This document discusses challenges facing rural healthcare providers. It notes that 62 million patients rely on rural providers who face unique population, geographic, cultural and healthcare delivery challenges. Rural providers and patients are disproportionately dependent on federal programs like Medicare and Medicaid. Recent federal policies have enacted Medicare cuts that negatively impact rural hospitals. The document examines characteristics of rural hospitals that have closed since 2010 and potential factors contributing to closures. It also reviews characteristics of rural hospitals that have merged with other providers and whether mergers improved financial performance. The document advocates policy solutions to stabilize rural hospitals and ensure their future viability.
2. Rural Overview
62 million patients rely on rural providers.
Population challenges
Geographic challenges
Cultural challenges
Rural providers face health care delivery challenges like no other
provider.
Workforce shortages
Fiscal constraints
Rural providers and patients are disproportionately dependent on
Federal Government.
Medicare, Medicaid
Appropriations
Regulatory Process
Now, rural providers face unprecedented challenges from
Washington, D.C.
2
3. Rural disparities/challenges
• War on Poverty in the 60’s
• Rural Health Clinics –just turned 36 (1978), >4,500 RHC’s
nationwide
• Community Health Centers, created in the War on Poverty
• Advent of PPS 1983: 400 hospital closures
• Policy Response: SORH, Flex, MDH, CAH and LVH
• Rural serves more challenging populations:
• “Rural Americans are older, poorer and sicker than their urban
counterparts… Rural areas have higher rates of poverty, chronic
disease, and uninsured and underinsured, and millions of rural
Americans have limited access to a primary care provider.” (HHS, 2011)
• Disparities are compounded if you are a senior or minority in rural
America.
4. Problems still exist…
• Health equates to wealth according to Univ. of Washington
Study, July 2013
• Key Finding:
• The study found that people who live in wealthy
areas like San Francisco, Colorado, or the suburbs
of Washington, D.C. are likely to be as healthy as
their counterparts in Switzerland or Japan, but those
who live in Appalachia or the rural South are likely to
be as unhealthy as people in Algeria or Bangladesh.
6. Vulnerability Index: Rural Health Safety Net Vulnerable
283 Rural Hospitals Vulnerable
The VULNERABILITY INDEX™ identifies 283
hospitals statistically clustered in the bottom tier
of performance*
* Hospital Strength Index October 2014
6
7. Vulnerability Index: Rural Closures and Risk of Closures
The Vulnerability Index™ identifies 283 rural hospitals statistically clustered in the bottom tier of performance
35%Percent VulnerableXHospital Closures Since 2010
7
9. 9
2010-14 rural hospital closures:
Where were they?
Northeast
South
Midwest
West
.
Medicaid Expansion States
10. 2010-14 rural hospital closures:
When did they close?
10
0
5
10
15
20
25
2010 2011 2012 2013 2014 2015
7 to date
11. 2010-14 rural hospital closures:
How far away is the next closest hospital?
11
0
5
10
15
20
25
30
Miles
Distance to Next Closest Hospital
12. 12
Market Factors
•Small or declining
populations
•High unemployment
(as high as 18%)
•High or increasing
uninsured patients
•High proportion of
Medicare and
Medicaid patients
•Competition in close
proximity
Hospital Factors
•Low daily census, as
low as 2.3 patients a
day
•Lack of consistent
physician coverage
•Deteriorating facility
•Fraud, patient safety
concerns, and poor
management
Financial Factors
•High and
increasing charity
care and bad debt
•Severely in debt
•Insufficient cash-
flow to cover
current liabilities
•Negative profit
margin
2010-14 rural hospital closures:
Why did they close? (As reported by news media)
13. Most closures in South
Annual number of closures increasing
Most are CAHs and PPS hospitals (vs MDH and SCH)
Most are in states that have not expanded Medicaid
Patients in affected communities are probably traveling
between 5 and 25 more miles to access inpatient care
Most hospitals closed because of financial problems
13
2010-14 rural hospital closures:
Summary
14. Financial performance and condition of hospitals in the year
before they closed: Summary
14
Financial performance and condition far below
benchmark for most hospitals
Most hospitals were unprofitable, illiquid, and
unable to service debt
Most had less than:
150 FTEs, $10 million in salary expense, and 30%
occupancy rate
Most had already closed obstetrics
Data in appendix also shows most had:
Negative or close to zero net income and net assets
15. A general process of financial distress
15
Unprofitability
Net assets decline
Insolvency
Bankruptcy
Closure
Unprofitability, net assets
decline, insolvency, and closure
data are readily available.
Bankruptcy data are not.
16. Financial distress is defined as:
Unprofitability:
• 2 years negative
operating margin
• Negative cash
flow margin
Net assets
decline:
• >20% decline
in net assets
Insolvency:
• Negative net
assets
Closure:
• No longer
provides
inpatient care
16
Increasing Signal Strength
In some circumstances, there may not be financial distress
even though the markers suggest otherwise
17. Predictors of financial distress
Financial performance
o Profitability: total margin, two year change in total margin
o Reinvestment: Retained earnings as a percent of total assets
o Hospital size: Net patient revenue (millions)
o Benchmark performance: Percent of benchmarks met over two years
Market characteristics
o Competition: Log of miles to nearest hospital with > 100 beds and
market share (if <25%)
o Economic condition: Log of poverty rate in the market area
o Market size: Log of population in the market area
Government reimbursement
o Medicare: CAH status
o Medicaid: Medicaid to Medicare fee index (KFF)
17
18. Benchmarks in the model
Profitability indicators:
Total margin >3%
Cash flow margin >5%
Return on equity >4.5%
Operating margin >2%
Liquidity indicators:
Current ratio >2.3 times
Days cash on hand >60 days
Days revenue in accounts receivable <53 days
19. Benchmarks in the model
Capital structure indicators:
Equity financing >60%
Debt service coverage >3 times
Long-term debt to capitalization <25%
Cost indicator:
Average age of plant <10 years
20. 2013 Rural hospitals in US with financial distress signals
20
Financial distress signal Number Percent
Unprofitability:
2 years negative operating margin 659 30%
Negative cash flow margin 537 24%
Net assets decline:
>20% decline in net assets 355 16%
Insolvency:
Negative net assets 237 11%
Closed:
No longer provides inpatient care 14 1%
25. Definitions
A “merger” happens when two firms agree to go
forward as a single new company rather than remain
separately owned and operated.
When one company takes over another and clearly
establishes itself as the new owner, the purchase is
called an "acquisition.”
Most rural hospital deals are described in the media as
“mergers” or “consolidations.” However, most are
acquisitions: a larger hospital / system buys a small,
rural hospital.
We use “merger” to describe merger, acquisition, or
consolidation.
25
27. Research questions
What were the characteristics of rural hospitals
that merged, and
Were there changes in hospital financial
performance, staffing and services following a
merger?
27
28. Method
Mergers of 121 rural hospitals between 2005 to
2012 identified from Irving Levin Associates data.
Logistic regression used to identify hospital
financial and staffing characteristics associated
with the likelihood of merging.
Multivariate regression used to determine any
statistically significant changes in key hospital
financial indicators following a merger as compared
to non-merged rural hospitals.
28
29. Method
Hospital fixed effects included to adjust for
systematic differences between hospitals that did
or did not engage in a merger.
CAH status, acute average daily census, region, and
number of discharges were included to control for
hospital characteristics.
29
32. What didn’t change after merger?
FTE employees per bed
Number of skilled nursing facility days
Number of newborn nursery days
Capital expenditures
Debt relative to equity financing.
32
33. Conclusion
If small rural hospitals merge because they expect an
influx of capital, a relief of debt burden, or an
improvement in profitability, there was no evidence to
support this expectation.
Some evidence of changes in staff mix as well as
reductions in average compensation and total salaries
However, merger may be the only way for some rural
hospitals to survive.
Mergers are financial and legal events that have many
non-financial consequences (quality?, access?,
employment?, local economy?)
33
34. Two-Step Process:
1. Stop the bleeding. Halt additional proposed cuts to rural
hospitals from the Administration and Congress immediately.
Support pro-rural provisions such as Medicaid expansion,
elimination of the 2% sequestration cuts and 101%
reimbursement for CAHs to stabilize the rural safety net.
2. Build bridge to the future. Promote new provider payment
models to create a new rural reality.
@SaveRural…Fighting Back
35. The Save Rural Hospitals Act
Rural hospital stabilization (Stop the bleeding)
• Elimination of Medicare Sequestration for rural hospitals;
• Reversal of all “bad debt” reimbursement cuts (Middle Class Tax Relief and Job Creation
Act of 2012);
• Permanent extension of current Low-Volume and Medicare Dependent Hospital payment
levels;
• Reinstatement of Sole Community Hospital “Hold Harmless” payments;
• Extension of Medicaid primary care payments;
• Elimination of Medicare and Medicaid DSH payment reductions; and
• Establishment of Meaningful Use support payments for rural facilities struggling.
• Permanent extension of the rural ambulance and super-rural ambulance payment.
Rural Medicare beneficiary equity. Eliminate higher out-of pocket charges for rural
patients (total charges vs. allowed Medicare charges.)
Regulatory Relief
• Elimination of the CAH 96-Hour Condition of Payment (See Critical Access Hospital Relief
Act of 2014);
• Rebase of supervision requirements for outpatient therapy services at CAHs and rural PPS
See PARTS Act);
• Modification to 2-Midnight Rule and RAC audit and appeals process.
Future of rural health care (Bridge to the Future)
I Innovation model for rural hospitals who continue to struggle.
36. Grassley Proposal
Title: Rural Emergency Acute Care Hospital Act
(REACH)
Features:
• Creates a new provider type: Rural Emergency
Hospital (REH)
37. The Save Rural Hospitals Act
HR 3225: Sponsored by Sam Graves (R) MO and Dan Loebsack, (D) IA
Title 1: Rural hospital stabilization (Stop the bleeding)
Title 2: Rural Medicare beneficiary equity.
Title 3: Regulatory Relief (Stop the bleeding)
Title 4: Future of rural health care (Bridge to the Future)
38. Save Rural Hospitals Act
Title I: Rural Provider Stabilization
• Eliminating Medicare sequestration for rural hospitals
• Reversing cuts to reimbursement of bad debt for CAHs and
Rural PPS Hospitals
• Extending payment levels for low-volume hospitals (LVH) and
Medicare Dependent Hospitals (MDH)
• Reinstating revised DRG payments for MDHs and SCHs
• Reinstating hold-harmless for hospital outpatient services for
SCHs
39. Save Rural Hospitals Act
Title I: Rural Provider Stabilization
• Delays application of penalties for failure to be a meaningful
EHR user
• Eliminating rural Medicare and Medicaid DSH payment
reductions
Subtitle B—Other Rural Providers
• Making permanent increase Medicare payments for ground
ambulance services in rural areas
• Extending Medicare primary care payments
40. Save Rural Hospitals Act
Title II: Rural Medicare Beneficiary Equity
• Equalizing beneficiary copayments for services furnished by a
CAH
41. Save Rural Hospitals Act
Title III: Regulatory Relief
• Eliminating 96-hour physician certification requirement with
respect to inpatient CAH services
• Rebasing physician supervision requirements
• Reforming practices of RACs under Medicare
42. Save Rural Hospitals Act
Title IV: Future of Rural Healthcare
• Community Outpatient Hospital (COH) Program
• Grant funding to assist rural hospitals
• CMMI demonstration of shared savings in rural hospitals
43. RECESS!
• Members in district
• Meet in district office
• Invite them to your facility
• Show and Tell
• Staff in DC
• Message:
• Rural Hospital Closure Crisis -
Save Rural Hospitals Act
• Appropriations – support for rural programs
44. SGR Fix
For Rural Doctors: 27-32% PFS Cuts
• Permanent SGR Repeal ($276 billion permanent fix)
• GPCI Extension ($500M)—Extends until Jan. 1, 2018
For Rural Hospitals:
• MDH ($100M)—Extends until Oct. 1, 2017
• 10-12% loss of Medicare revenue; need to make up 19% from private insurer.
• LVH ($450M)—Extends until Oct. 1, 2017
• approx. $500,000 per hospital and can mean well-over $1 million.
• Medicare Home Health Rural Add-On (extends 3% add-on until Jan. 1, 2018)
• Extension of therapy cap exceptions process (extends until Jan. 1, 2018)
46. Health Affairs Report:
• Conclusion: Minimum-Distance Requirements
Could Harm High-Performing Critical-Access
Hospitals And Rural Communities
• President’s Budget continues to include eliminating
CAH designation if < 10 miles
• This idea has NOT gained any traction on the hill
• “We conclude that establishing a minimum-distance
requirement would generate modest cost savings for
Medicare but would likely be disruptive to the
communities that depend on these hospitals for their
health care.”
47. OIG Swing Bed Report
Medicare beneficiaries are eligible for up to 100
days of skilled nursing services following a
minimum 3-day acute inpatient hospitalization.
These services are provided in freestanding
skilled nursing facilities, hospital-based skilled
nursing facilities, and hospital swing beds
(Title 42 U.S. Code, 2011).
48. Post-acute skilled care days are dominated
by care in community-based SNFs
Source: NCRHRC analysis of CMS Hospital Cost Report
Information System, 6-30-10
49. UNC Sheps Center Conclusion:
• We believe the OIG has made methodological
choices that resulted in errors, and therefore,
the conclusions and policy recommendations
are suspect.
• A video that explains fixed cost transfers is available
at: https://www.youtube.com/watch?v=Ym75Tkka-xI
50. Conclusion on OIG
• No interest in Congress on Necessary Provider
exclusions
• No interest in Congress on Swing Bed
reimbursement changes
• However, NRHA is vigilant to make sure it stays that
way
• NRHA is working to fix beneficiary co-insurance
inequity for CAH patients
51. SGR Fix
For Rural Ambulance Providers ($100M) - Jan. 1, 2018
• 22.6% reductions
Two Year Extension:
Community Health Centers (CHC)
National Health Service Corps Fund (NHSC)
Teaching Health Centers
52. Converging Forces
• Price Reduction threats and volume
reduction pressures
• Expanding insurance coverage but narrower
networks
• Increasing quality of care measures and
accountabilities
• Widespread provider and payer affiliations
53. SGR Repeal and the Rest of
The Story…..
• Replaces it with a physician payment
system based on “quality, value and
accountability”
• Five year period of 0.5% annual FFS
updates in transition to “new system”
54. SGR Repeal and……
• Improves existing FFS through value over volume and
ensuring payment accuracy
• Consolidates the existing 3 physician quality programs into
a streamlined program that rewards providers who meet
performance thresholds
• Implements a process of payment accuracy
• Incentivizes care coordination efforts for patients with
chronic conditions
• Introduces “physician-developed” clinical care guidelines to
reduce inappropriate care
• Requires development of quality measures and provides
for reporting alignment across different payment programs
55. SGR Repeal and….
Incentivizes movement to alternative payment
models (APM)
• Minimal FFS yearly increase next 10 years of 0.5%,
then 0%
• Merit-based payment system (eventually -9% to
+27% adjustment)—Based on quality, resource use
and clinical practice improvement activities
• APMs (up to 5% bonus) based on APM level of
participation—25% revenue year one (2018-19)
• 41% payment difference between highest and
lowest performing physicians
56. SGR Fix Implications
Bottom line:
• Current plan leaves $141B between 2015 and 2025
unpaid for or in other words, added to the deficit
• Physicians pushed along to APMs and a value-
based system, impact on hospitals and volume?
• RHC cost-based reimbursement are exempt
• Physician alignment a key reality
57. Sec. Burwell’s Medicare Goals
• 30% of Medicare provider payments in APMs by 2016
• 50% of Medicare provider payments in APMs by 2018
• 85% of Medicare fee-for-service payments to be tied to
quality and value by 2016
• 90% of Medicare fee-for-service payments to be tied to
quality and value by 2018
58. CMS Payment Goals
Alternative Payment Models (APM)
• Shared Savings Models
• Bundled Payments
• Patient Centered Medical Homes
Remaining Fee For Service Linked to Value/Quality
Aggressive Timeline
• Favors: Large Systems, population health
management experience and deep pockets
Will Accelerate Provider Affiliations
59. So What?
• FFS/CBR payment Value Payment
• Primary care physicians become revenue centers
• High cost procedures, specialists and hospitals
become cost centers
• Insurance Strategies
• Reference Pricing and Narrow Networks
• Consumer Driven Healthcare
• High Deductibles and price transparency
• These fundamental healthcare changes will impact
our hospital’s financial viability and survival
60. Follow the Money
• How we deliver care is how we are paid for
care
• Healthcare reform is changing BOTH
payment and delivery
• Bottom line: reform involves transfer of risk
from payers to providers
61. The Pop Health Review
• Preparing for the “new health care”
• Population Health
• Transition From Volume to Value
• Market Trends
• DSR and Reimbursement Models
70. Healthcare Transformation
Current
Fee for Service
System
Value Based
Payment Model
Integrating and coordinating Care Across Continuum
Aligning Incentives for Value and Quality
Reducing the Cost Curve
71. ACOs Accelerating
Nationwide
• Nearly 700 public and private ACOs in every state and 7.8M
Medicare lives under a MSSP
• Medicare specific ACOs:
• 32 CMMI “Pioneer” participants, program began 1/1/2012—
9 dropped out with 7 converting to MSSP 1/1/2013—4
dropped in 2014 with 2 converting to MSSP
• Medicare Shared Savings Plan
• 4/1/2012 27 ACOs Added
• 7/1/2012 89 ACOs Added
• 1/1/2013 106 ACOs Added
• 1/1/2014 123 ACOs Added
• 1/1/2015 89 ACOs Added
75. Developing Market Trends
• Growing momentum to population health arrangements
• Multi-facility local/regional population health entities, such as
Community Care Organizations (CCO)
• Renewed interest in provider sponsored health plans
• MSSP participation will grow
• State Medicaid Innovation Models
• ACO Model (OR, AL, IL)
• Episode of Care/Bundled Payment Models (AR, TN, OH)
• Delivery System Reform Incentive Payment (DSRIP) Model (TX, CA and
NY): Program pays for system transformation, clinical improvement and
population health improvement
• Commercial Medicaid Expansion (AK, IA, PA, KS)
• Commercial Payor Developments
• SSP Models (Aetna, Cigna, Humana, United and many BC plans)
• Direct Contracting shared savings models (Aetna)
76. Market is Responding
• Continued growth in Consumer Driven Health Plans and
commercial shared savings agreements (2nd wave)
• Medicaid waivers will increase to implement ACO principles for
State Medicaid plans
• MSSPs will increase this year and next (89 new starts 1/1/2015)
• Declining hospital inpatient admissions due to these programs
(for example, 6% decrease in Chicago market last 48 months)
• Growth in Patient Centered Medical Homes (PCMH) 30,000
primary care physicians participating to date nationwide
• 10 Million newly insured (uninsured rate dropped from 17.5% to
12.4% since 2014)
77. First Things First
Care Redesign
• PCMH
• Clinical Integration
• Care Management
• Post-acute Care
• EHR
• Data Analytics
Care redesign must not outpace
Changes in payment
New Payment Arrangements
• Care Transformation Costs
• Care Management Payments
• Shared Savings
• Episodes of Care Payments
• Global Payments
Population
Health
Transformation
78. Care Management: Target Populations
Disease Management—
Virtual/Telephonic
Wellness/Prevention100% of Population
20-25% of Population
5-7% of Population
2-3% of Population Complex Individual Case Management
(40% of costs)
Complex Disease Management
Embedded/Primary Care
Source: Joseph F. Damore, Premier Health Alliance, March, 2015
80. 1. Preparatory
2.
Transformational
3.
Implementation
4. Expansion
Four Stages to Population Health
• Education
• Assessment
• Gap Analysis
• Operational Plan
• Primary Care
• PCMH
• Clinical Integration
• Care management
network
• Network
development
• Health informatics
• Defined population
• Payor partner
• Post-acute
• Employee health
plan
• Commercial
arrangement
• Medicare
• Medicaid
• Employer
contracting
• Uninsured
Source: Joseph F. Damore, Premier Health Alliance, March, 2015
81. Volume to Value: Specifically….
• How do we set a glide path to delivering
value when our revenue is primarily volume
driven?
• What changes can we implement now to be
successful in the future?
• Maybe a new set of tools?
82. Rural Hospital Tool Box
1. Optimize Fee for Service
2. Enhance Efficiency
3. Improve Patient Care
4. Engage Physicians
• Develop Patient Centered Medical Homes…(DSR)
• Get Paid for Quality/Value…(PR)
• Coordinate Care
• Establish a Referral Network
• Engage Your Community
• Consider Regionalization
Source: RUPRI
83. APM Readiness Checklist
• Rural Health Value Project, part of RUPRI, checklist
for you to evaluate your readiness for APMs.
• Takes about 90 minutes for you and your team to
review and answer.
• Points out gaps in readiness and a foundation for
action.
• Webinar on Aug. 27, 2015 to formally introduce
• WHA will share an advance copy
84. 1. Optimize Fee For Service
• Revenue Cycle Management
• Expense Management
• Market Share
• PQRS
• Payer and Purchasing Contracts (GPO)
• Inventory Management
• Appropriate Volume
85. 2. Efficiency
• Lean
• Six Sigma
Speed plus Accuracy =
Satisfied Employees, Better Delivery,
Better Quality and Satisfied Customers
86. 3. Improve Patient Care
• Clinical Quality, Patient Safety, and the Patient Experience
• Always is > than the mean, always improving
• Leadership priority
• Quality/Safety Performance
• Outpatient: 33 ACO Measures
• Inpatient: Hospital Compare
• Communicate to Improve
• Public Reporting (CAH Website)
• Every Meeting
• Charts
• Unbind the Data
• Direct Contracting for Care (cut out the middle and share savings)
• Your own employees (self-funded plan)
• Business and Industry (Boeing Announcement example)
87. 4. Engage the Physicians
The Hospital CEO’s most important
job is developing and nurturing
good medical staff relationships
88. Journey to Value: A
Process not an Event
“We always overestimate the change
that will occur in the next two years and
underestimate the change that will
occur in the next ten.”
--Bill Gates, Jr.
89. Key Issues
• Protection from burdensome and excessive policies
o Physician Supervision
o 96-Hour Certification Rule in CAH’s
o Two-midnight Policy
o CAH vs PPS Outpatient Coinsurance: OIG Report
• Protect 340B Program
• ACO Regulations for CAH and rural providers
• Public Health—Ebola, Enterovirus D68, HIV/AIDS
• HPSA/MUA/MUP Data Collection Changes
• Workforce
89
91. Key Issues
• NQF Rural Quality Task Force
• Veteran’s access to rural providers
www.va.gov/opa/choiceact or (866) 606-8198
• Meaningful Use Stage 2 and now 3
• Rural Health Clinic (RHC) Program
• Federally Qualified Health Center (FQHC)
• Population Health
• Tele-health Opportunities
• CMS Request Letters to CAHs on Validating distance
92. T H A N K Y O U
Questions?
Brock Slabach
Senior Vice President
National Rural Health Association
bslabach@nrharural.org