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WRHAP: Washington Rural-Health Access-Preservation Group

 An Alliance of Rural Washington State Public Hospital Districts


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Why We Are Needed

The availability of health care in rural areas is a crisis.


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Roughly one in five Americans lives in an area that the Federal Office of Rural Health Policy defines as “rural”. In Washington State, rural hospitals serve more than 70% of the state’s area and 15% of the population. And by and large those rural healthcare facilities are struggling financially, many hanging on by their fingernails. Nationally, another rural hospital closes its doors for good on average about once a month (83 closures in 84 months). And an often-overlooked factor is the importance of rural healthcare facilities to the economic well-being of their communities. “If you want to watch a rural community die, kill its hospital.”

Back in 1997, the Congress recognized the growing problem and created the legal category Critical-Access Hospital (CAH). A CAH is precisely defined: located more than 35 miles from another hospital; 25 or fewer acute-care inpatient beds; an average acute-care stay length of under 96 hours; and 24/7 Emergency-Care services. CAHs receive payment for Medicare patients—and in some states, including Washington, Medicaid patients as well—on a different basis than non-CAH facilities. Till the infamous “sequester” of 2013, CAHs were supposedly compensated at 101% of their “allowable” costs of treating Medicare patients—except that the “allowable” costs on which payents were reckoned never included various indirect and overhead factors, so that in reality even then CAHs were losing money on every such patient they treated. Then the sequester reduced that 101% to 99%, making the loss per patient even worse.

And that is just Medicare. In the Washington State Medicaid program, the legislature initially required that hospitals be paid 100% of their actual costs; but when the state changed the Medicaid program to a “managed-care” structure, it removed the requirement that payments be reconciled to actual costs. Thus, the supposedly “cost-based” Medicaid payments from the state Health Care Authority also, for most hospitals, fall well short of the actual costs of treating Medicaid patients—so most Critical Access Hospitals will also lose money on the Medicare patients they treat.

In rural areas, typically two-thirds or more of patients are on Medicare or Medicaid. Yet, on average, only 90% of Medicare/Medicaid costs are recovered. And it seems there is never an end to the ongoing decreases in rural-healthcare funding at a time when increases are desperately needed.

Furthermore, in rural areas there are higher-than-average numbers of uninsured patients (euphemistically called “self-insured”) who typically end up paying little or none of the costs of their treatment, because they simply cannot. But, both legally and morally, they must be treated, at least as to emergency care. (And many of those uninsured are forced to use emergency rooms as, in effect, their primary-care source.) The Affordable-Care Act (ACA) did somewhat reduce the uninsured numbers, but the confused state of affairs at the federal level regarding healthcare could quickly reverse that trend.

A Few Facts:

· 97% of the United States is covered by rural areas, and one-fifth of all Americans live in those areas.

· The urban-rural economic gap in Washington state is the largest in the country.

·  Thirty-one of the state’s 39 counties are classified as rural.

· The poverty rate in rural Washington is more than half again what it is in urban areas of the state.

· The unemployment rate in rural Washington is a third again what it is in urban areas.

· Almost one person in eight of the rural population has not completed high school.

· Rural residents in the state are older and sicker, with higher rates of obesity and substance abuse.

There are 39 Critical-Access Hospitals in Washington State, almost all in clearly rural areas. Arguably fully half of these essential rural hospitals are “financially stressed”, virtually all severely enough that closure in the near future is a grim and very real possibility. These stressed hospitals have, after all, been bleeding money for years or, really, decades now; when you cannot earn enough to sustain yourself in the long term, eventually that “long term” arrives.

How Much Is “Enough” For Stability?:

For a hospital to be financially stable over the long run, breaking even is not enough. A hospital's budget deals with everyday operations; but, like any enterprise, hospitals have occasional nontrivial capital expenses, from replacing outdated or worn out equipment up to replacing outdated buildings. They fund those expenses from reserve funds that are maintained by the “profit” they make (yes, “non-profit hospitals have to make a “profit” to remain viable). Most authorities hold that for a hospital to be financially stable, it needs a “Total Margin” of around 4%. (Total Margin is an enterprise’s bottom-line net divided by its gross income—that is, the percentage of income that ends up as profit or loss.) If a hospital operates with a Total Margin less than 4% or thereabouts, it must slowly bleed down its reserve funds till they are gone, at which point so is the hospital. There are 20 small rural hospitals in Washington State that have long-term Total Margins under 3.5%.


It is crucially important to recognize the sources of this financial morass. Far too many people, regrettably including many of the legislators at both the federal and the state level, seem to think that CAHs are lazybones, living high on the hog because they are getting “cost-plus” payments (though those are actually cost-minus payments) and so have no incentive for efficiency. The truth could scarcely be more opposite: rural CAHs virtually all have, and continue to, cut expenses to the bone just to survive, because they necessarily lose money on most—nearly all—of their patients. Further, and for some reason this seems especially hard to convey, hospitals below some size threshold become not simply quantitatively different but qualitatively different from larger ones.

The so-called “fixed costs” of rural hospitals aren’t really “fixed”—not because of variability in the volume of patients but because of variability in what it costs to acquire and maintain the things included in those “fixed” costs (which are mostly staff compensation). In larger hospitals, compensation costs for staff are, in percentage terms, much less likely to vary dramatically from year to year, so their fixed costs will be more predictable. Moreover, in larger hospitals, a much smaller proportion of the total costs actually are “fixed”: if the hospital has a lower volume, it can just reduce the number of staff, something a rural with very few physicians (sometimes only one) simply cannot do. So, for a large hospital, having a fixed revenue budget gives the hospital the flexibility to reduce avoidable services or terminate service lines without being concerned that revenue will drop more than costs because they can freely reduce those “fixed” costs. Very small, very rural hospitals do not have that kind of cost stability or flexibility.

Any attempt to aid the plight of small rural hospitals that amounts to simply scaling down some approach designed for larger institutions—such as “global payments”—must fail. The problems facing small rurals are unique to small rurals. Any “one size fits all” program is bound to make things worse rather than better. And so, to meet the need for a program that can realistically address the problems without simply throwing ever more money at it, the WRHAP Group was formed.

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What We Have Done and Are Doing

The grant funding under which the WRHAP Group operates provided that the Group's activities be divided into two phases, colorfully titled “Phase I” and “Phase II”. Phase I ran through and including January of 2017; its chief end product was a Findings and Recommendations document (the link is to the Executive Summary—the full report is also available in this site's Library section). That report set out in considerable detail an analysis of the problem set the member Districts face, and a comprehensive set of specific recommended solutions to those problems.

By February of 2017, WSHA, working with the WRHAP Group, had developed draft legislation—to be introduced as HB1520—that would provide funding for a WRHAP-based pilot program to allow transitioning from the then-current payment sysytem for Medicare patients (the only ones the state insures) to a new “value-based” system that, it was (and is) hoped would make rural CAHs such as the WRHAP members at least somewhat more financially stable and safe. The state House first held hearings on that measure on February 3rd of 2017, with testimony presented by WRHAP-Group representatives. Ultimately, the bill was enacted on April 13th of 2017, having passed both the House and the Senate by unanimous votes.

(A summary of what has happened, and is happening, since the bill passed is still in preparation: stay tuned.)

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Timely News & Information:


NEXT CONFERENCE:

The Group's next regular conference call is not currently scheduled, owing to the holidays.


POSITION PAPER:

Finalizing the draft of the Group's position paper “Saving Rural Healthcare” awaits review comments from the Group. There is no bright-line date, but soonest is best, as the paper is intended for distribution to state legislators before or at the meetings expected to take place soon.


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Documents Added to the Library in the Past 14 Days:

General Background Material:

· none

WRHAP-Specific Background Material:

· none

“Phase I” Documents:

· none

“Phase II” Documents:

· none

Spreadsheets:

· none

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This page was last modified on Thursday, 20 December 2018, at 12:57 am Pacific Time.