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Inspector general's report has rural hospitals worried

9/9/2013

By MIKE SHIELDS

KHI News Service

WINCHESTER -- A new report from the inspector general of the U.S. Department of Health and Human Services includes recommendations that, if acted upon could undermine hundreds of small, rural hospitals across the nation including scores in Kansas, hospital officials and some rural health experts say.

"It would be a matter of time before many of them (the hospitals) would have to close," predicted Brock Slabach, senior vice president for member services at the National Rural Health Association, which is encouraging its 20,000 members to voice alarm about the 34-page report to members of Congress.

"I don't think any senator or congressman would want to preside over the closure of hundreds of hospitals in rural communities across the United States," Slabach said, noting that even if the report's recommendations were to go mostly unheeded by federal officials there are other proposals, including a budget plan from the White House, that could hurt the hospitals as the government looks for ways to brake Medicare spending.

Proliferation

According to the Office of Inspector General, there are more than 1,300 U.S. hospitals designated as "critical access" facilities.

Kansas has 83 critical access hospitals -- more than any other state.

The designation, created by Congress with the Balanced Budget Act of 1997, was intended to assure reasonably close hospital access to rural residents across the country by guaranteeing that the qualifying hospitals would receive favorable Medicare payment rates. The favorable rates were to help the small hospitals stay in business despite small patient volumes compared to their urban counterparts. They were enacted in response to hundreds of rural hospitals closing their doors in the 1980s and 1990s.

Reimbursing these small hospitals at 101 percent of their costs for Medicare services helps them stay in business despite the relatively small number of patients they treat compared to their urban counterparts. In Kansas, critical access hospitals are also reimbursed on a cost-plus basis for Medicaid services. Congress authorized the higher rates in response to hundreds of rural hospitals closing their doors in the 1980s and 1990s.

Sixteen years later, the facilities have proliferated. Now, only five smaller states on the east coast have no critical access hospitals. Kansas has 83. Iowa has the second most with 82. Texas has 80 and Minnesota, 79, according to a list kept by the Flex Monitoring Team.

Initially, the designation was allowed only for hospitals more than 35 miles apart with some exceptions for those in "mountainous terrain" or accessible only by secondary roads, meaning via state highways or local roads.

'Necessary providers'

But until Jan. 1, 2006, states and their governors were allowed to also designate some hospitals that failed to meet the distance requirements but qualified as "necessary providers." That state authority, which qualified the designated hospitals for the higher reimbursements, was widely used, Kansas being a prime example.

HHS Secretary Kathleen Sebelius, then Kansas governor, signed off on the certification of 31 Kansas hospitals between 2003 and 2006, according to Slabach, who said he hoped she would remember why she did that now that she is the top federal health official.

"So, now that she's secretary we just hope she remembers her commitment to rural health and ensuring access to care in those 31 (Kansas) counties," he said.

In any event, the HHS inspectors concluded in their report that 849 of the nation's critical access hospitals -- nearly two-thirds of them -- would not meet the law's distance benchmarks, if they were forced to reapply for the designation using the original standards. Of those, 751 had been designated by state leaders, such as Sebelius, as "necessary providers."

Cutting costs

The inspectors are recommending that Congress change the law so that the federal Centers for Medicare and Medicaid Services could reassess the critical access hospitals.

If that were done according to the original distance requirements, they concluded, hundreds of the hospitals would fail to meet the standards and the government and Medicare patients would save billions of dollars thanks to halted preferred payments.

By their estimate, pushing those hospitals out of the designation would save taxpayers $268 million a year in 2011 dollars. Medicare patients would save another $181 million thanks to reduced co-insurance payments.

Those calculations are challenged by the National Rural Health Association. Officials there don't even agree with the way the inspectors calculated the number of hospitals that would fail the distance standards, if forced to reapply.

"We happen to think that list is in error," Slabach said. "They didn't use very sophisticated mapping techniques. It could be over or under we don't know. But I would say any hospital on the list that doesn't meet the (original) criteria should consider themselves vulnerable."

Critical Access Designation

To be certified for favorable Medicare rates, Critical Access Hospitals must meet location requirements and cannot have more than 25 beds for acute-care or "swing-bed" patients. They must offer 24-hour emergency services and the average annual length of patient stays cannot exceed 96 hours.

Quite a few Kansas and Missouri hospitals would be among the vulnerable.

"Seventy-two of our 83 (critical access) hospitals would be affected. That's a lot," said Cindy Samuelson, vice president of member services and public relations at the Kansas Hospital Association, commenting on the HHS OIG report.

The OIG report included a map reference to Missouri that showed about 70 percent of that state's critical hospitals would no longer be eligible, if the recommendations were followed. But the report did not reach that level of detail with other states. That has prompted state associations around the country to start their own tallies.

Slabach and KHA officials said their respective groups were rallying members of Congress in an effort to ward off any of the payment cuts proposed in the inspector's report and likewise to stave off a budget proposal from the Obama administration that also would pare the nation's list of critical access hospitals, though less dramatically.

The Obama plan would bump from the list about 70 hospitals nationwide that are within 10 miles of one another, trimming Medicare spending by about $40 million a year.

Congressional opposition

Slabach said Kansas U.S. Sens. Jerry Moran and Pat Roberts, both Republicans, have signaled they would oppose the proposed changes to the critical access system and a bi-partisan letter penned by two other farm state senators to HHS has picked up more than 20 signatures. Nose counting in the U.S. House also is underway.

"The fact this (OIG) report exists and is out there I don't think is imminently troubling to us because of the support in Congress that we're pleased about," Slabach said. "But you remember how they did the 2013 budget reconciliation. It was 11:55 on New Year's Eve. We're fearful of those last-minute conference committees behind closed doors where they throw everything but the kitchen sink in to boil and you wake up the next morning to find something horrific has been done. So that's what we're trying to prevent."

There are other ways that small hospitals are being squeezed financially, regardless what Congress does with the budget or the OIG report.

HHS officials in March began a new policy of requiring periodic reassessments of some critical access hospitals, opening the door on the possibility some will be decertified.

"This just reiterates the status quo we've seen from the regulatory agencies," said Chad Austin, senior vice president of government relations at the Kansas Hospital Association. "They're just really making it difficult on critical access hospitals."

Slabach said his group didn't agree with the OIG's apparent premise that there are too many rural hospitals.

"Nobody seems to question whether there are too many hospitals in an urban environment when there's a hospital on each of four corners," Slabach said. "Each state was asked to commit their assessment of what they felt the necessary providers should be. Why would the federal government, some bureaucrat at CMS sitting in Baltimore, know better than the governor and health department in each state?"

* The KHI News Service is an editorially independent initiative of the Kansas Health Institute and is committed to timely, objective and in-depth coverage of health issues and the policy making environment.