Flexibility, Value-Based Payment Key to Rural Hospital Success

January 26, 2018 - Health policies should provide rural hospitals with the flexibility to develop healthcare services that meet community needs and the value-based payment and funding structures to support tailored services, the Bipartisan Policy Center (BPC) and Center for Outcomes Research and Education (CORE) stated in a new report.

Policymakers and healthcare leaders should reexamine their approach to rural hospital support. Over 80 rural hospitals have closed since 2010 and more are on the brink of shuttering their doors. About 41 percent of the organizations operated with negative margins in 2016, a recent iVantage Health Analytics study revealed.

To uncover rural hospital challenges with current health policies and reimbursement structures, the Bipartisan Policy Center and CORE spoke with over 90 rural healthcare stakeholders in seven Upper Midwest states. The states have an aggregate population of almost 14 million individuals, or 4 percent of the country, and the lowest population densities per square mile.

Rural healthcare stakeholders identified several rural hospital challenges, including the inability to tailor delivery services and a lack of value-based payment and funding mechanisms to support transformations.

“Delivering healthcare in rural communities is a distinct undertaking from delivering healthcare in other parts of the country,” the report stated. “This distinction tends to go unacknowledged in health policy, which often puts rural areas at a disadvantage.”

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The report examined the rural hospital issues and offered solutions to support rural healthcare and keep hospitals open.

Rural hospitals should be able to define their own needs and services

Critical access hospitals (CAHs) are the most common delivery model serving rural communities, the report stated. According to Medicare policy, CAHs have no more than 25 inpatient beds and are at least 15 miles by secondary road and 35 miles by primary road to the closest hospital.

Medicare reimburses these hospitals at a cost-based rate in lieu of the prospective payment system rates to help cover the costs of care at low-volume, rural hospitals.

However, stakeholders expressed concerns with the CAH delivery model.

“Participants in this project struggled to reconcile their opinions that CAHs are no longer the most efficient way of delivering care in rural areas with concerns that closing the hospitals would still create access issues for communities and would have a negative effect on local economies,” the report stated. “Having the ability to adjust the CAH model to fit the needs of individual communities was frequently brought up in interviews; for example, some communities need the local hospital to have inpatient beds, while others do not.”

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Rural healthcare leaders called for the ability to “right-size” their hospitals. Rural hospitals should be able to adjust CAH services to fit the needs of their communities while still qualifying for special Medicare reimbursement rates.

“For cases where a full-service hospital is not necessary, stakeholders see the potential for a new organizational form, with services that lie on the spectrum between hospital and primary care,” the stakeholders explained. “In addition, stakeholders talked about strengthening the foundation of primary care, highlighting that that primary care and preventive care does not just begin and end with outpatient clinics: Hospitals and other organizations can help create a culture of prevention and play a role in population health improvement.”

Granting rural hospitals the flexibility to dictate needed services would also prevent the migration of residents to other healthcare facilities in the region.

To prevent migration, policymakers should also modify current rules, such as ones that limit swing bed numbers and prohibit acute care patients from staying longer than 96 hours before a hospital transfer.

“Rural stakeholders emphasized that there can be no ‘one-size-fits-all’ policy; even rural communities and healthcare organizations vary substantially, and this variation should be considered when attempting to engage in systems redesign,” the organizations wrote. “Locally-driven innovative solutions were widely pitched as the most effective way to make progress on rural healthcare issues, and stakeholders want policies to be flexible enough to be adapted to each community; community needs assessments were identified as one way to determine what services a particular area needs the most.”

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Once rural hospitals understand their community’s needs, the organizations will need claims reimbursement and funding mechanisms to support rural healthcare transformations.

Rural-specific value-based payments and funding structures needed

While the value-based payment trend pays providers for high quality, affordable care, the payments also help to cover the costs of practice transformations that align with the movement. However, rural hospitals are oftentimes left out of value-based reimbursement models because the organizations lack sufficient patient volumes and core capabilities to succeed.

For example, stakeholders reported that low patient volumes skew quality measure performance, which determines pay-for-performance payments. If a rural hospital only treats two patients and one of them falls, then the hospital’s fall rate jumps to 50 percent.

The skewing of quality performance can severely decrease a rural hospital’s value-based payments.

Low patient volumes and remote locations also make it difficult for rural hospitals to join accountable care organizations. Even if a rural hospital can join, the organization must depend on their urban counterparts in the ACO to realize shared savings payments.

Rural communities also lack care coordination capabilities necessary to track patient outcomes and provide additional support to patients in value-based reimbursement. In small healthcare markets, rural hospitals either cannot work with other facilities because they don’t exist, or the hospital is in direct competition with other healthcare facilities in the region.

In addition, limited health IT implementation and inadequate network services hinder care coordination in rural communities.

Additionally, rural hospitals rely on Medicaid and Medicare reimbursement for revenue, while urban hospitals can use private payer revenue to offset declining federal payment rates or changes. A lack of payment diversification makes it harder for rural hospitals to fund transformations and value-based payment implementation.

Rural healthcare stakeholders recommended that CMS and private payers develop rural-specific quality measures and include downside financial risk protections. The value-based reimbursement models should also consider the administrative burden of adopting and funding alternative payment models because rural hospitals tend to lack full-time employees devoted to such activities.

Stakeholders also expressed interest in connecting with larger health systems either through networks or collaborative partnerships to fund care delivery redesigns and implement value-based payments.

“Networks were cited as a vehicle for rural ACO participation, and further facilitate the ability of rural health care organizations to participate in demonstration programs because networks can incorporate the support of the consolidated entity to help manage grant administration and reporting burdens,” the report stated. “A larger network is also more likely to bring all organizations under its umbrella on to the same EHR system allowing organizations to share information.”

Rural hospitals already participating in such networks and partnerships explained that the organization realized several benefits, including access to equipment (e.g., mobile screening) and personnel (e.g., locum networks of nurses and specialists hired by the hospitals).

Large hospitals in the network also had the clout to negotiate higher claims reimbursement rates with private payers, which were passed on to the rural hospital.

Some networks and partnerships also included community-based support that enabled the rural hospital to effectively participate in population health management strategies.

Federal health policies on the path to addressing rural hospital needs

Federal policy is starting to address rural hospital challenges relating to redesigning care to meet community needs and funding those transformations. For example, the Rural Emergency Acute Care Hospital Act and the Save Rural Hospitals Act proposed to redefine critical access hospital by shifting away from the inpatient care emphasis.

Despite the bills not passing, the proposals represent a federal push to reform rural hospital funding and structures.

Policymakers are also addressing reimbursement and funding issues. The Bipartisan Policy Center and CORE reported that Senators recently introduced a bill to develop a core set of quality measures for rural hospitals, provide additional grant funding for technical assistance, and direct CMS to test value-based payments for rural hospitals.

In addition, CMS is testing innovative payment models for rural hospitals. The Pennsylvania Rural Health Model launched in 2017 and uses a global budget payment model to reimburse rural hospitals for community-specific transformations.

The Bipartisan Policy Center and CORE also offered potential federal health policies that address primary care provider shortages and lack of reimbursement for telemedicine services, which were other challenges identified by the stakeholders.

The organizations noted that addressing hospital structure and reimbursement issues should also help to improve the other identified challenges rural hospitals face.

“More comprehensive policy that carefully considers the relationships between delivery system transformation and topic-specific issues like CAHs and telemedicine, as well as those topics’ relationships with one another, will likely produce more effective results,” the report concluded. “In addition to identifying existing interdependencies, there are likely opportunities to create connections to drive change.”