For more than a decade, Missouri’s rural hospitals have faced widespread closures due in large part to the unique demographic and economic challenges that these hospitals face, such as older and poorer populations; underinsured or uninsured populations; decreasing numbers of providers, especially of specialty services; and notably and significantly, Medicare sequestration. Rural hospitals are oftentimes not only the sole health care providers in a particular geographical radius but are also typically one of the largest employers and economic output institutions for tens and sometimes hundreds of miles.
Since 2010, eight Missouri rural hospitals have closed, including five closures in the last five years. That means eight Missouri communities lost their source of health care and one of the largest economic drivers in their regions. To date, countless state and federal reforms have failed to effectively stabilize these rural hospitals, but for Missouri rural hospitals, thanks to a perfect storm of recent reforms at both the state and federal level, help is seemingly on the way.
Rural Emergency Hospital Medicare Designation
Tucked in Congress’ Dec. 21, 2020, omnibus Consolidated Appropriations Act, the Rural Emergency Acute Hospital Act (REACH Act) establishes a new Medicare provider type, Rural Emergency Hospitals (REHs). The REH classification permits a hospital to have a freestanding emergency room and provide certain outpatient services. The REACH Act provides that “general acute care hospitals” (as defined by the Social Security Act) with 50 beds or less, which are located in a rural area as well as critical access hospitals (CAHs) that meet both the statutory and other forthcoming requirements set by CMS, will be eligible to elect or convert their Medicare enrollment category to REH status. REH status eliminates the requirement that rural hospitals provide inpatient beds. Currently, providers who provide only emergency department services or hospital outpatient services are not eligible for Medicare payment. Instead, only facilities defined by Medicare as “hospitals” can receive payment for emergency department and hospital outpatient services but only if the facility also furnishes inpatient hospital services in order to qualify for payment as a hospital.
The reduction in the high overhead costs associated with operating those inpatient beds can be redirected toward higher operating margins. Similarly, Medicare payments to REHs will add a 5 percent boost to the facility’s Outpatient Prospective Payment System (OPPS) rate for services provided as well as a to be determined fixed monthly payment. This is designed to offset annual Medicare sequestration, or a mandatory reduction in Medicare reimbursements, generally of around 2 percent. Under the act, Medicare reimbursement to REHs will be effective Jan. 1, 2023.
There are still some action items remaining. At the federal level, CMS still must set both the conditions of participation (CoP) and determine the first year’s fixed monthly rate. At the state level, state legislatures, including the Missouri Legislature, must pass legislation permitting the REH status.
Rural Revitalization Investment
On Aug. 11, 2020, CMS announced its intention to invest heavily in rural health through its Community Health Access and Rural Transformation (CHART) Model. The purpose of CHART is threefold: to provide increased financial stability and predictability to rural health facilities; to provide regulatory and operational flexibilities to rural health care facilities; and to support investments in rural communities that are home to rural hospitals and facilities.
While many of the changes in CHART are likely to be affected by the passage of the REACH Act, it is expected that CMS will synergize the two initiatives into a wholescale rural health overhaul.
The most immediate relief will come to Missouri’s rural hospital by way of Medicaid expansion, which is set to take effect on July 1. Historically, expansion is associated with improved hospital financial performance and substantially lower likelihood of closure, especially in rural markets and counties with large numbers of uninsured or underinsured adults.
Studies have shown that Medicaid expansion leads to significantly decreased uninsured rates. An increase in Medicaid coverage and decline in uninsured rates were both largest in the small towns and rural areas of states that chose to expand Medicaid. Specifically, from 2013 through 2017, rural hospitals in states that had expanded Medicaid were less likely to close compared with rural hospitals in states that had not expanded Medicaid.
Of course, Medicaid expansion is neither a viable cure-all solution nor a sustainable long-term strategy for rural hospitals. Rural hospital closures have still occurred in some expansion states, just at a significantly lower rate by proportion. Thus, expansion is a piece of the puzzle but will not be sufficient to stop rural hospital closures by itself.
Telehealth is taking health care by storm, as its utility and practicality has been demonstrated and tested during the COVID-19 pandemic especially. Historically, telehealth has been available for a limited but growing number of services. As the number of services eligible for telehealth payment continues to grow, so too does the potential upswing for rural hospitals.
One resounding hurdle to the utilization of telehealth is lack of access to broadband internet in rural areas. Recognizing the potential impact, in September, the Department of Health and Human Services (DHSS) awarded an $8 million Telehealth Broadband Pilot Program, initially tested in four states: Alaska, Michigan, Texas, and West Virginia. The program seeks to overhaul rural broadband services, providing increased opportunity to utilize telehealth services. If the program is successful, it is likely that DHHS will expand the program’s reach.
While there is no indication of a timeline for federal aid to Missouri, of course, the Missouri Legislature could act on its own to appropriate funds to facilitate rural broadband expansion. Doing such likely requires a sizable appropriation from the Missouri Legislature. Despite the very real fiscal concerns, the increased access to health care, amongst other benefits should be weighed against those fiscal concerns in the state legislature’s analysis.
Relief is on its way for Missouri’s rural hospitals. The federal government’s creation of a new Medicare status and subsequent payments that will reimburse rural hospitals sufficiently to keep their operating margins positive is set to take effect in 2023. The federal government is also expanding investments into rural communities and rural broadband programs. At the state level, the implementation of Medicaid expansion in July will provide an immediate boost to rural hospitals. Missouri would also benefit from state investments into broadband services to better provide for access to telehealth services.
Brandon Hall is an attorney at Armstrong Teasdale, where he represents clients in the health care and life sciences space, including health care systems, hospitals, and physicians. He also provides counsel to both established corporations and emerging companies on general corporate and governance matters, and mergers and acquisitions. Brandon is a member of the American Bar Association’s Health Law and Business Law Sections.