Sequestration’s cuts to Medicare payments will have a disproportionate impact on small rural hospitals, new reports show, and the cuts will soon deepen.
The 1% cut in all Medicare payments through sequestration began on April 1 after Congress suspended the program during the COVID-19 pandemic. The cuts will increase to 2% on July 1; an additional 4% reduction in Medicare reimbursement is planned for 2023 under the Pay-As-You-Go Act.
The sequestration, coupled with declining private insurance reimbursement rates, cuts in COVID-19 grants, falling patient numbers and rising operating costs, is putting more than 600 rural hospitals at risk, or more than 30% of the approximately 1,800 U.S. rural hospitals. according to a report from the Center for Health Quality and Pay Reform. According to the report, two hundred of these hospitals could close within the next two to three years.
Sequestration, PAYGO, and the Affordable Care Act market basket reduction is approximately $316,000 in 2023 for Guadalupe County Hospital in Santa Rosa, New Mexico. Guadalupe County Hospital.
“It’s just constant compression. There seems to be less opportunity to turn,” she said. “Without the extra dollars from COVID-19 relief funding, we would definitely be in the red, as are most rural hospitals.”
The Chartis Center for Rural Health estimates that sequestering Medicare will cut rural hospital revenue by nearly $230 million in 2022.
If implemented this year, PAYGO would cut more than $900 million in revenue for rural hospitals, according to Chartis. The program will cut Medicare costs by $36 billion a year, illustrating the latest effort between the federal government trying to keep the program solvent and hospitals pushing for adequate reimbursement rates.
“Bogeyman is an abbreviation for PAYGO. They will be catastrophic,” said Michael Topczyk, national leader in Chartis. “If we go back to what it was before the pandemic, half of the rural hospitals were operating at a loss, and a record number were closing. Add to that an additional 4% reduction and it’s untenable.”
Larger health systems have a larger buffer. As Medicare reimbursement declines, they may redirect their resources to other payers and service lines.
Dallas-based hospital chain Tenet Healthcare, for example, estimated that restoring the Medicare sequestration would cut the hospital chain’s revenue by $46 million in 2022, Moody’s Investors Services said in a report Thursday. But that’s less than 2% of Tenet’s $3.3 billion profit before interest, taxes, depreciation and amortization in 2021.
“Obviously sequestration is obviously having an impact on annual performance this year, but we will continue to focus on the growth of sharper and higher-yielding services,” Daniel Canselmi, Tenet’s chief financial officer, said during a fourth-quarter earnings call in February. “That was our focus and it will continue to be an area we invest in and we think it’s really profitable.”
Hospitals such as Guadeloupe County Hospital rely disproportionately on Medicare beneficiaries given their relatively older population. But private insurers tend to spoof Medicare reimbursements, further taxing the hospital, Campos said.
The reimbursement rates of commercial insurance companies have not kept up with the average 3% increase in patient care costs in rural hospitals in 2020 amid labor shortages, according to the Center for Quality and Payment Reform in Healthcare. report. Meanwhile, the total cost of services rendered decreased by an average of 2% in 2020, the report said. According to rural hospital operators, volumes have not yet recovered.
Ge Bai, professor of accounting and health policy at Johns Hopkins University who studies rural hospitals, said while sequestration cuts and the end of COVID-19 aid would have a negative financial impact, they would not lead to the closure of a significant number of rural hospitals.
“Hospitals, like all organizations, have discretionary spending and can adjust if there are revenue problems,” she said. “Relying on continued federal assistance, rather than improved operational efficiency, will exacerbate structural problems such as low occupancy and raise financial risks for these hospitals.”
According to Ge, the figures reported by Tenet himself and the objectivity of the report by the Center for Health Quality and Pay Reform are dubious.
Policy experts are hopeful that new payment models, such as the rural emergency hospital model, which eliminates inpatient services in exchange for higher Medicare payments, will stabilize rural hospitals. But a pay increase at a rural emergency hospital won’t be enough, said Harold Miller, CEO of the Center for Healthcare Quality and Pay Reform.
“Creating global hospital budgets, removing federal sequestration, eliminating inpatient services and expanding Medicaid will not solve the major problems facing rural hospitals,” he said in a press release. “The only way to ensure that residents of small rural communities have access to affordable and quality health care is to ensure that their health insurance plans adequately pay for the services provided by their local hospitals.”