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Columbus Community Hospital
Columbus (Wis.) Community Hospital

Critical debate

Proposal to strip critical-access status from two-thirds of those hospitals called a death knell for many

By Joe Carlson
Posted: August 17, 2013 - 12:01 am ET

Approached from the south, Columbus Community Hospital appears to pop out of a farm field on the outskirts of a small city in south-central Wisconsin.

Like a thousand other critical-access hospitals, Columbus Community has received millions of dollars in special Medicare payments during the past decade—money that was earmarked for facilities in remote areas to ensure local residents had access to acute-care services. Yet five other hospitals operate within a 30-mile radius of the booming satellite community of Columbus, which is only a half-hour drive from the state capital of Madison.

In an age when people are commuting farther than ever to work, this 25-bed not-for-profit facility boasted a 6% surplus in its most recent fiscal year. Population in its service territory has grown more than 10% in the past decade.

Columbus Community Hospital, in other words, does not fit the profile of the remote healthcare outpost that was envisioned when the original Medicare critical-access program was created in 1997. While it may be located next to farms and have low patient volume, it would not have been admitted into the original program.

A study last week found that Columbus is not alone: Two-thirds of critical-access hospitals in the U.S. would be barred from getting the enhanced payments if the program adhered to its original standards.

Like many of the 1,328 critical-access hospitals in the U.S., Columbus Community was given that status under a loophole that existed until 2006, which allowed state governors to designate any small hospital as eligible for the federal program. The result is a program that now costs Medicare more than $2 billion a year.

But with federal officials looking for new ways to cut costs, the Obama administration and several federal agencies have proposed reining in the program. That has triggered widespread outrage and fear among critical-access hospital officials and their trade-industry spokespeople.

They say the extra funding is crucial to maintaining services in their communities. Cutting back or eliminating the payment will lead to widespread closures in communities with high incidences of poverty and chronic illnesses, they say. And, it could wind up costing Medicare money, since it will force those patients to larger, more costly hospitals in nearby cities and towns.

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But critics say the program has grown well beyond its original intent of protecting healthcare options in distant communities. And unless something is done to pare back the expense, continued insistence on an expanded program could wind up jeopardizing the extra funding for those facilities that truly need help in providing critically needed access.

“The governors, some of them just figured there's a good chance to open the piggy bank, and they did,” said Dr. Wayne Myers, a retired pediatrician and former director of HHS' Office of Rural Health Policy. “I worry that if those of us that are supportive of locally available care lay down across the tracks and wrap ourselves in the flag, we could lose the whole designation rather than just losing the designations that are not truly important for healthcare.”

A study published last week by HHS' fiscal watchdog, the Office of Inspector General, found that 849, or two-thirds, of the nation's critical-access hospitals do not meet the basic definitions in the law, including the requirement that they be at least 35 miles from the nearest hospital and in rural communities. The OIG joined President Barack Obama and the Medicare Payment Advisory Commission in saying that the program should be reined in because some of the hospitals given the special designation did not deserve it.

Obama's proposed federal budget for 2014 would cut Medicare spending by $40 million by removing about 70 hospitals from the program that are less than 10 miles from the nearest hospital. The OIG report found that the savings would jump to more than

$268 million a year if the cutoff was increased to 15 miles.

Such talk is jarring to advocates for rural healthcare because the critical-access program was first established specifically to halt the widespread hospital closures that were occurring in rural areas in 1990s. The switch to the prospective payment system, which paid hospitals based on set prices for services rather than each facility's unique costs of care, hit rural hospitals hard.

Small hospitals typically don't have enough patients on private insurance to make up for the losses in Medicare, which pays about 91% on average of what it costs to take care of its patients. Under the program, critical-access hospitals bill Medicare for 101% of their actual costs, which translates into an average of $860,000 in extra Medicare reimbursements for every hospital in the program. In addition to limiting geographic eligibility, the president's 2014 budget proposed trimming the payment to 100% of costs.

Proponents say kicking some critical-access hospitals out of the program and moving them back to prospective payment would trigger another wave of closures—and likely the same kind of political outcry that led to the program's creation.

“We went through a period of time where these facilities just couldn't make it. They would die a slow cash-flow death,” said John Russell, CEO of Columbus Community. “This facility would lose money without critical access. Then what do we do to break even, to survive? … If you lose money, you have to pull back and decide what you can keep.”

Many small hospitals support other healthcare options that lose money in their communities, such as nursing homes, home-health agencies and ambulance services. They also provide childhood obesity programs and health-screening clinics, which also provide jobs. “You lose a rural community hospital, and you lose a community,” Russell said. “It is a devastating impact.”

Yet earlier this year, Medicare officials quietly directed state inspectors to begin recertifying all critical-access hospitals to make sure that they meet the distance requirements. There was a catch, though. The inspectors lack statutory authority to investigate that issue for hospitals that were granted the status by state governments—and those hospitals make up three-quarters of the entire group.

Last week, OIG officials urged HHS to lobby Congress for the power to jettison the state rules and craft uniform standards that could be evenly applied to avoid benefitting hospitals that are too close to competitors or large cities where healthcare access is not an issue.

Lawmakers in both chambers of Congress remain skeptical of any changes that would remove hospitals from the critical-access program.

“If the hospitals are reclassified, they are almost sure to close. That could mean hardship for patients who rely on those hospitals,” said Republican Sen. Chuck Grassley, whose home state of Iowa includes 59 hospitals with 25 beds or fewer.

A recent study in the Journal of Rural Health found that about 44% of all critical-access hospitals would become money-losing ventures if the program were eliminated, compared to the 28% that post negative margins today. “You can't have a negative operating margin forever, and so a good number of them would close,” said Ira Moscovice, director of the University of Minnesota's Rural Health Research Center.

However, no one is talking about eliminating the program. The study did not address the issue of what would happen to margins at hospitals in exurban areas if the original 35-mile geographic limit were reimposed or a less stringent limit of 15 miles were created, as the OIG suggested.

Defenders also question the purported savings to Medicare that would come from decertifying critical-access hospitals, because many patients without a local provider would create costs elsewhere in the system. They would either go to more expensive urban hospitals or delay care until the situation required costly emergency treatments. “From a purely monetary standpoint,” Grassley wrote, “forcing those hospitals to close could rob Peter to pay Paul.”

Hospitals booted out of the critical-access program would see other hits to their top-line revenue. Medicare outpatient copayments, which are based on charges for care at critical-access hospitals, would decline. And many would cease to be eligible for the 340B program, which gives smaller hospitals the ability to get discounts of up to 50% on prescription drug prices.

Alan Morgan, CEO of the National Rural Health Association, characterized the inspector general's proposal as “purely cost-cutting, nothing more, nothing less.”

The politics facing those who would cut back the program are daunting. Rural healthcare has always had strong bipartisan support because there are critical-access hospitals in every state. The Senate has traditionally been a bulwark of support for special programs that benefit rural areas.

Yet rural providers now find themselves caught up in the same cost-conscious environment that is dominating so many other Washington policy discussions. For instance, Obama's budget proposals for both fiscal 2013 and 2014 called for the reduction in cost-based reimbursement to 100% from 101% for critical-access hospitals, as well as the elimination of that status if another facility is located within 10 miles.

And that has executives at rural providers worried their political immunity from cost-cutting may be fading.

Leah Osbahr, CEO of the county-owned Washington County Memorial Hospital in Potosi, Mo., said her 25-bed hospital has been dealing with a series of cuts that have made staying open a challenge. This year her hospital weathered 2% across-the-board cuts in Medicare (costing her hospital at least $150,000), a drop in Missouri's Medicaid rates for radiology services ($500,000 in cuts), and the impending loss of Medicare disproportionate-share payments.

Meanwhile, Washington County Memorial is writing off more than $400,000 a month in bad debt for patients without any insurance as it clocks in 15,000 visits a year to its emergency department. “It's scary when you're dealing with people's healthcare and jobs in a small community,” she said.

Washington County Memorial is about 23 miles from the nearest hospital, which means it does not qualify for critical-access status under the traditional rules, but would remain in the program under the president's budget proposal. Osbahr said the community has no mass transit, and since it's the second-poorest county in Missouri, many people would lack transportation options to get to the next-closest hospital in Farmington.

“We're just trying to figure out what will happen in the future and brace ourselves,” she said.

—with Jessica Zigmond

Follow Joe Carlson on Twitter: @MHJCarlson

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