Sep 21, 2022 - Health

Rural hospitals face funding cliff with $600 million on the line

Illustration of a distressed hospital sign with the arrow portion detaching and swinging downwards
Illustration: Natalie Peeples/Axios

Rural hospitals that weathered the pandemic are facing a funding cliff, in danger of losing some $600 million in Medicare funding at the end of this month unless Congress intervenes.

Why it matters: With COVID relief no longer available, some rural facilities in parts of the country with older, sicker populations are struggling to stay open and are cutting services.

Driving the news: The immediate focus is on a pair of Medicare payment programs set to expire on Sept. 30.

  • The Medicare-Dependent and Low Volume Hospital programs help fund more than 700 hospitals in outlying areas, according to Brock Slabach, chief operating officer at the Rural Health Association.
  • The Centers for Medicare and Medicaid Services estimates that payments to those hospitals would decrease by $600 million if the programs aren't renewed.
  • Lawmakers led by Reps. Carol Miller (R-W.Va.) and Terri Sewell (D-Ala.) are pressing for a five-year reauthorization, arguing the cuts would be "catastrophic" to small and isolated communities.
  • But any relief measure would likely have to hitch a ride on a must-pass bill, like the anticipated stopgap funding measure to keep the government running into the new fiscal year or a year-end spending deal.

Go deeper: The hospitals funded by the programs are typically too big to be classified as "critical access hospitals" and qualify for more favorable Medicare payment policies. They're also too small to benefit from Medicare's prospective payment system, which pays fixed amounts for hospital services.

  • CMS is finalizing a new payment model that would encourage small rural facilities to operate 24-hour emergency rooms but offer no other inpatient services.
  • The plan has drawn criticism for being too rigid, or too much of a gamble for facilities to buy in. Only hospitals with fewer than 50 beds qualify.
  • The University of North Carolina Center for Health Services Research predicted that just 68 of the more than 1,500 hospitals that could convert to this model would opt in.

What we're hearing: Some rural facilities have cut services and grappled with negative margins even before confronting a funding cliff.

  • Financial losses forced Ouachita County Medical Center in southwest Arkansas, to close one of its rural health clinics this year, Peggy Abbott, president of the facility, told reporters last week.
  • A hospital a 45-minute drive away closed its obstetrics services, leaving Ouachita County Medical Center to care for an additional county's pregnant patients.

The intrigue: The pleas for relief come as the broader hospital industry presses Congress to delay a scheduled 4% Medicare payment cut due to take effect at the end of the year.

Our thought bubble: Renewing rural funding programs is the bare minimum ask for facilities hit harder by staffing shortages and supply chain problems.

  • But with bigger hospital chains seeing business rebound to pre-pandemic levels, it's unclear how accommodating policymakers will be to the industry.
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