Federal rules and cuts threaten critical access hospitals' viability, CHI executives say

January 15, 2014


Health care providers nationwide are closely watching Congress and the Centers for Medicare and Medicaid Services to see how decisions impacting health care funding and regulations will play out in the coming months. Critical access hospitals are among those most concerned about how potential reimbursement cuts and new federal rules could impact their viability.

Thomas Cooper, an emergency room nurse and family nurse practitioner, examines a patient at Oakes Community Hospital in Oakes, N.D. Oakes is a critical access hospital that is part of Catholic Health Initiatives.

Leaders at Englewood, Colo.-based Catholic Health Initiatives are among the advocates telling Congress that seemingly modest changes in policies and payments may have a disproportionately negative impact on critical access hospitals. CHI executives delivered this message to legislators during an October Capitol Hill visit, and they continue to press the message.

"Our hospitals are the lifeline of our communities," said Ben Koppelman, president of Park Rapids, Minn.'s St. Joseph's Area Health Services, and one of 13 leaders in the CHI delegation. He said if proposed cuts go through, critical access hospitals may have to cut vital services or close.

Multiple threats
Critical access hospitals are rural hospitals with 25 or fewer beds that have around-the-clock emergency department services and are, with some exceptions, more than 35 miles from the nearest hospital. A critical access hospital may be 15 or more miles from another hospital in mountainous terrain or if only secondary roads connect the two facilities. Some hospitals were exempted from the 35-mile proximity rule by state regulators based on a determination of market need. These mileage exemptions are being reexamined and may be eliminated.

CHI advocacy staff also are expressing concern about a Centers for Medicare and Medicaid Services requirement that would add to the workload of physicians at critical access hospitals and congressional proposals that would pinch hospital reimbursements. All of these rules and proposals are in play during congressional deliberations on fiscal year 2014 spending.

Critical access hospitals are reimbursed by Medicare based on their costs, a more generous reimbursement formula for low-volume providers as compared with the prospective payment system used for all other community hospitals. According to Marcia Desmond, CHI vice president of public policy, 24 of CHI's 87 hospitals are critical access hospitals; and most of them depend on Medicare reimbursement for half or more of their revenue.

Mariann Doeling, market president for CHI's Carrington Health Center in Carrington, N.D., said margins can be razor thin at critical access hospitals. Patient volumes are low and overhead is high because the facilities maintain expensive services including emergency departments, she said. These facilities "are just getting by," said Desmond.

Physician workload
One challenge the hospital leaders focused on during their Hill visits is a CMS requirement that took effect Jan. 1, that in order to be paid for certain outpatient procedures such as intravenous administration of medication, critical access hospitals must have direct physician supervision of staff performing those procedures. (Technically in some states nurse practitioners or physician assistants may stand in for the physicians for some of the procedures in question, and CMS allows that. However, that does not negate the staffing issue, Desmond said, because these clinicians are just about as hard to recruit for this particular work as physicians, and not all states allow these clinicians to supervise these therapeutic outpatient procedures.)

Prior to Jan. 1, other clinicians could complete the procedures without direct physician oversight. CHI's leaders say it is too difficult and costly for critical access hospitals to recruit enough physicians to fulfill this requirement. And they say there is no evidence that care quality will improve under this rule.

Legislation approved in December by the Senate Finance Committee (related to the sustainable growth rate formula for physician payment) includes an amendment allowing critical access hospitals to continue to provide outpatient therapies under the old general physician supervision rules, rather than direct supervision. The bill has yet to be passed by the full Senate and no bills in the House address the issue.

Congressional proposals
Proposals on the table to reduce federal spending include provisions to decertify as critical access hospitals certain facilities that are within 10 to 15 miles of another hospital. The facilities at risk for decertification had been awarded critical access hospital standing as a result of flexibility given the states before 2006. Fifteen of CHI's 24 critical access hospitals had been designated by their states as necessary providers and exempted by their states from the 35-mile rule for critical access providers.

Brock Slabach, the National Rural Health Association's senior vice president for member services, said states know best which hospitals are critical to their communities, and they should not be second guessed by the federal government.

CHI is also advocating to preserve critical access hospital reimbursement rates at 101 percent of costs. Proposals in Congress would lower the rate to 100 percent of costs. The rural health association has said, "Cuts of even 1 percent in Medicare reimbursement rates will put 50 percent of all (critical access hospitals) into the red, inevitably causing hospital doors to close."

Doeling said, because of how CMS defines "reasonable costs," critical access hospitals do not get reimbursed for all the services they provide. For instance, at Carrington, physician services in the emergency department and services provided by the ambulance department are not fully reimbursed. The shortfall is covered by rates negotiated with commercial insurance payers and patients who pay on their own, Doeling said.

CHI is also asking legislators to oppose attempts to eliminate reimbursements to critical access hospitals for unpaid Medicare deductibles or coinsurance. Doeling said CMS already has reduced Medicare bad debt allowances to 65 percent of what is incurred; and that has been a financial drain.

Called into question
Some politicians advocating reimbursement reductions for critical access hospitals question whether the more generous reimbursement for these facilities is justified.

Slabach of the rural health association said data shows that the rural populations that critical access hospitals serve have a higher percentage of uninsured and underinsured people than do urban areas; and these rural areas have an older, sicker population than urban areas. Additionally, Slabach said, analysis shows that there is a lower cost per Medicare beneficiary for communities with critical access hospitals, as compared to their urban counterparts.

More than 41 percent of critical access hospitals operate at a net financial loss, according to the rural health association. CHI's Desmond said having the economies of scale of a large system provides some financial cushion for CHI critical access hospitals. But not all critical access hospitals have that buffer.

Reducing services
Koppelman said if reimbursements fall or the critical access designation is lost, rural hospitals will have to reevaluate their ability to continue to provide services that consistently operate in the red.

He said if services are cut patients likely would have to travel longer distances for care, an added physical and financial hurdle to care for some seniors. Desmond said local economies may take a hit when critical access hospitals struggle financially, since in some small towns, "the hospital is the centerpiece of the economy."

Desmond said preserving the viability of critical access hospitals is part of CHI's Catholic health mission. "We will keep pounding away on our message — we need to keep these services in these communities," she said.

Visit Catholic Health World online at chausa.org/chw for more on critical access hospitals.

Critical access hospitals in the U.S.
Critical access hospitals provide essential services to communities across the U.S. According to the American Hospital Association's  "In Critical Condition" fact sheet:

  • There are 1,330 critical access hospitals in the U.S.
  • They operate in 45 states
  • Annually at critical access hospitals, there are 7 million patients treated in emergency departments, 38 million outpatient visits, 900,000 patients admitted and 86,000 babies delivered
  • On average, 35.9 percent of critical access hospitals' gross revenue comes from private payers, 47.3 percent from Medicare, 15.5 percent from Medicaid and 1.3 percent from other government sources.


Copyright © 2014 by the Catholic Health Association of the United States
For reprint permission, contact Betty Crosby or call (314) 253-3477.

Copyright © 2014 by the Catholic Health Association of the United States

For reprint permission, contact Betty Crosby or call (314) 253-3490.