Can rural hospitals survive in a post-ACA world?

Since the Affordable Care Act (ACA) was signed into law in 2010, 48 rural hospitals have closed and nearly 300 more are on the brink of closure, according to the National Rural Health Association (NRHA). Hospitals report that one of the biggest reasons rural hospitals are being forced to close post-ACA is cuts to both Medicare and Medicaid reimbursement, both of which are major payment sources for rural hospitals.

Sequestration has resulted in an across-the-board 2% reduction in Medicare reimbursement rates since 2013. Larger health systems that offer more services and serve fewer Medicare patients are better able to absorb the costs than small rural hospitals. "Revenues are coming down and expenses are not coming down as quickly," George Huang, municipal securities research director at Wells Fargo Securities told Reuters. "The smaller guys have fewer resources available to them."

According to Georgia Health News (GHN), about one in five Medicare patients is readmitted to the hospital within 30 days of discharge, so rural hospitals may also be facing a disproportionate number of readmission penalties due to the populations they serve. "Readmission penalties to a rural hospital that's struggling can be devastating," Jimmy Lewis, CEO of HomeTown Health, an organization of rural hospitals in Georgia, told GHN.

Critical access hospitals (CAHs) may soon take a hit, as well. Medicare reimburses CAHs at 101% of their reasonable costs for providing services to beneficiaries, rather than at rates set by Medicare's prospective payment system (PPS) or Medicare's fee schedules. The Office of the Inspector General has proposed a new rule that may lower reimbursement for swing bed services to the same rates paid to skilled nursing facilities (SNFs). Medicare pays for SNF services at predetermined daily rates (under the SNF PPS). The daily rates vary on the basis of the resource utilization group to which a beneficiary is assigned.

Payments to hospitals for indigent care have also been cut under the ACA with the expectation that Medicaid expansion would result in more patients being covered by Medicaid. Rural hospitals in the 23 states that chose not to expand their Medicaid programs can expect to be hit the hardest by these cuts. "Hospitals in states that don't expand Medicaid will see their profit margins drop by a few percentage-points by 2021," The Advisory Board Company warned last July. "For many, that could be the difference between being profitable, and being in the red."

If things continue as is, rural health experts say we may see rural hospital closings reach the same magnitude as those that followed the Medicare payment system overhaul in 1983, which resulted in the PPS. According to The Washington Post, 440 small hospitals closed before CAH designation was created in 1997, exempting rural hospitals from the PPS. "And now, beginning in 2010, we've had another series of cuts that are all combining to create another expansion of closures just like we saw in the '90s," Brock Slabach, senior vice president for member services at the NRHA told The Washington Post. "We don't want to wake up with another disaster.

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