Besides "low" and "reimbursement," the word most associated with Medicare these days might be "change."
Changes being considered include everything from adding a prescription-drug benefit to Medicare to a complete overhaul of the program to make it more market-based. Even the agency that runs it has changed its name, to the Centers for Medicare and Medicaid Services.
But most rural healthcare experts say the winds of change, no matter how strong, likely won't blow away one of the most successful Medicare programs aimed at keeping small rural hospitals alive-the critical-access hospital program.
"I can't imagine them eliminating the program by any means," said Alan Morgan, Washington-based vice president of government affairs and policy for the National Rural Health Association, Kansas City, Mo. Simple pragmatism likely will protect the program, said Keith Mueller, director of the Rural Policy Research Institute's Center for Rural Health Policy Analysis, which is at the University of Nebraska Medical Center, Omaha. "Even the proposals that talk about having more competition and having Medicare contract with health plans-those proposals are recognizing that, at least at the outset, most rural areas will have to stay in the fee-for-service program, so all the stuff around that will remain, including the critical-access hospital program."
Since being introduced by the Balanced Budget Act of 1997, the program has certified 412 hospitals in 38 states as critical-access hospitals as of June 11. That's up from 303 hospitals on Jan. 1, 2001 and from 99 on Jan. 1, 2000, the CMS said.
The critical-access program built upon a demonstration project that included mostly Midwestern hospitals and was known as the Essential Access Community Hospital/Rural Primary Care Hospital program, or "Each/Peach" as it is commonly called. Rural hospitals with an average daily census of 15 beds or fewer and average lengths of stay of four days or less can qualify for critical-access status, as long as they focus on providing primary and emergency services and establish referral links to a tertiary hospital. In return, critical-access hospitals receive cost-based reimbursements for Medicare inpatient and outpatient services.
Morgan said the critical-access program seems to be on safe ground during the Medicare reform debate. "It's early within the program's development," he said. "So far, it's had some real success stories out there, and there isn't any movement in Congress that would be detrimental to this program."
Les Lacy has been in a prime position to judge the program as administrator of 10-bed Cheyenne County Hospital, St. Francis, Kan., since May 1993. Cheyenne County was a participant in the Each/Peach demonstration project and then switched to critical-access designation after the 1997 budget law was passed.
"We have high fixed costs and low volumes-that's (the definition of) a critical-access hospital," Lacy said. "While (critical-access) guarantees that you won't lose money doing business with the Medicare program, it also guarantees that you won't make money with Medicare either. Hospitals that think they're going to turn around their balance sheets with critical-access need to think of something else."
Medicare accounts for about 80% of Cheyenne County's revenues, which are budgeted for nearly $2.8 million for 2001, so improving Medicare reimbursement has stabilized its finances and made it easier to recruit and retain physicians, Lacy said. Still, the hospital budgeted for an operating loss of $300,000 on $2.7 million in revenue in 2000, although Lacy expects that the hospital's audit will show a smaller operating deficit. But the operating losses are in a sustainable range for the hospital, which is supported by both a property tax levy (about $303,500 this year) and a 1% sales tax (expected to be about $180,000 this year). The hospital last made an operating profit-of $1,300-in 1991, Lacy said.
Gaining support is critical
The reliance on property and sales taxes points to what is often the trickiest part of converting a hospital to critical-access status-convincing the community, especially because hospitals sometimes have to cede certain services to the tertiary hospital that takes their more complicated cases.
"The perception they have is really important to us," Lacy said. "The single biggest thing that we can do is give them confidence that we will be here when they are sick and injured."
Cheyenne County's experience has been repeated around the country, said John Supplit, director of the American Hospital Association's section for small rural hospitals.
"One of the biggest challenges is getting the community to accept the concept of being a limited-service hospital," he said. "To be successful, it's got to have community buy-in and support."
Jerrie Hessfath knows that well. Shortly after Hessfath took the job as chief executive officer of 49-bed Pungo District Hospital, Belhaven, N.C., in June 2000, she proposed converting to critical-access status because the hospital already met the average daily census and average length of stay criteria. Her proposal met with stiff opposition in the community initially, prompting the hospital to begin a marketing campaign to explain that little would change with the move to critical-access status.
The private not-for-profit hospital is governed by a board elected by 125 "members" who put up capital to endow the hospital. It took a feasibility study, which was completed in May and showed that the critical-access designation would add $400,000 to the hospital's bottom line, to persuade Pungo's board to go along with the proposal. The extra Medicare money is counted on to help stem losses of $2 million during the period of 1998 through 2000.
"It's an ongoing process," Hessfath said. "The majority of the public is with us, and the membership is with us. It took a good 60 to 90 days. Until the board got the (feasibility) study, they weren't . . . sold on which way to go."
The board voted to apply for critical-access status, and the hospital's application is pending with the North Carolina Office of Rural Health.
From one-quarter to one-third of the rural hospitals considering the critical-access program meet the kind of local opposition that Pungo officials had, said Thomas Ricketts, who runs the Rural Health Research Program at the Cecil G. Sheps Center of the University of North Carolina-Chapel Hill. Ricketts, a professor of health policy and administration at the university, said his research so far shows that hospitals do tend to benefit financially from the program but added that more research is needed.
And, if market forces change, hospitals can always return to full-service acute-care status.
Pungo's administrator expects her hospital to leave the critical-access program at some point because the population in the area is starting to grow again. Ricketts said he knows of one hospital that effectively left the program by converting into a skilled-nursing facility and another that closed before it won approval.
Advocates for rural hospitals are now focusing their lobbying efforts on making the critical-access program more flexible and expanding the services it covers. Supplit said some hospitals would join the program if the CMS allowed seasonal adjustments to the average daily census limit of 15, because these hospitals serve migrant workers who inflate their admissions for short periods each year. He would also like to see the CMS stop counting rehabilitation and psychiatric beds against the census limit, which allows for up to 10 patients in swing beds.
The National Rural Health Association's Morgan said the association is pushing Congress to expand the services for which critical-access hospitals receive cost-based reimbursement to include, for instance, skilled-nursing or home health services.
Morgan mentions three other rural initiatives that are not limited to critical-access hospitals. One is the wage-index floor. Morgan's group and the AHA have been pushing, so far unsuccessfully (June 18, p. 16), for the measure, which would increase the labor component of Medicare reimbursements for rural providers.
The second initiative would raise the base payment rate (i.e., the standardized cost of a Medicare procedure before it is multiplied by a DRG factor and adjusted for wage rates and other factors) for rural hospitals to the urban level. That would cost the Medicare trust fund $2.8 billion over five years, the rural health association estimates.
The third proposal would eliminate the cap on disproportionate-share payments for rural hospitals and urban hospitals with fewer than 100 beds. These hospitals may not receive disproportionate-share payments above 5.25% of their revenues, and Morgan points out that even the Medicare Payment Advisory Commission, which opposes the wage-index floor, supports increasing the cap to 10%.
"Rural hospitals in general are still facing tough times financially, certainly under the Medicare program," Morgan said. "I think that's why you see a lot of efforts in Congress right now to provide targeted relief to rural hospitals."