(CNSNews.com) - America's rural hospitals may face further financial woes if the House health care bill becomes law because the Democrats' plan stipulates below-market payment rates and a new government-run insurance company that would compete with cash-strapped rural hospitals.
Rural hospitals, which are normally small and operate on a tight budget, could be put in further financial jeopardy because the House-passed version of health care reform does not fix the disparity in Medicare reimbursements between rural and urban hospitals. Rural hospitals usually are paid far less than their urban counterparts, despite facing comparable rates of chronic illnesses such as heart disease or diabetes.
Currently, Medicare reimburses hospitals based on how their average labor costs – adjusted to account for the hospital’s geographic location – relate to the national average. This geographic location adjustment is supposed to represent an area that has relatively uniform costs.
However, if a hospital’s geographic area does not have uniform costs, hospitals can be short-changed and may end up having to pass the excess cost on to patients who carry private insurance.
The disparities are caused by Medicare’s “metropolitan/non-metropolitan” classification system. Under this system, hospitals located in metropolitan areas are paid at one rate and hospitals in non-metropolitan areas – usually the entire area of a state that is not within a particular city’s limits – are paid at a lower rate.
Rural hospitals are often placed in financial straits because costs in the non-metropolitan areas are assumed to be uniform but, in fact, are often artificially inflated by hospitals that lie just outside of metropolitan areas or in affluent suburbs.
This issue concerned Virginia Democrat Rep. Rick Boucher so much that he, along with other Blue Dog Democrats, could not support House Speaker Nancy Pelosi’s (D-Calif.) version of President Obama’s signature initiative.
“I opposed the health care reform legislation recently debated by the U.S. House of Representatives for several reasons,” Boucher wrote on Nov. 9. “Rural areas have traditionally received less under Medicare than urban areas, and while the bill makes some improvements in this regard, I would like to see more done to increase the payments to rural health care providers.”
Maggie Elehwany, vice president of government affairs at the National Rural Health Association, told CNSNews.com that unless these inequities are addressed, health reform will not succeed.
“For health reform to be effective in rural America, you must first address the access-to-care crisis,” she said. “It doesn’t matter if you expand insurance coverage if people don’t have access to a hospital or a health care provider. There must finally be equity in some of the payment disparities that have long occurred in rural America for the providers and for hospitals.”
Elehwany further said that Medicare’s usual approach – buying health care services in bulk in an effort to save money, which she compared to bulk-retailed Costco – does not work in rural areas where low patient volume and small hospital size mean rural hospitals have little room to spare on their balance sheets.
“Because these are small facilities, they often operate at a very narrow margin. Many of them are the only access to care for patients within miles and miles and miles,” she said. “They generally have a low [patient] volume but they still have to have a basic level of equipment and update their HIT [Health Information Technology] and things like that.”
“Medicare’s way of saving money is sort of a bit like a Costco purchase – the more you do, you’ll make out okay because you’re doing such a high volume of business – that just doesn’t work in rural areas,” she said.
These disparities mean that rural hospitals are forced to pass the costs of Medicare patients not covered by government on to patients with private insurance, a system put at risk by a government-run public option, one that could siphon off those privately insured customers.
“A government operated health insurance plan competing with private insurance will attract patients who are privately insured today, with the result that [rural] hospitals would treat less privately insured patients and lose the critical revenues that are essential to their survival,” Rep. Boucher wrote.
Elehwany called Boucher’s argument “compelling,” saying that even though the House’s public option allowed the government to negotiate reimbursement rates, the problem would still remain because a government-run option would become a “take-it-or-leave-it” option for rural hospitals that might not be enough to pick up the slack.
“Representative Boucher certainly has a compelling point,” she said. “Even if you can negotiate, which may give you some leverage, the problem is market penetration. Often in rural areas there are one – you’re lucky if there are two different insurance providers in an area. So, despite the fact that you can negotiate, it’s still a kind of take-it-or-leave-it approach that rural providers are worried they are going to be faced with.”
“There’s only one game in town, and if a public plan option moves in, hopefully that will mean more competition,” she said. “But will it be enough competition to say ‘we can offer you a better rate,’ will it be enough to have leverage against it [to negotiate a better rate]?”