Rural Hospitals Wary of Proposed Medicare Cuts

Small-town hospitals are worried that a federal recommendation to cut costs by re-evaluating which rural hospitals receive higher Medicare reimbursements could threaten their financial security — and even prompt them to shut their doors.

“At the end of the day, if that became reality, we’re looking at closing 50 or 60 hospitals in the state," the majority of the state's rural safety net for emergency care, said Don McBeath, director of government relations for the Texas Organization of Rural and Community Hospitals, or TORCH.

Texas is home to 80 so-called critical access facilities, which the federal government provides with bigger Medicare reimbursements to keep them financially viable — and open 24 hours a day — in low-volume areas.

Rural hospitals qualify as critical access facilities if they are more than 35 driving miles away from the nearest hospital, or more than 15 miles away in areas with mountainous terrain or only secondary roads, among other criteria. Those distance requirements are based on what’s known as the “golden hour,” the window of time for treatment in which a critical patient has a significantly higher chance of survival. 

When the distance requirements took effect in 1997, they initially included a provision that allowed states to waive them for rural hospitals that narrowly missed the mileage cutoff. (The exemption had a significant impact in Texas, because many rural hospitals in the Panhandle and West Texas are 25 to 30 miles apart.) In 2006, the federal government stopped allowing states to identify new critical access hospitals, but existing ones were grandfathered in. 

Now, facing budget scrutiny, the U.S. Department of Health and Human Services’ Office of Inspector General has recommended a nationwide re-evaluation of critical access hospitals. Three-quarters of hospitals nationwide that currently have critical access status do not meet the prescribed distance requirements, according to the report. If the federal government revoked those hospitals’ critical access status in 2011, it would have saved $449 million.

If the agency's recommendation is followed, 60 of Texas’ 80 critical access hospitals would likely lose their status and the additional funding that comes along with it. The federal OIG report estimates Medicare savings of approximately $860,000 per decertified critical access hospital nationwide. But McBeath says most critical access hospitals in Texas stand to lose more than $1 million each year. 

The report is only a proposal and requires new federal law before any changes could take effect. At this time, no bill has been filed to advance the OIG recommendations. But Texas health care officials have rushed to criticize the recommendation, which they say would place an undue financial burden on the state's already strained rural hospitals.

“Rural hospitals are not immune to the economic pressures that all other hospitals face, and we run on fairly thin margins even with our critical access designations,” said Kevin Smith, chief operating officer at Scott & White Hospital in Taylor, which would likely lose its critical access status if it were reevaluated. 

Although Smith does not believe the hospital would close, he said it would create a financial burden.

“Losing that reimbursement mechanism would just make it more difficult in the rural settings to continue to provide the same services that all critical access hospitals in Texas are currently providing,” he said.

Rural hospitals primarily provide emergency care and basic health care procedures, such as delivering babies, McBeath said. They don’t typically include more profitable services, like cardiac surgeries, that come with higher reimbursements. That fact, coupled with low patient volume, makes it difficult to keep a critical access hospital fully staffed without financial aid.

“You just can’t achieve maximum efficiency in a small, rural area,” McBeath said.

And rural hospitals in Texas are already facing financial hardships, he added. Federal sequestration cut Medicare payments by two percent beginning in April, and two other Medicare payment programs that help rural hospitals that are not designated as critical access facilities are set to expire Oct. 1. 

Sixty-four of Texas' 254 counties already do not have a hospital, according to TORCH. In 2013, rural hospitals closed in Weimar, Center, Terrell and Grand Saline.

Smith, whose 25-bed hospital serves a population of roughly 20,000, says rural hospitals provide more than just emergency care, and that locals would suffer without them. “You’d also miss out on all the community offerings, the educational benefits, the screening benefits and the primary care benefits that come from a hospital being in the community,” he said.

This story was produced in partnership with Kaiser Health News, an editorially independent program of the Henry J. Kaiser Family Foundation, a nonprofit, nonpartisan health policy research and communication organization not affiliated with Kaiser Permanente.