Beyond the Byline: Rural emergency hospital pay will be too low, experts say

Senior Operations Reporter Alex Kacik and Rules and Regulations Reporter Maya Goldman discuss CMS’ payment framework for a new rural hospital model.

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Alex Kacik: The Centers for Medicare and Medicaid Services unveiled the payment framework for a new rural hospital model. Rural hospitals hope that the rural emergency hospital designation will help them stop the service cuts they’ve made in recent years to stay open. But will it come soon enough? Welcome to Modern Healthcare’s Beyond the Byline, which offers a behind the scenes look into our reporting. My name is Alex Kacik, senior operations reporter, and I’m joined by Maya Goldman, our rules and regulations reporter. Thanks for coming on, Maya.

Maya Goldman: Thanks for having me, Alex.

Alex Kacik: All right Maya. A lot was hinging on the payment methodology associated with the new rural hospital model, where hospitals have to eliminate all of their inpatient capacity in exchange for a pay boost. How will payments be allocated under the rural emergency hospital program?

Maya Goldman: So basically, any outpatient emergency department and observational care will be covered at the outpatient prospective payment system rate, plus the 5% boost on top of that, and rural emergency hospitals will also get a monthly facility payment. The calculation that CMS describes for figuring out this monthly payment is pretty complex, but it comes out to about 72% of the estimated prospective payment for critical access hospitals in 2019. The projected monthly payment for next year is about $268,000, according to the Healthcare Financial Management Association. Also, interestingly, CMS wants to include a Stark Law or Physician Self-Referral Law exception for rural emergency hospitals. From my reading of the language of the proposed rule, it seems like this was done to put rural emergency hospitals on sort of the same playing field as other hospital type settings in terms of Stark Law exceptions. But I am definitely curious to see how that all plays out. And it’s also important to remember that none of this is set in stone yet. CMS is seeking comments on the proposal through September, the middle of September.

Alex, what have your sources said about the potential impact of the new rural hospital model?

Alex Kacik: Well, that’s interesting on the Stark Law front, it reminds me of the ambulatory surgery center rules. And there needed to be pretty specific guidance on how Stark Law applied and didn’t apply, particularly when a physician owned part of the surgery center. So yeah, it’ll be interesting to keep an eye on that.

But when it comes from the overall potential impact of the new model, it ranges. A rural hospital consultant told me that he thinks it was dead on arrival, critical access, hospitals are reimbursed based on their costs, which covers most of their overhead related to their specialized equipment and staying open 24/7. That all changes under this model, a 5% boost on typically low volume outpatient services won’t cover it. He said that estimations interesting because we talked prior to when the payment methodology came out. And he said that monthly facility fee has to be north of $1 million to be viable. So I imagine he would still think that’s that’s a little low. Others are more optimistic. Brock Slabach on the National Rural Health Association said that putting the parts together for licensure and certification will be a hurdle. But there are some state and federal grants that rural hospitals can apply for to help them convert. Overall, you know, they he was one of several that were pretty optimistic that this would help particularly the low volume facilities. So one of the provisions in this rule was that skilled nursing care and lab services provided in a unit outside of the physical hospital will not qualify for the 5% pay boost.

My one source told me that the new model would limit 340B reimbursement. I haven’t checked into that independently, but I’m wondering if you could set the groundwork for what 340B funding has in terms of financial impact on rural hospitals.

Maya Goldman: I didn’t see any mention of 340B for rural emergency hospitals in the proposed rule either. But that doesn’t mean that there isn’t something in there. I do know advisory committees have asked CMS to work with the Health Resources and Services Administration to expand 340B to include rural emergency hospitals. So we might see more movement on that 340B discounts though, can be a really important source of money for rural hospitals and other safety-net hospitals. The money saved by purchasing discounted drugs is used to pay for a lot of the charity care provided by these hospitals. So losing that could be difficult. And there are some other cuts to the program that have made things difficult for the safety-net hospitals, but then other people that are not 340B hospitals argue that it’s too easy to gain the 340B system and that losing this funding wouldn’t actually have much of an impact. So it’s sort of in the eye of the beholder.

Alex, what impact does lab services revenue have on rural hospitals?

Alex Kacik:So the average outpatient lab to total charges ratio among all the nearly 5,000 hospitals have filed cost reports was around 12% in 2017. We haven’t updated that data recently. But for some rural hospitals, outpatient lab charges can make up closer to 1/5 of hospitals total charges for a year. So it’s a pretty significant chunk of the revenue. Many rural hospitals also have swing beds. And this is one issue that sources brought up with me. So that would go away once they would get rid all their inpatient capacity, those swing beds can switch from acute to skilled nursing when short stay volumes are low. So they were concerned that you know, once that was eliminated in this model, that it could eliminate some of the flexibility when the patient acuity was changing, for instance. There’s some issues to be hammered out in terms of how exactly these hospitals are going to be set up and how it differs from their current operations

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Maya Goldman:Yeah, and what have you found out about rural hospitals that have had to cut some services to remain open? I know that’s something you’ve done a lot of reporting on over the years.

Alex Kacik: Maternity care is often first on the chopping block. We’ve seen this hollowing out particularly in rural communities of Obstetrics and Gynecology care. And in those areas, they’re hard to maintain because they require OB-GYNs or family practitioners, and anesthesiologist and surgeons who can perform C-sections. So if you don’t have an OB-GYN you need separate specialists on hand on call to perform those specialized procedures. And then malpractice insurance premiums are among the highest for OB-GYNs. So that’s partially why there’s a projected shortfall of OB-GYNs come 2030 There’s some hesitancy given the liability and risks there are few and far between and rural communities.

As of now, I spoke with a couple sources about a hospital in Missouri that was contemplating closing its obstetrics unit, the CEO was saying we either cut the service line or potentially the entire hospital, they perform about 80 deliveries a year. And most rural hospitals need to do 200 to remain profitable and maintain safety standards. So around 250 rural hospitals have cut maternity care over the past decade. And this could exacerbate maternal morbidity and mortality rates which are already among the highest in the U.S. compared with other developed countries. And people of color tend to bear the brunt of these access gaps and quality deficiencies.

So in terms of next steps, Maya, when it comes to rolling out this rural emergency hospital model, what does that look like? How do you think it will be received? I imagine rural hospitals have to start preparing now to convert, you know, which comes with an additional expense and time and so on so forth.

Maya Goldman:Well, the immediate next step would be the comment period on the rule. So any member of the public can voice their opinions on these proposals to CMS up until September 13. And then the agency will finalize the role probably sometime in late October, we’ll have to see if CMS makes any big changes to the policy. And then payment should begin January 1, 2023, for rural emergency hospitals. From what I’ve heard and read and what you’ve talked about, rural hospitals aren’t all very excited about the model. So I expect that to show up in the comments. But I’m not sure how much CMS can change since this new model was created through legislation. So they’re sort of beholden to what was in the law. But it will be interesting to follow this and to see what if anything does change from the proposed rule to the final rule of speaking of changes in policy.

Alex, what other policy changes could help sustain rural hospitals aside from this new model?

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Alex Kacik: Sure. I’ve heard a few suggestions here. As for maternity care, midwives, and doulas can help fill some of the gaps outside of the hospital setting. But they are limited by scope of practice laws. So those may need some tweaking. And then that is also always tricky, because you typically need some legislation to change that. The federal government could expand the National Health Services Corps funding for midwives, the program that incentivizes tuition reimbursement for caregivers, entering underserved areas. Another suggestion involves paying higher reimbursement rates to low volume obstetric units that are more expensive to maintain.

That last one I thought was interesting. I didn’t know how feasible it was to set up like a sliding scale of sorts when it comes to reimbursement.

Would it be feasible to set up a flexible payment rate via Medicare, Medicaid to rural hospitals based on their annual procedure volumes?

Maya Goldman: That is a great question and If any listeners out there want to let us know what you think we would love to hear your thoughts.

I don’t know where efforts stand around different payment based on procedure volumes. But this certainly seems like an area where maybe the Center for Medicare and Medicaid Innovation could jump in with an alternative payment model. I know CMS is working to bring more rural providers into value-based care in general, and alternative payment in general and several changes to the Medicare Shared Savings Program, which is the largest ACO, Accountable Care Organization program that CMS runs. The proposed changes from earlier this month for that program are also aimed at bringing in rural providers and other providers into the program. And they include policies like upfront payments to help with startup costs and longer periods to ease into downside risk arrangements. So I could expect that we could see some more innovation in that area coming up.

Read more:
Q&A with Elizabeth Fowler of the Center for Medicare and Medicaid Innovation: ‘We want to be a good partner to good actors’
The Check Up: Elizabeth Fowler of Center for Medicare and Medicaid Innovation

Alex Kacik: Well, this gives us a lot to follow up on Maya. Thank you so much for sharing your reporting expertise with us.

Maya Goldman:Thank you for having me, Alex. Always great to talk.

Alex Kacik: And thank you all for listening. You can subscribe to Beyond the Byline on Spotify, Apple podcasts or wherever you choose to listen. You can support the reporting of Maya, myself and our team of reporters by subscribing to Modern Healthcare and giving us a follow on Twitter and LinkedIn. Thank you for your support.