Reexamining policy

‘There ought to be options, other than just close or the status quo, to help them transform to best meet community needs’

By Harris Meyer

Policy disagreements, resistance from rural providers and communities, and opposition to new spending could slow progress in addressing the rural healthcare crisis.

When the only hospital serving the southeast corner of Arizona closed three years ago, Jim Dickson, CEO of the nearest hospital, had an idea that he thought would preserve healthcare access in the area. He proposed building a free-standing emergency department with radiology and a lab, plus a clinic for visiting specialists and physical therapy office.

Coming to the rescue

After Douglas, Ariz. lost its hospital in 2015, Copper Queen Community Hospital opened a freestanding emergency department there last year to serve the state's rural southeastern corner. © Mapbox © OpenStreetMap

Cochise Regional Hospital, a critical access hospital in Douglas, Ariz., 100 yards from the U.S.-Mexico border, had shut down due to problems with finances and quality of care, leaving the 17,000 residents of Douglas—plus thousands more people living just over the state line in New Mexico and across the Mexican border—without a nearby hospital or emergency room.

Dickson’s hospital, Copper Queen Community Hospital, another critical access hospital, was 25 miles northwest in Bisbee, Ariz., over mountainous two-lane roads. It already operated an urgent-care center in Douglas.

But Dickson’s plan faced a payment policy roadblock. Arizona’s Medicaid program, seeing a flood of new freestanding EDs opening in Phoenix and Tucson, had lowered the basic visit fee it paid to such facilities from $750 to $500. That would make his proposed rural ED non-viable financially.

Copper Queen CEO Jim Dickson proposed operating a 24-hour ED in Douglas, Ariz., after Cochise closed.

So he pleaded with state Medicaid officials to make an exception for rural providers that open free-standing EDs to replace shuttered hospitals. They granted his request last spring and Copper Queen opened its new facility in April 2017.

With 83 rural hospitals having closed nationwide since 2010 and hundreds more in jeopardy, many rural healthcare experts and some policymakers want to see more rural communities with struggling or closed hospitals do what Douglas did. Nearly 20% of U.S. residents live in rural areas, according to the Census Bureau.

But state and federal policy changes are urgently needed to make these new models possible, analysts say. That includes paying for telehealth and facilitating full use of nurse practitioners and other mid-level providers. Expanding Medicaid to low-income adults in the 18 states that haven’t yet done so also would help rural providers.

Today, the Douglas ED, staffed by an emergency physician and a nurse practitioner, is seeing as many as 1,100 patients a month, twice as many as projected, while Copper Queen’s ED in Bisbee has seen no fall-off in traffic. Two to three babies are delivered there each month. The visiting physician clinic, featuring a cardiologist, urologist, and nephrologist, is busy with patients who can’t drive to see specialists in Tucson, 118 miles away.


“If you focus a rural hospital on inpatients, you are dead in the water. If you focus on outpatient and primary care, you will be successful.”

Jim Dickson
Copper Queen Community Hospital

Communities, experts say, must consider alternative models for providing healthcare for their residents, including replacing inpatient care with emergency and/or outpatient services and using telehealth to connect with specialty services. Community health centers and other providers in these areas need to be part of a coordinated solution.

“There ought to be options, other than just close or the status quo, to help them transform to best meet community needs,” said Dr. Anand Parekh, chief medical adviser at the Bipartisan Policy Center, which issued a report on reinventing rural healthcare in January.

Bills are pending in Congress to ease the way for these new models and provide financial support for rural hospitals while they make the transformation. Meanwhile, Pennsylvania is partnering with the CMS’ Center for Medicare and Medicaid Innovation to test a new payment system based on all-payer global budgets for rural hospitals, starting next January.

Receiving a fixed global budget rather than having to rely on volume-based fee-for-service payments could free rural facilities to shift resources from inpatient care to services that are more needed by their communities, such as mental healthcare and addiction treatment.

General acute care hospitals, national, urban and rural, payer mix by inpatient utilization (patient days) in 2015
Source: Modern Healthcare Metrics

Receiving a fixed global budget rather than having to rely on volume-based fee-for-service payments could free rural facilities to shift resources from inpatient care to services that are more needed by their communities, such as mental healthcare and addiction treatment.

But local hospital, business and political leaders often are wary about giving up their full-service hospital or losing critical services like obstetrics. They fear the impact on jobs and their ability to attract new businesses and residents to their community without a full-service hospital.

“It’s a difficult decision,” said Joanna Hiatt Kim, vice president for payment policy at the American Hospital Association. “Hospitals need to work with their boards and communities to keep everyone on the same page. But our members would like to have that option.”

There also are formidable political hurdles in Washington. Even though Republicans and Democrats generally agree on the need to help rural providers, a gridlocked Congress is unlikely to act this year on legislation to support these transformations, particularly since the proposals would require additional funding.

The CMS last month issued a rural health strategy framework, including general statements about expanding telehealth, improving patient transportation, promoting interoperable data systems, and offering providers technical assistance so they can fully participate in agency programs such as accountable care organizations.

But the strategy is short on specifics. Parekh called it "a very high-level document that will require a more specific list of action steps." He was particularly disappointed it did not address how the CMS would help rural communities retarget and rightsize services. That may be because CMMI, which would test new rural models, did not have its new director, Adam Boehler, in place until April.

"Communities want choices, so I hope there will be more to come there," he said.

Policy differences within the administration, resistance from rural providers and communities, or disagreements between the administration and Democrats over Medicaid policy and new spending for rural needs also could slow progress. “I’m hoping this won’t be as divisive as some other healthcare issues," Parekh added.

Maggie Elehwany, vice president of government affairs and policy at the National Rural Health Association, warned there’s an urgent need for action, given that the percentage of rural hospitals operating at a loss ticked up from 41% to 44% just in the past year.

“We are jumping up and down yelling that when a rural community loses a hospital, that’s a death sentence,” she said. “We need Congress to do something now and look at new models. But it’s an election year, and I can’t name any legislative vehicle for this.”

“We are jumping up and down yelling that when a rural community loses a hospital, that’s a death sentence.”

Maggie Elehwany
Vice president of government affairs and policy
the National Rural Health Association

Back in Arizona, Copper Queen’s Dickson said rural hospital leaders and residents need to get realistic and act fast to serve local patients.

“Hospitals are obsolete unless they change, like we did,” he said. “People in rural areas are running scared. They need to have the vision to do what’s necessary to keep people alive.”

Critical points along the rural health policy timeline
Hill-Burton act provides federal funding for construction of hospitals in rural communities, boosting the number of facilities.
Congress establishes Medicare hospital prospective-payment system, eventually leading many rural hospitals to close in the 1980s and 1990s.
Medicare implements the Rural Hospital Flexibility Program, creating the critical-access hospital designation for remote facilities with up to 25 beds and paying them on a “reasonable cost basis.”
The Medicare Payment Advisory Commission issues a report suggesting rural providers were underpaid, spurring policymakers to develop proposals to increase Medicare funding.
Congress passes the Medicare Modernization Act, which includes a variety of new programs to help rural providers, sending about $20 billion in new Medicare funding to rural communities over 10 years.
Congress maintains or extends these rural funding programs, known as Medicare extenders, most recently in March 2018.
Congress passes the Affordable Care Act, which promises improved funding for rural providers by expanding private insurance and Medicaid to low-income adults and boosting payment to physicians in health-professional shortage areas. But the law also cuts Medicare and Medicaid payments to hospitals for serving poor patients.
A bipartisan group of senators re-introduces a bill to help rural hospitals stay open by converting to emergency and outpatient centers.
Source: Bipartisan Policy Center

Pennsylvania tests global budgets for rural hospitals

Rural hospital executives and policy wonks nationwide are watching the Keystone State closely to see how a radical new payment model unfolds.

The Pennsylvania Rural Health Model, an unprecedented five-year Medicare demonstration program, aims to pay 30 rural hospitals under a monthly global budget so they can retarget their services. Both public and private payers are expected to participate, with the Center for Medicare and Medicaid Innovation kicking in $25 million to establish a Rural Health Redesign Center that will support the hospital transformation.

Six hospitals will start receiving payment via a global budget starting next January, and more are expected to join the program over the following two years.

“With a more stable cash flow, rural hospitals can step back and say this service line we rolled out for volume is not aligned with what the community needs, and now we can shift to behavioral health and substance abuse treatment,” said Dr. Lauren Hughes, deputy secretary for health innovation at the Pennsylvania Health Department.

The inaugural participants intend to keep providing inpatient care even as they develop population health strategies to improve health outcomes and reduce costs, such as greater use of telehealth. Still, Hughes predicted some participating hospitals eventually will move away from acute care.

“This model provides a tremendous opportunity to transform rural hospitals and preserve a level of access that otherwise wouldn’t be there if the hospitals close,” said Karen Murphy, chief innovation officer at the Geisinger Health System and former Innovation Center official. Geisinger Jersey Shore Hospital is one participant. “It’s unlikely under straight fee for service that rural hospitals will be sustainable.”

Many other states are intrigued. Hughes said eight others have contacted her to discuss the project. In addition, the Milbank Memorial Fund, the Robert Wood Johnson Foundation and the National Rural Health Association, working with the CMS, recently conducted a webinar for 36 states that are interested in launching similar global budgeting demonstrations for rural hospitals.

The groups held a global budgeting policy academy for officials from 14 states on May 30.

Case studies in rural hospital transformation
Providence Health, part of LifePoint Health, breaks ground on free-standing ED with imaging in Winnsboro, S.C., to open later this year; it will replace Fairfield Memorial Hospital, which is closing.
Copper Queen Community Hospital opens free-standing ED with a visiting specialist clinic and imaging in Douglas, Ariz., after Cochise Regional Hospital closed in 2015.
Labette Health opens free-standing ED with imaging in Independence, Kan., after Mercy Hospital closed in 2015.
McLaren Healthcare opens free-standing ED with primary care and other services in Cheboygan, Mich., after Cheboygan Memorial Hospital closed in 2012.
OSF HealthCare opens a free-standing ED with outpatient and imaging services in Streator, Ill., after St. Mary’s Hospital closed earlier that year.
Faith Regional Health Services opens medical clinic in Tilden, Neb., after Tilden Community Hospital closed that year.
Source: Rural Policy Research Institute and Modern Healthcare reporting

Lawmakers eye new rural outpatient hospital designation

Congress is considering legislation to help rural hospitals shift to more financially sustainable models that refocus on services urgently needed in their communities. But political observers aren't optimistic about legislative action in a gridlocked Congress during an election year.

In the Senate, the bipartisan Rural Emergency Acute Care Hospital Act, spearheaded by Chuck Grassley (R-Iowa), would create a new rural emergency hospital classification for Medicare. Grassley’s office said it’s still seeking co-sponsors and that the bill hasn’t yet been scored by the Congressional Budget Office.

The REACH Act would allow small rural hospitals to continue to receive Medicare payments if they dropped inpatient care and shifted to providing only emergency and outpatient services. They would be able to do this independently, without the sponsorship of another hospital.

The new facilities would have to offer emergency and observation care 24/7, and be able to transport patients needing inpatient care. They would receive payment for outpatient and transportation services equal to 110% of the reasonable cost of providing such services.

State action would still be needed to create a new licensure and certification category for these facilities and make them eligible for Medicaid payment. Additional financial support might be needed through local taxes, business contributions, and private and public grants.

In the House, the bipartisan Save Rural Hospitals Act similarly would allow hospitals to convert to a new Medicare payment designation, the Community Outpatient Hospital, and be paid at 105% of reasonable costs for emergency and outpatient services. A different bipartisan bill, similar to the REACH Act, has also been introduced—the Rural Emergency Medical Center Act.

Joanna Hiatt Kim, vice president for payment policy at the American Hospital Association, said that while the rural emergency center model is promising, it needs to be tested, perhaps through a demonstration conducted by the Center for Medicare and Medicaid Innovation.

Beyond that, the House's Save Rural Hospitals Act offers other forms of financial relief, including reversing cuts in reimbursement for bad debt, ending Medicare budget sequestration cuts, eliminating disproportionate-share pay drops for hospitals serving the poor, and reinstating or permanently extending several other extra reimbursement programs.

Provider groups and rural health advocates generally support these bills, though the AHA prefers the REACH Act because it sets a higher cost-based payment rate for the new outpatient facilities.

But some experts question the wisdom of legislation that perpetuates the current fee-for-service and cost-based reimbursement system, which they argue would only delay the needed shift of rural providers to value-based payment. Higher fee-for-service payments still wouldn’t help rural hospitals’ fully cover their fixed costs because many facilities only have a handful of inpatients per day.

A shift to value-based payment would give them financial flexibility to retarget their services from inpatient care to others more needed in their communities, said Keith Mueller, who heads the Center for Rural Health Policy Analysis at the University of Iowa. Such services might include emergency care, primary care, transportation services, behavioral health, dental care, telehealth and population health improvement.

To nudge rural hospitals into value-based care, the National Rural Health Association has proposed giving critical-access hospitals a 2% bump in Medicare reimbursement for submitting quality data and requiring them to join an accountable care organization within five years.