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

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.

• This cut would also weigh heavily on rural facilities that rely more on Medicare revenues, per an American Hospital Association report.
• "This could be cataclysmic for rural providers," Slabach said.

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.