We reported recently on a new study by the Center for Healthcare Quality and Payment Reform (CHQPR) that warned of an upcoming financial crisis that will face many rural hospitals when federal Covid funding begins to dry up this year.
Intrigued by some of the findings in that report, we reached out to Harold Miller, the founder of CHQPR, to learn more about his work, his outlook, and his prescription for strengthening rural healthcare. The following Q&A has been edited for length and clarity.
Dawn Carter: When did you first start trying to quantify the rural hospitals that are at risk of closing? What was the impetus behind that?
Harold Miller: In 2015, I got involved in a project in Washington State dealing with rural hospitals and value-based payment programs. When the project started, state officials assumed that the solution for the rural hospitals was something equivalent to what is now being called Rural Emergency Hospital status – that if the rural hospitals could stop delivering inpatient care but still be considered “hospitals,” that they would be okayfinancially.
Rather than just assuming that was going to work, I thought we needed to first figure out what exactly was causing the problems at the rural hospitals. So, we went through a pretty extensive effort to get detailed data from the hospitals beyond what would ordinarily be in their cost reports – to try to understand, by payer and by service line, what was causing the hospitals’ financial problems.
The conclusion from all of that was that the problem was not their inpatient units. In fact, closing their inpatient units would actually make them worse off rather than better off.
Dawn Carter: I'm curious about your thoughts on CMS moving forward with this Rural Emergency Hospital designation. Did you find that there's a subgroup that would be helped by the REH designation?
Harold Miller: No, I think it would hurt most hospitals. For the vast majority of small rural hospitals, inpatient care is really an essential service. There are many patients from the community who have chronic conditions or non-complicated acute conditions and need to be in the hospital for a few days – pneumonia, cellulitis, heart failure exacerbations, etc. Rural hospitals provide very appropriate, high-quality care for those patients, even though there's a small number of patients at any one time.
People view the inpatient unit as some kind of Lego part that you can insert or remove with no impact, but it’s not. It is interconnected with everything else through sharing of staff. Moreover, even if the revenue from theinpatient unit is not adequate to cover the full cost, it helps to support the hospital's overhead. If the hospital has to allocate all of its overhead across a smaller number of services, all of those services become more expensive and become even bigger losses.
Dawn Carter: The latest study from CHQPR has some pretty dire warnings about the long-term impact of the Covid pandemic on rural hospitals. What are those impacts, and why aren’t they immediately apparent?
Harold Miller: We saw an initial drop in terms of utilization, particularly in places that had lockdowns and prohibitions on elective procedures and things like that. But it was fairly temporary. What I don't know that anybody really anticipated was the longer-term effect in terms of workforce cost and access. I don't think we have seen the ultimate effect of that.
Everything is just plain more expensive now. If hospitals in bigger communities are offering big bonuses and higher wages to attract nurses and physicians, it's going to be even harder to get them in rural areas. The hospitals that I've talked to started to see a huge increase in cost just in the past year, none of which is visible yet in Medicare cost reports.
Everybody looks at total margin as the measure of financial health. Hospitals are seeing bigger and bigger deficits on the patient services side, but then they've gotten all of this special federal pandemic assistance, which has offset the losses so far. You can't easily see the underlying financial problem now, and when the temporary federal assistance goes away, there will be no viable solution in place. A lot of places will close before anybody has the ability to do anything about it.
Dawn Carter: I want to zero in on what you see as the source of the problem. Based on your research, it's really private payers that carry a lot of responsibility in your view, particularly relative to rural hospitals. Can you talk a little bit about that?
Harold Miller: A standard narrative is that private health plans pay all hospitals vastly more than Medicare and Medicaid do. That may be true for large hospitals that have enormous leverage and skill in terms of negotiation, but it isn't true for small rural hospitals in most cases. But it's very hard to find that out because it's all secret. In the Washington State project, when we were able to actually look at payer-specific service line data, it became clear that the big problem was private payers.
Once you see the numbers, it's not quite so surprising. Since it costs more on a per-visit basis to operate anemergency department in a small hospital than in a large hospital, even if the private payer pays the same amount to both hospitals, it's not going to generate the same margin [at the smaller hospital]. Medicare pays more to small hospitals, but private payers pay less.
The other bigger problem, which gets back to both of these myths, is Medicare Advantage, which is a private payer. People think that whenever they see Medicare cost reports, that they're seeing all of Medicare. They're not seeing all Medicare beneficiaries; they're only seeing those on “Original Medicare.”
It's hard to tease out, but in the places where I've been able to find separate information about Medicare Advantage versus other commercial payers, Medicare Advantage plans often pay worse than other private plans … They can underpay the hospitals in a variety of ways; it isn't just the amount that they pay, but whether they pay at all for a service the hospital delivers.
Dawn Carter: One last question. What is the solution that you see to all this, particularly from a policy perspective?
Harold Miller: It’s the notion of a standby capacity payment. These very small hospitals deliver two different services: They help you when you need it, and they are there for you in case you need it. They get paid for the first, but they don't get paid for the second. In a big urban hospital, the emergency department is seeing multiple patients every hour, so it’s no issue. In a small hospital, the ED is standing by, even if there aren’t any patients at a particular time, but they don’t get paid anything for those standby periods.
Instead of only paying when a visit happens, we need insurance plans to pay enough to have the emergency physician there all the time. The plan could then pay a small amount extra every time there is a visit, but that second payment would be based on the true, variable cost of a visit.
There is absolutely no reason why health insurance plans can't pay the hospital that way. The health insurance plan takes a premium, in some fashion, from the individual insured member in the community. It may be that the self-insured employer is paying it, but somebody is essentially paying a premium. Then, the health plan keeps that premium and only pays for ED visits. All they have to do is agree that part of that premium is going to go to the hospital to pay for the standby capacity so the hospital can be there in case local residents need help.
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“5 Questions with…” is a recurring series featuring a wide variety of leaders in rural healthcare. All answers reflect the views of the subject and should not be taken as the position of RHI or its principals.