide before lawmakers might be more inclined to act.

Meanwhile, the revised guidance played out differently in West Virginia, where Preston Memorial Hospital in Kingwood now has the option of either rebuilding on-site or relocating. The current facility was built in the early ’50s. A relaxed guideline on mountainous terrain went from five requirements—including an especially complex one about continuous or abrupt changes in elevation or direction—to just two. As it exists today, the rule describes mountainous terrain as areas identified as mountains on any official maps, and requires hospitals in those areas to prove only that it is necessary to travel more than 15 miles of roads in mountainous terrain. The hospital is now in the process of looking for land at a reasonable price, says CEO Michael Thompson.

“At that point, it will give us a better idea if we want to renovate on-site or can afford to build a new facility,” Thompson says. “If we can get land at a right price, we can move forward. It’s much more cut-and-dried at this point.”

Similarly, the guideline for secondary roads was also changed in a way that appears to have lightened the burden a bit. While the 2005 rule stated that critical-access hospitals must be more than 15 miles from the nearest hospital, and at least one section of the shortest route to the nearest hospital consists of more than 15 miles of continuous, uninterrupted secondary roads, the revised rule states that a facility is eligible under that guideline if it can document more than 15 miles between the critical-access facility and any hospital where there are no primary roads—and then describes a primary road as a numbered federal highway, a numbered state highway with two or more lanes each way, or a road shown on a map prepared by the U.S. Geological Survey.

As in Wisconsin, Oregon is finding its own host of problems as it adjusts to the revised guidance. Kassie Clarke has spent a lot of time on the issue in her role as the community grants coordinator at the Office of Rural Health in Portland. As she explains it, in 2000, the Office of Rural Health was responsible for determining which hospitals were eligible to apply for the critical-access designation, but the office did not inform the facilities if they were eligible because they were necessary providers or because they met other criteria. Last week, the office was scheduled to send a list of the 13 Oregon hospitals that are “dual-eligible” to the CMS. One of those is Providence Seaside (Ore.) Hospital, the Providence Health & Services facility that sits between the Pacific Ocean and the Coast Mountain range. Built in 1970, the hospital is located in a potential tsunami area, says Bill Sexton, the hospital’s CEO.

As he explains, recent studies have described what an earthquake—and a resulting tsunami—could do to the community, which has even caused schools to consider relocating. For Providence Seaside, relocating would mean having to reapply for its critical-access status, and the revised guidelines pose a problem. For one thing, although Providence Seaside was considered to be a necessary provider by the state, it was not declared so officially at the time. Also, Providence Seaside met the state secondary-road requirement that the CMS had approved at the time. But, as Clarke explains, the rule now considers federal highways to be primary roads, and Providence Seaside is located off U.S. Highway 101, a federal road that connects states but is closed frequently because of rock slides and floods.

“You think about the safety net hospitals and to be changing some of the criteria—and it seems to me that they’re doing that midstream—seems inappropriate,” Sexton says. “They are trying to prevent the abuse of the designation. But clearly, most of the facilities located in communities are simply rebuilding because of better quality (and) serving their communities,” he says, adding that in some cases, it is also cheaper to relocate.

In an e-mail message, a CMS official says the Oregon critical-access hospital designation is still under review and the agency does not comment on pending matters.

The myriad outcomes from the revised guidelines raise the question of whether they’re helping to streamline the process or just make it more complicated.

Consequently, many rural providers are left to wonder if rebuilding and relocating will be a viable option. For Our Lady of Victory Hospital in Stanley, Wis., the guidelines will not affect the critical-access status it received in 2001 because the facility—which was built in 1959—relocated in November 2003. Cynthia Eichman, the hospital’s president, says that while Our Lady of Victory was spared, other hospitals in a similar situation will not be so fortunate.

“Any hospitals that are making plans to upgrade for the next 50 years of care and are now feeling as if they can’t make those decisions with the security of the critical-access hospital reimbursement,” Eichman says, “are at risk of not being able to serve their communities in these small rural locations.”

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