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Rural Hospitals Face Increasing Pressure

Experts foresee spate of ‘catastrophic’ closings

Despite residents’ concerns and a continuing need for services, the 25-bed hospital that served the small East Texas town of Mount Vernon for more than 25 years closed its doors at the end of 2014, joining the ranks of dozens of other small rural hospitals that have been unable to weather the stresses of a changing national health care environment.

For the high percentages of elderly and uninsured patients who live in rural areas, closures mean longer trips for treatment and uncertainty during times of crisis, according to a report from Kaiser Health News.

The Kansas-based National Rural Health Association, which represents approximately 2,000 small hospitals throughout the country, told a Kaiser reporter that 48 rural hospitals have closed since 2010, most of them in Southern states, and 283 others are in trouble.

Experts and practitioners cite declining federal reimbursements for hospitals under the Patient Protection and Affordable Care Act (PPACA) as the principal reason for the recent closures. Besides cutting back on Medicare, the law reduced payments to hospitals for the uninsured, a decision based on the assumption that states would expand their Medicaid programs. However, almost two dozen states have refused to do so. In addition, other Medicare cuts caused by a budget disagreement in Congress have also hurt hospitals’ bottom lines.

But rural hospitals also suffer from multiple endemic disadvantages that drive down profit margins and make it virtually impossible to achieve economies of scale.

These include declining populations; disproportionate numbers of elderly and uninsured patients; the frequent need to pay doctors better than top dollar to get them to work in the hinterlands; the cost of expensive equipment that is necessary but frequently underused; the inability to provide lucrative specialty services and treatments; and an emphasis on emergency and urgent care –– chronic money-losers.

Rural health care experts caution that national and state officials need to address the problems for rural hospitals or they could face a repeat of the catastrophic closings that followed changes in the Medicare payment system 30 years ago. That 1983 change, called the “prospective payment system,” established fixed reimbursements for care instead of payments based on a hospital’s reported costs. That change rewarded large, efficient providers, but 440 small hospitals closed before the system was adjusted in 1997 to help them. Those adjustments created the designation of critical-access hospitals for some small, isolated facilities, which are exempted from the fixed payment system.

The non-profit East Texas Medical Center (ETMC) Regional Healthcare System, based in Tyler, Texas, closed the Mount Vernon hospital and two others of its then-12 rural hospital affiliates because it could no longer sustain operating losses that had persisted for 5 years.

Perry Henderson, senior vice president of affiliate hospitals for ETMC, noted that rural hospitals have many uninsured patients, and that Medicare accounts for “60 to 70 percent of the business,” while in “Dallas or Houston it’s a fraction of that.”

Henderson and other experts cite three reasons for the rash of closures nationally. Sequestration, the across-the-board federal budget cut that arose out of the legislative impasse between the Obama administration and congressional Republicans, has resulted in a 2% reduction in Medicare reimbursements since 2013.

Rural hospitals took a second hit from the PPACA’s reductions in “disproportionate share hospital” payments to hospitals with large numbers of indigent and uninsured patients. Federal officials made the cuts assuming that the law would assure that more patients had insurance.

It hasn’t worked well in rural areas, said Maggie Elehwany, chief lobbyist for the National Rural Health Association, because annual deductibles for the new insurance plans, which come out of consumers’ pockets, “are running between $2,500 and $5,000,” and people can’t pay them.

And in communities such as Mount Vernon, this problem is exacerbated because Texas, along with 22 other states, has refused to expand Medicaid, a key provision of the PPACA.

Source: Kaiser Health News; March 17, 2015.

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