Value-Based Care News

Rural Hospitals Faced Less Value-Based Reimbursement Penalties

HHS researchers found that rural hospitals received less financial penalties than urban hospitals under two Medicare value-based reimbursement programs.

By Jacqueline LaPointe

- Rural hospitals outperformed urban hospitals in several Medicare value-based reimbursement programs in 2015, receiving fewer financial penalties, according to a recent report from the Department of Health and Human Services (HHS).

Rural hospitals received less financial penalties under two Medicare value-based reimbursement programs compared to urban hospitals

Researchers found that rural hospitals faced less value-based penalties under the Hospital Value-Based Purchasing Program and the Hospital Acquired Condition Reduction Program. Both programs tie incentive payments to quality performance.

In the Hospital Value-Based Purchasing Program, rural hospitals received higher mean performance scores compared it their urban counterparts, particularly in hospital efficiency and patient experience measures.

The higher performance scores resulted in greater value-based reimbursements. Rural hospitals had an average reimbursement adjustment of 0.22 percent, whereas urban hospitals only received a 0.07 percent payment adjustment.

Similarly, rural hospitals outperformed urban hospitals in the Hospital Acquired Condition Reduction Program in 2015, leading to lower financial penalties. On average, rural hospitals earned higher Agency for Healthcare Research and Quality (AHRQ) Patient Safety Indicator PSI-90 composite scores, which indicated better post-operative wound infection rates as well as greater measure scores on healthcare-associated infection prevention and treatment.

As a result, only 14 percent of rural hospitals received value-based penalties under the program in 2015 versus 26 percent of urban hospitals.

Urban hospitals, however, fared better than their rural colleagues under the Hospital Readmissions Reduction Program, which rewards hospitals for lowering readmission rates. About 79 percent of participating rural hospitals faced value-based penalties in 2015, while 76 percent of urban hospitals received a penalty.

Value-based penalties were also slightly larger for rural hospitals in the program. Medicare penalized rural hospitals by 0.55 percent versus 0.46 percent for urban hospitals.

Researchers stated that rural hospitals received less penalties in several Medicare value-based reimbursement programs because of better care coordination, telehealth, and patient experience improvement strategies.

Rural hospitals can coordinate care easier than urban hospitals, the report stated, because healthcare settings across the care continuum tend to be located at the same physical site and have the same owner.

“A CAH [critical access hospital] may be the only care provider in a broad geographic area, and may therefore provide care across the service spectrum – from primary and preventive care to post-acute and nursing home care,” the report stated. “While in urban areas this type of consolidation may be seen as a threat to market sufficiency, in rural areas in many cases it may be the practical reality.”

Less providers in rural healthcare markets also makes care coordination easier, the report added. Primary care providers in Rural Health Clinics and Federally Qualified Health Centers typically refer to a small network of referral hospitals and post-acute care providers. But the small network promotes care coordination and collaboration.

In addition, rural providers may be better positioned for success in some value-based reimbursement programs because they tend to use more telehealth and health IT innovations. Telehealth and telemedicine infrastructure supports healthcare payment reform models as well as increases access to care and service capacity.

Rural hospitals also had better patient experience scores, which are key to earning value-based incentive payments in alternative payment models.

“High levels of trust in providers may facilitate better patient experiences or outcomes both in the inpatient and outpatient setting,” the report stated.

While researchers identified rural hospital strengths, the report also pinpointed several challenges that have put rural hospitals at a disadvantage and limited participation in some value-based reimbursement programs. The challenges include separate reimbursement models from urban hospitals, limited financial resources, low patient volumes, lack of electronic infrastructure, and lower healthcare employment rates.

Many rural hospitals are not paid under the Inpatient Prospective Payment System like urban hospitals. About 60 percent of rural healthcare sites are designated as critical access hospitals, which are not subject to most value-based reimbursement programs. The separate Medicare reimbursement structures limit rural hospital participation in value-based reimbursement programs, the report noted.

Rural hospitals also tend to have less financial resources to take on risk-based alternative payment models. Compared to urban peers, rural hospitals face lower occupancy rates, fewer payer options, more uncompensated care costs, and lower operating margins.

Another challenge unique to rural hospitals is lower patient volumes. Many value-based reimbursement programs, such as the Hospital Value-Based Purchasing Program, require minimum patient cases for each clinical outcome measure. But case minimums may be unrealistic for rural hospitals, especially those in low population density areas.

Low inpatient volumes may also skew the reliability of outcome-based measurements because the potential “effect size” increases. For example, one additional death in a cohort of 25 patients could significantly change a hospital’s mortality rate, whereas a single adverse event in a large sample size would have less of an impact on performance scores.

In addition, researchers stated that rural hospitals generally do not have the technological infrastructure, such as interoperable EHR systems, to participate in some value-based reimbursement programs. Limited capital resources also make it harder for rural hospitals to acquire health IT infrastructure.

“Such tools are increasingly important for success under delivery system reform, since IT infrastructure may help facilitate care coordination and performance monitoring,” researchers wrote.

Healthcare employment problems, such as physician shortages, also troubled rural hospitals, the report stated. While most urban settings had 28 general internal medicine physicians per 10,000 Medicare beneficiaries, rural communities had only 3.85 per 10,000 beneficiaries.

Researchers added that rural areas also have significant specialist and behavioral health provider shortages, which negatively impacted care coordination efforts. For example, rural areas had 0.8 geriatricians, who may be more in demand as baby boomers age, per 10,000 Medicare beneficiaries, while urban areas had 1.5 per 10,000 beneficiaries.

Inadequate staffing may also hurt rural providers participating in value-based reimbursement programs because administrative staff have to take on multiple organizational and management roles to implement healthcare payment reform models.

“Overcoming these challenges will be critical to designing programs that can give rural hospitals access to delivery system reform while not putting them at undue financial risk or imposing excessive administrative burdens,” researchers wrote.

Image Credit: HHS

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