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Rural hospitals bracing for change

By Dave Ranney



HOSPITAL—In this 2008 KHI News Service file photo, Dr. M. Ray Kenoyer talks with one of the nurses at the Hamilton County Hospital in Syracuse. Small, rural Kansas hospitals face a number of issues ranging from possible Medicare cuts, to workforce recruitment and needed upgrades for aging facilities. (Photo by Bill Snead.)

In small towns like Leoti, across Kansas, hospital administrators are paying close attention to federal deficit-reduction talks in Washington, D.C. that could lead to a 2 percent cut in Medicare spending, starting Jan. 1.

"Two percent may not sound like much," said Vicki Hahn, who runs the Wichita County Health Center in Leoti. "But we're a 'critical access hospital,' which means we're reimbursed for 101 percent of our Medicare costs. If 2 percent gets taken away, it would put us in the red on our Medicare patients. That wouldn't be good."

Leoti is about 40 miles from Colorado and 110 miles from Oklahoma in a county where about 18 percent of the population is age 65 or older. Total county population is 2,276 people according to most recent U.S. Census estimates.

"We're a frontier county," Hahn said.

Medicare patients account for about 78 percent of the patients seen by the publicly owned hospital.

A cut in Medicare reimbursement, Hahn said, would force the hospital to ask the Wichita County Commission for help in offsetting the loss of federal support.

"That would be a big concern," Hahn said. "If we end up losing revenue that doesn't get replaced, we would have to come up with a much different business model than the one we have now."

Many Medicare patients

Wichita County Health Center's situation is not unique. Because of the disproportionate number of rural and small-town Kansans who are elderly, most of the state's small hospitals treat a relatively high percentage of Medicare patients. Medicare is the federal health program for persons age 65 and older.

Roger Masse, chief executive officer at Ellsworth County Medical Center, said a 2 percent cut in Medicare reimbursement would result in a $200,000 loss for the public hospital he manages.

"In Ellsworth County, that's a lot of money," he said, noting that a three-mill property tax currently generates about $225,000 for the hospital.

"So far, operationally, we've been able to just about break even," Masse said. "We haven't had to ask the county for more than the three mills. But if we end up taking a $200,000 hit, how long can that be sustained? I don't know."

About 55 percent of the hospital's patients, he said, are on Medicare.

Blaine Miller has a similar story. He runs the Republic County Hospital in Belleville. He said a 2 percent reduction in Medicare reimbursement would lower hospital revenues by about $110,000.

"That would be big for us," Miller said. "At the same time, our charity care had gone up substantially. Last year, we had about $200,000 in charity care; this year we're looking at about $300,000."

Miller attributed the increase to the hospital's non-Medicare patients either losing or not being able to afford their health insurance.

101 percent

Kansas has 83 federally designated "critical access" hospitals, the most of any state in the nation.

Among other things, the designation allows the hospitals to bill Medicare for 101 percent of their outpatient, inpatient, laboratory, physical therapy, and post-acute care costs. The hospitals, in turn, agree to have no more than 25 beds, limit their inpatient stays to no more than 96 hours per patient annually, and provide 24-hour emergency room care.

The critical access program was started in 1997 with the goal of ensuring access to emergency, primary and acute care in the nation's rural areas.

In Kansas, nine counties--Linn, Woodson, Osage, Wabaunsee, Elk, Wallace, Gray, Chase and Doniphan--do not have a hospital.

But 10 counties--Barber, Harper, McPherson, Marion, Dickinson, Washington, Pottawatomie, Nemaha, Brown, Wilson--have two hospitals with 25 beds or less.

"There is so much required of hospitals nowadays, I don't know that all of them can survive," said Dennis Franks, chief executive office at Neosho Memorial Regional Medical Center in Chanute. "The requirements are the same for all of us, but our resources for meeting those requirements are different."

Many of the state's rural communities, he said, also are having a hard time recruiting medical staff, a situation that's likely to worsen with implementation of the Affordable Care Act on Jan. 1, 2014, which could mean thousands of additional Kansans gaining access to health insurance either through the new subsidies provided for them to purchase private coverage or perhaps through Medicaid should state policymakers choose to expand the program.

"There simply aren't enough primary docs to go around," Franks said. "We're all competing for them now. But after the Affordable Care Act kicks in, everybody's going to need them and we're going to find ourselves competing with some very, very nice places to live. It's going to be very difficult."

Charity care and Medicaid

On the other hand, Franks also said he was concerned by reports that Gov. Sam Brownback may decide not to expand the state's Medicaid program to include adults with incomes below 133 of the federal poverty level.

Currently, the Kansas Medicaid program is restricted mostly to poor children, pregnant women, the disabled and the elderly. A non-disabled adult rearing children is currently eligible for Medicaid, if his or her income is below 32 percent of the poverty level -- about $5,200 a year for a young mother with two children. Childless adults are not eligible for Medicaid regardless of their income.

Many of these adults now rely on hospital emergency rooms for routine medical care, resulting in the hospitals providing millions of dollars in uncompensated care.

To offset the costs of expanding Medicaid eligibility, the Affordable Care Act calls for phasing out federal payments to hospitals that care for disproportionately high numbers of uninsured patients who can't pay their bills.

Hospitals, Franks said, cannot afford to lose the "disproportionate share" payments without a corresponding reduction in charity care.

"That would really hurt a lot of hospitals," he said.

KanCare formula

As part of the KanCare planning, state Medicaid officials consulted with cost experts and accountants for critical access hospitals to develop a reimbursement formula that is intended to "hold harmless" or spare the hospitals any significant reductions in payments for the first year of KanCare.

"We believe the methodology is a good starting point for hospitals to use as they enter into negotiations," with the KanCare managed care companies, said Chad Austin, vice president of the Kansas Hospital Association.

But the formula doesn't spell out the cost assumptions that would be used in future years.

Currently, Kansas hospitals receive about $41 million in disproportionate share payments annually.

Hospital administrators also are waiting to see how they will be affected by KanCare, the governor's plan to move virtually all of the state's Medicaid enrollees into managed care plans run by private insurance companies.

"At this point, we don't know how that's going to work out," said Denny Hachenberg, chief executive officer at Anderson County Hospital in Garnett. "But it's like I tell my board, 'There's nobody out there looking for ways to pay us more for what we do."

Losing proposition

According to the National Rural Health Association, 41 percent of the nation's critical access hospitals are losing money.

If the White House and Congress allow a reduction in Medicare reimbursement, the percentage of rural hospitals operating in the red is sure to increase, said Brock Slabach, a senior vice president at the association.

"As of this moment, this (reduction) is real," he said. "It's in the law, it's part of the Budget Control Act of 2011, and it will happen on Jan. 1.

"That's not to say there won't be an act of Congress between now and Dec. 31 to reverse some of what's in the act," he said. "But that's going to require quite a bit of negotiation on the part of the president and Congress. It's possible, certainly, but it's also possible that it won't happen."

In addition to the 2 percent reduction in Medicare reimbursement, the Obama administration has twice proposed lowering payments to critical access hospitals by 1 percent.

Both times, Slabach said, the president's proposals were considered "dead on arrival" and were soon dropped.

But there is no telling what lies ahead.

"What's happened is that the president has let it be known that he's open to the notion of using CAH (Critical Access Hospital) payments as a 'pay for' for other programs," Slabach said. "He's 'put it in the water,' if you will."

Date: 2/4/2013



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