Hospitals in rural Alabama add services to stay afloat

New models

While some hospitals in rural Alabama are more financially stable, the vast majority are still operating at a loss.

According to research by the Chartis Center for Rural Health, about a quarter of the roughly 1,800 US rural hospitals may be closed. Hospitals in states that have not expanded Medicaid, such as Alabama, are more vulnerable. The average operating margin for rural hospitals in non-expanding states was minus 0.3% in 2019, compared with 0.8% for hospitals in states that expanded Medicaid.

“We are forecasting a major vulnerability in Alabama,” said Michael Topchik, national leader at Chartis. “The Critical Access Hospital program has been defensive, but also Medicaid expansion.”

Analysis by Modern Healthcare found that Alabama has the fewest critical access hospitals per capita in the country. There are less than 0.1 critical access hospitals per 100,000 inhabitants. Montana, South Dakota and North Dakota have more than four per capita.

Legislators formed the critical access model in 1997. Medicare and Medicaid Services pay hospitals with fewer than 25 beds and at least 35 miles from another hospital for 101% of their reasonable costs. But the program has had limited success, according to political experts.

“The current CAH model is ineffective and has resulted in overcrowding and poor quality care in many rural areas without improving the financial viability of rural hospitals,” said Ge Bai, professor of accounting at Johns Hopkins University, noting that about half of rural residents did not go to local hospitals with critical access to receive care in more remote hospitals. “The model of a rural ambulance hospital can significantly solve the problem of low occupancy and increase the efficiency of medical care in rural areas.”

The 35 mile rule prevented many hospitals from achieving critical access status.

“The reason we didn’t have that much was because compensation for our payer structure did not make critical access hospitals a viable model,” said Dann Howard, associate director of the Alabama Hospital Association. “We are one of the lowest reimbursements in the country, particularly for Medicare.”

Alabama was at the bottom of the Medicare Wage Index Compensation Index, which pays hospitals hourly wages in their service areas. This disproportionately affected rural areas where the cost of living was lower.

Congress changed the wage index formula to raise wages in markets in the bottom quartile. But that made little difference, Howard said, noting that the state has not expanded its Medicaid program. As a result, many rural providers have increased bad debts and charitable aid.

“We are looking into how to strengthen rural hospitals, not repurpose them,” Howard said. “If our rural hospitals could not take care of who could during the pandemic, our city hospitals would not be able to take on such a volume.”

Congress recently passed a new operating model for rural hospitals, although industry observers warn that this could widen access gaps for America’s rural residents.

Rural hospitals and hospitals with critical access and fewer than 50 beds could be converted into a new rural emergency hospital. According to a Modern Healthcare study, it aims to support rural hospitals with very low inpatient care rates, which averaged around 38% in 2016.

They will replace all of their inpatient care. Instead, they will offer outpatient services, including 24/7 emergency care, follow-up, healthcare facility and ambulance services. Beginning in 2023, these hospitals will receive an outpatient Medicare rate that is 5% higher than full-service hospitals, in addition to monthly hospital fees.

“One of the big problems with this program is that it doesn’t allow swing beds,” said Brock Slabach, chief operating officer of the National Association for Rural Health. “This has been a valuable program in many rural communities, so hospitals will have to think hard to see if this makes sense.”

If hospitals move away from inpatient beds, the rural ambulance model will become viable, according to Robert Monroe, general counsel at consulting firm Advis.

“You want to find the gaps that exist in your area,” he said. “You can then ask local employers to create comprehensive service plans — that’s unlimited creativity.”

For example, many rural hospitals have payer structures to qualify for the 340B drug discount program, experts say, who also noted widespread demand for mental health services.

The reduction in services has a direct impact on the hospital’s income. But it is difficult to measure the impact on morale, loss of community trust and other negative ripple effects over the long term, said Eric Schell, chief executive of consulting firm Stroudwater Associates.

“Many rural hospitals are not driven by the abundance mindset; they would rather focus on cuts, ”he said. “You can’t cut anymore in Alabama.”

Overvoltage efficiency

Excluding the pandemic, occupancy rates in many rural hospitals remain dangerously low. But according to industry observers, COVID-19 has demonstrated the importance of having backup capacity.

Nearly two-thirds of rural hospitals do not have intensive care beds, according to Chartis. Research shows that even if they have the capacity, more than two-thirds of villagers bypass their local hospital in search of emergency care.

“Many of these institutions become unviable within a physician’s retirement distance,” said Jeff Goldsmith, president and founder of Health Futures, a consulting firm.

21 rural hospitals have closed in the past two years, according to the University of North Carolina. Since 2010, 138 businesses have been closed.

Hospitals located outside urban areas, as defined by the CMS, had only 1.3 ICU beds per hospital, according to Modern Healthcare’s analysis of Medicare spending reports. On average, there are about 21 hospitals per hospital in urban areas.

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