The Commission has consistently stated that rural beneficiaries’ access to emergency services needs to be preserved. Since January 2013, there have been 41 hospital closures in rural counties and rural parts of urban communities. While some closures reflect excess capacity in areas, in other cases, the closed hospital has been the sole emergency room in the area. It is both the concern over maintaining access to care and concerns over inefficiencies in the current delivery system that motivated the Commission’s October session on preserving rural access to emergency services.
The Commission, researchers, and rural advocates all agree that, in certain circumstances, preserving emergency access will require supplemental payments beyond standard fee-for-service (FFS) rates. Currently, Medicare has several rural payment models that are designed to preserve rural hospitals. For example, the Critical Access Hospital (CAH) program provides cost-based rates to providers that maintain inpatient services, the Sole Community Hospital (SCH), and the Medicare Dependent Hospital (MDH) programs both provide higher prospective inpatient rates. Currently, the majority of rural hospitals receive payment through the CAH program. Despite these models, rural hospitals are still closing.
One factor that may be undermining the effectiveness of current rural add-on payments is that current payment models for rural hospitals are inpatient-centric. The money rural hospitals receive under these programs is dependent on maintaining inpatient services, and the Commission has shown (e.g., March 2015 report) that inpatient admissions have been declining for several years. The SCH and MDH programs both provide inpatient payments, and the low-volume adjustment is another Medicare special add-on to inpatient payments. The CAH program provides higher payments for inpatient and outpatient services, but to qualify for the CAH program, hospitals still must maintain inpatient capacity. The inpatient focus of the programs reflects the inpatient dominance of hospital services in the 1980s when these programs or their predecessors were started.
A second set of factors is that cost-based payments may not be best for all rural communities due to three limitations: First, cost-based payments favor hospitals with high cost structures over hospitals in poorer communities that are forced to have lower cost structures. Wealthier communities often have more privately insured patients and fewer uninsured patients, therefore allowing them to support higher costs structures. These higher costs result in high cost-based payments relative to prospective payment rates. Lower-income communities with a poor payer mix, however, may need to keep their costs below PPS rates to generate profit on Medicare in order to survive. The CAH closures indicate that the current cost-based payment models do not work in all rural communities. Second, cost-based payments favor the expansion of services with high shares of Medicare and privately insured patients rather than emergency services. For example, CAHs have expanded their post-acute swing bed services, which tend to have high shares of Medicare patients. However, the Medicare share in the emergency room at CAHs is low in comparison. Third, cost-based payments reduce the incentive to control costs.
Given the concerns over closures and inefficiencies in current payment models, the Commission has begun discussing new payment models that would allow some rural hospitals that are struggling to maintain emergency access for their communities to voluntarily switch to providing only outpatient services. The Commission has started investigating whether Medicare dollars for inpatient care could be redirected to subsidizing emergency services at rural hospitals. At it’s October meeting, the Commission discussed two potential new models for emergency care in rural areas. Both options are intended for isolated (meaning a certain distance from another emergency department) hospitals that voluntarily elect to close their inpatient departments.
The first option is to pay these isolated hospitals outpatient PPS rates and a fixed supplemental amount to preserve their emergency department and ambulance services. This model would create rural free-standing emergency departments. The rationale behind this approach is that stand-by emergency capacity is the desired service, and therefore Medicare should support this service. Additionally, unlike cost-based models, hospitals would no longer have an incentive to offer services for which their costs are not competitive (e.g., MRI and swing bed services). The local community could also be required to provide some of the funding for the emergency department.
The second option is for a community that is too small to support a 24-hour emergency department. The option would create a primary care clinic that would be open 8-12 hours a day with an adjacent ambulance service operating 24/7. Thereby creating a clinic by day, and a stabilize-and-transfer model by night. Medicare could pay PPS rates for primary care visits and ambulance transports but also provide fixed supplemental amount to support the capital costs of operating a primary care practice, the standby costs of the ambulance service, and costs of uncompensated care. Similar to option 1, the local community may also be required to contribute funding.
With these two options in mind, the Commission is continuing to explore whether payments refocused on preserving emergency departments and ambulance services may do a better job of more efficiently preserving access than today’s inpatient models.