Within a matter of days, the U.S. Department of Health and Human Services will issue its Final Rule allowing small, rural hospitals to convert to a new Medicare provider type – the first such change in a generation.
Rural Emergency Hospital (REH) status could help stem the rising tide of hospital closures by allowing under-utilized facilities to close their inpatient beds while receiving $3+ million a year in federal payments for sustainable outpatient services.
Some early studies of the REH model predicted that only a few dozen hospitals were likely to make the switch, but interest appears to be much higher than expected. More than 150 users dialed into a recent HRSA webinar unveiling technical assistance resources for REH conversions, and presenters indicated that their $5 million in federal funding would likely fall short of demand.
As long as the funding lasts, individual hospitals can get free feasibility studies and financial analyses to decide whether REH status is right for them. That’s a valuable resource, but the hyper-local approach ignores the regional implications of shutting down inpatient beds.
Most facilities that opt for REH status will probably be Critical Access Hospitals. By law, CAHs must be geographically removed from other hospitals (35 miles is the standard), so any REH conversion will force patients to drive farther for inpatient care.
That’s fine if neighboring hospitals have excess capacity, but what if some of those facilities also choose REH status? Without some sort of regional coordination and planning, rural residents could easily find themselves minutes away from multiple Emergency Departments – but hundreds of miles from the nearest hospital bed.
Is that scenario really possible? Here’s a real-world example.
In America’s rural heartland, we’ve worked recently with a Critical Access Hospital that includes 10 counties in its primary and secondary service area. Nine of the 10 counties are highly rural, with a total population of just 43,000 scattered across 6,000 square miles.
On the edge of the region, the most populous county boasts 49,000 residents and two acute care hospitals with well over 200 combined beds. Of the remaining nine counties, seven are served by Critical Access Hospitals, and two have no hospital at all. With one notable exception, every CAH in the region faces a future that looks uncertain, at best:
· CAH 1: 25 beds | Average Daily Census 9.9 | > $10 million net income
· CAH 2: 25 beds | ADC 7.1 | < $500K net income
· CAH 3: 10 beds | ADC 1.9 | < $500K net income
· CAH 4: 19 beds | ADC 2.5 | < $500K net loss
· CAH 5: 14 beds | ADC 0.5 | < $500K net loss
· CAH 6: 25 Beds | ADC 3.3 | > $500K net loss
· CAH 7: 20 beds | ADC 5.2 | > $1M net loss
Note that financial figures are for 2019, the last “normal” year before the pandemic. With sharply rising inflation and interest rates plus soaring staffing costs and investment losses, financial results for 2022 are almost certain to be much worse across the board.
The REH model was designed with small, financially struggling rural hospitals in mind, so it’s easy to imagine that four, five, or even six hospitals in this region would be tempted to shut down their beds and convert to REH status. But while that could make sense on a county-by-county basis, it would place extreme stress on healthcare resources at the regional level.
What happens if all six vulnerable hospitals convert to REH status, leaving only 25 beds to serve 40,000 people across 6,000 square miles? It might just work if the lone remaining CAH is centrally located – but a planned, multi-county approach would help to test that hypothesis and avert potential disaster.
Regionalized REH planning can also help improve health outcomes while making healthcare delivery more sustainable. In our real-world example, 138 CAH beds are probably too many, and empty beds make it impossible to invest in much-needed outpatient services. A regional study would look at usage patterns to “right size” the CAH bed count and distribution across all nine counties while also recommending the best service mix for those facilities that do choose to convert to REH status.
With a rational, regionalized approach, the new REH model could be the proverbial “rising tide that lifts all boats”: The most vulnerable rural hospitals get new federal payments while escaping the financial drag of inpatient beds; stronger rural hospitals improve their margins by operating closer to capacity; and communities get better, more sustainable emergency and outpatient services.
Unfortunately, current federal funding is not designed to promote regional solutions, but we have identified possible funding sources at the state level. If you are considering the impact that REH conversions might have in your market, please contact us to learn more about our regional approach.