Designation change could cut critical access hospital funds

02/23/2014 12:00 AM

08/08/2014 10:22 AM

In rural areas, small town hospitals can be a lifeline.

But leaders at rural hospitals across the state are concerned about a report released by the Department of Health and Human Services last fall that suggests the federal government re-evaluate how those hospitals are designated for purposes of Medicare reimbursements.

“I don’t think there’s any question that it would send some of those hospitals over the edge,” said Tom Bell, president and CEO of the Topeka-based Kansas Hospital Association.

“They’re fragile right now, and in addition to this issue kind of looking over their shoulder there are so many regulatory burdens. ... They’re trying to deal with the very specific day-to-day concerns that are created by these regulations and at the same time in the background is this looming report that threatens their entire existence.”

A change in designations could affect how much the 1,300 critical access hospitals nationwide receive in reimbursements – part of the federal government’s effort to contain the growth of Medicare.

With 83 critical access hospitals, Kansas has more than any other state, according to the Flex Monitoring Team, a group of rural health research centers in Minnesota, North Carolina and Maine.

Medicare reimburses critical access hospitals at 101 percent of their costs.

The report suggests that critical access hospitals within 35 miles of another hospital have their designations re-evaluated and receive reimbursements like other Medicare-certified hospitals.

But a big concern is the fact that roughly half of the critical access hospitals in Kansas already operate at a loss, according to data from the American Hospital Directory, which uses data based on hospital Medicare filings.

If the 35-mile change were enacted, the Kansas Hospital Association predicts 72 of the 83 critical access hospitals in the state would be impacted.

The entire Kansas congressional delegation has signed a letter voicing concerns to Health and Human Services Secretary Kathleen Sebelius, the former governor of Kansas.

Matter of survival

If Kingman Community Hospital were to lose the critical access hospital designation – since it’s less than 35 miles from Harper and Pratt hospitals – CEO Ed Riley estimates that would cost them more than $1 million a year in reimbursements.

“When we already operate in the negative, that would mean this hospital probably wouldn’t survive,” he said.

The last few years, Kingman Community Hospital has averaged a $200,000 to $400,000 loss, he said. It doesn’t receive any revenue from local taxes to help support it and Medicare recipients make up about 65 percent of patient volume.

“You can’t operate at a loss forever.”

Riley doesn’t see the 35-mile rule likely being enforced, but there has been discussion in the federal government of getting rid of the designation for hospitals within 10 or 15 miles of each other.

If that happened, there are 12 critical access hospitals between 10 and 15 miles apart, and one that is about 10 miles from another hospital, according to the KHA.

“If CMS had decertified CAHs that were 15 or fewer miles from their nearest hospitals in 2011, Medicare and beneficiaries would have saved $449 million,” the report says.

Ben Quinton, CEO of William Newton Hospital in Winfield, agrees it’s more likely the government will push for the changes to hospitals that are closer together than 35 miles.

“I don’t think they’ll go forward with the (report’s) recommendation, but at best they’ll go forward with the Obama budget proposals, which indicate several things, like if any hospitals are about 10 miles apart,” Quinton said.

Harper Hospital is 10.7 miles away from the hospital in Anthony, said Bill Widener, Harper CEO.

“They’re not going to take away (the designation) from one or the other. You take both,” Widener said.

“What happens when there’s no hospital in Harper County? You may start with 10 miles apart, then where do you go? Fifteen? Twenty-five and slowly increase to 35? Even 35 miles or less is quite a ways and could be hazardous.”

One of the biggest concerns to Widener would be losing an emergency department.

“We have industry here in Harper that use heavy machines and farmers are around heavy machines,” Widener said.

“If you have an accident of some sort, that’s over an hour if you have to take an ambulance to Wichita. In a trauma situation, or if you’re having a heart attack or stroke, those minutes are golden.”

Payment problems

Medicare is the dominant payor for most critical access hospitals.

“Right now, theoretically, they get 101 percent reimbursement,” Bell said. “But with sequestration, that goes below 100 percent because it requires a 2 percent reduction in Medicare payments.”

“The program was designed to provide protections for those hospitals deemed critical to health care access. They did have some reimbursement protections built in, but those have frankly been diluted a little bit. But the biggest issue is if that designation were removed, it would literally kill a number of rural hospitals in our state. I just don’t think there’s any question about that.”

For most small hospitals, cash flow is a big issue.

“It really restricts what you can do sometimes,” Harper’s Widener said. “If you want to implement a new program or service, the reimbursement isn’t always there – but your outlay is.”

Harper’s hospital receives some local tax revenue. Without it, the hospital likely wouldn’t survive, Widener said.

The federal report stated that in 2011, critical access hospitals cared for about 2.3 million Medicare recipients, and Medicare paid about $8.5 billion for that care.

“Part of the problem you have is trying to plan for the future,” Widener said.

“It’s hard to plan when you don’t know what’s going to happen next. ... Are we going to get paid or not? If we do this now and get paid for it later, are they going to come back and retroactively take it back?”

Hospitals are the largest or one of the largest employers in many rural areas.

“In some of these towns, it’s the life or death of the town,” Widener said.

The Harper hospital has about 125 employees and seven employed physicians. It’s one of the biggest employers area, he said.

Rural challenges

For Robert Moser, secretary of the Kansas Department of Health and Environment, the biggest concern is access to services.

Moser understands the importance of rural health care firsthand. From 1988 to 2010, he practiced family medicine in Greeley County and Wallace County.

“We did everything from deliveries to C-sections to tonsillectomies and endoscopies,” he said.

Moser said he’s frustrated at how the federal government is looking at the changes to the designation and that the report doesn’t consider the added costs for ambulance transport and other costs associated with people having to travel farther to get to hospitals if critical access hospitals are closed, Moser said.

“It seems like pretty small change in the sum of things when compared to the impact this will have on small communities,” Moser said.

From a financial perspective, the federal government should revisit the area of critical access hospitals, Moser said, but it shouldn’t use a one-size-fits-all method.

“We need a thorough state-by-state analysis of the area served and if the patient mix really demands that facility remain. So I think it’s very important to get down in the weeds and come see what life is like in these systems rather than looking at it on paper,” he said.

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