Rural hospitals hit hard by reductions in Medicare disbursements, declining population

Approximately 3 percent of all rural hospitals closed in the period between 2013 and 2017, which can affect rural residents’ access to health care services. The U.S. Government Accountability Office (GAO) did a study to determine how HHS supports and monitors rural hospitals’ financial viability and rural residents’ access to hospital services. The study also details the number and characteristics of rural hospitals that have closed as well as what is known about the factors that contributed to those closures. According to the GAO report, Medicare Dependent Hospitals and for-profit hospitals were some of the hardest hit by reductions in Medicare disbursements, while hospitals in Medicaid expansion states and states with higher enrollment under the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) were the least affected (GAO Report, GAO-18-634, September 30, 2018).

Rural hospitals

In 2017, 2,250 general acute care hospitals in the United States met the definition of rural. Rural hospitals represented approximately 48 percent of hospitals nationwide and 16 percent of inpatient beds. Rural hospitals spread across 84 percent of the United States land area that is classified as rural and served 18 percent of the United State population that lived in those areas. Rural areas tend to have a higher percentage of elderly residents than urban areas, a higher percentage of residents with limitations in activities caused by chronic conditions, and a lower median household income. Rural areas also face a decreasing population and slow employment growth.

Payment policies and programs

HHS provides key financial support to rural hospitals to provide rural residents access to hospital services through a number of payment policies and programs. CMS administers five rural hospital payment designations, in which rural or isolated hospitals that meet specified eligibility criteria receive higher reimbursement for hospital services than they otherwise would have received under Medicare’s standard payment methodology. The Federal Office of Rural Health Policy (FORHP) administers multiple grant programs, cooperative agreements, and contracts that provide funding and technical assistance to rural hospitals. CMS’s Center for Medicare and Medicaid Innovation tests new ways to deliver and pay for healthcare. There are also the broader HHS payment policies and programs such as Medicare and Medicaid base payments, Medicare and Medicaid uncompensated care payments, the state innovation models initiative, as well as other targeted HHS payment policy and programs.

Rural hospital closures

An analysis of data shows that from 2013 through 2017, 64 rural hospitals closed. This is more than twice the number of rural hospitals that closed during the prior 5-year period and accounts for more than the share of urban hospitals that closed and more than the number of rural hospitals that opened. Rural hospitals in the South represented 38 percent of the rural hospitals in 2013 but accounted for 77 percent of the rural hospital closures from 2013 through 2017. Medicare dependent hospitals represented 9 percent of the rural hospitals in 2013 but accounted for 25 percent of the rural hospital closures.

For-profit hospitals are twice as likely to experience financial distress relative to government-owned and non-profit hospitals and represented 11 percent of rural hospitals in 2013 but accounted for 36 percent of closures. Bed size also seems to be a factor as rural hospitals with between 26 and 49 inpatient beds represented 11 percent of the rural hospitals in 2013 but accounted for 23 percent of the closures. While critical access hospitals (CAHs), which have 25 acute inpatient beds or less and make up a majority of the rural hospitals, were less likely than other rural hospitals to close. This may be due, in part, to the CAH payment designation.

Contributing factors

Data shows that rural hospital closures were generally preceded and caused by financial distress. This is partially due to a decrease in patients seeking inpatient care at rural hospitals. There are an increasing number of federally qualified health centers or newer hospital systems outside of the area that create increased competition for rural hospitals. Technological advances have also allowed for more services to be provided in outpatient settings. There is also data showing that the years 2010 through 2016 marked the first recorded period of rural population decline.

Rural hospitals are sensitive to changes in Medicare payments because, on average, Medicare accounted for approximately 46 percent of their gross patient revenues in 2016. Reductions in nearly all Medicare reimbursements and reductions in Medicare bad debt payments have contributed to negative margins for rural hospitals.

Medicaid expansion

According to stakeholders that were interviewed and literature that was reviewed, the strongest factor that likely strengthened the financial viability of rural hospitals was the increased Medicaid eligibility and enrollment under the ACA. A 2018 study showed that Medicaid expansion was associated with improved hospital financial performance and a substantially lower likelihood of closure, especially in rural markets. Drops in uninsured rates in 2008 through 2009 and 2014 through 2015 corresponded with states’ decisions to expand Medicaid, with small towns and rural areas seeing the largest increase in Medicaid coverage and decline in uninsured. Data shows that from 2013 through 2017, rural hospitals in states that had expanded Medicaid as of April 2018 were less likely to close compared with rural hospitals in states that had not expanded Medicaid.

Kusserow on Compliance: GAO calls for strengthening oversight of Managed Care organizations

Medicaid is a major commitment of federal and state budgets, with total estimated expenditures of $596 billion in fiscal year 2017—expenditures that rival the budget of the Department of Defense. States are permitted wide latitude in the design and implementation of their program. The resulting diversity of the program and its size make the program particularly challenging to oversee at the federal level. The Government Accountability Office (GAO), in testimony before Congress, reported last year that they estimated about $37 billion in improper payments that accounted for about 26 percent of government-wide improper payments. The GAO testimony called for increased oversight of Medicaid providers and managed-care plans, and was critical of the Obama administration’s lax auditing of Medicaid insurers as millions joined the rolls through expansion. During the same hearing, the CMS Administrator responded by reporting the structure of expansion with the 90 percent match and an open-ended entitlement is an incentive for the states to spend more and more.

 

Highlights of GAO recommendations to CMS

  1. Add to clearly establish approval criteria and review processes to ensure supplemental payments of around $50 billion a year are identified and accounted for by states when setting future payment rates.
  2. Ensure demonstrations do not increase federal costs and properly conduct evaluations to increase significant savings and better informed policy decisions.
  3. Improve the Transformed Medicaid Statistical Information System to improve program oversight and collect complete and comparable data from all states.
  4. Conduct a fraud risk assessment and implement a risk-based antifraud strategy for Medicaid.
  5. Increased collaboration with the states is needed to help reduce improper payments.

 

Richard P. Kusserow served as DHHS Inspector General for 11 years. He currently is CEO of Strategic Management Services, LLC (SM), a firm that has assisted more than 3,000 organizations and entities with compliance related matters. The SM sister company, CRC, provides a wide range of compliance tools including sanction-screening.

Connect with Richard Kusserow on Google+ or LinkedIn.

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Copyright © 2018 Strategic Management Services, LLC. Published with permission.

Kusserow on Compliance: CMS increases audits to address Medicaid fraud and abuse

In efforts to prevent Medicaid fraud and reduce improper payments, CMS is in the process of implementing eight “new or enhanced” program integrity initiatives and strategies to address reported billions in improper Medicaid payments. These initiatives include target auditing of selected state programs and known vulnerabilities. The stated aim is to promote transparency and accountability. The CMS announcement noted that Medicaid spending has risen more than 26 percent in the three years leading up to 2017, from $456 to $576 billion. A significant part of the increase was as result of states expanding their Medicaid programs under the Patient Protection and Affordable Care Act (ACA). Most of this increase was covered by the federal government, with its share rising 38 percent, from $263 billion to $363 billion, over the same three-year period. CMS efforts include evaluating the impact of this expansion on program integrity. The announced new initiatives followed a Senate hearing that lambasted CMS, reporting that Medicaid pays out $37 billion a year of improper payments, an increase of 157 percent since 2013.  The new initiatives will be designed to address previously identified activities that harmed Medicaid’s program integrity, and address problems identified by the GAO and OIG and include:

  1. Targeted audits of certain state MCOs. CMS will review financial reports from MCOs in targeted states to ensure they match actual claims experience.
  2. New audits of beneficiary eligibility. States that had OIG reviews of Medicaid beneficiary eligibility will have follow-up determinations reviewed by CMS.
  3. Claims and provider data optimization. CMS will validate the quality and completeness of state-provided data in the Transformed Medicaid Statistical Information System (TMSIS) using data analytics and other techniques to improve data quality and to flag potential problems that require further investigation.
  4. Data analytics pilots. CMS will use analytics and other IT tools on state-provided data to optimize state data to identify areas that need additional investigation.
  5. Provider screening on an opt-in basis. CMS will pilot a plan to screen Medicaid providers on behalf of states, in the belief that centralizing this process will improve efficiency and coordination across Medicare and Medicaid. This, in turn, should reduce state and provider burden, and address one of the biggest sources of error as measured by the Payment Error Rate Measurement (PERM) program.
  6. State-federal data sharing and collaboration. CMS is giving states access to the SSA’s master file of death records to help with managing provider enrollment.
  7. Publicly report state performance. The Medicaid scorecard will indicate how well states perform on certain measures pertaining to their Medicaid programs. This scorecard will include the state’s “integrity performance measures,” such as PERM.
  8. Provider education to reduce improper payments. CMS will bolster education efforts for Medicaid providers to reduce billing errors, including targeting comparative billing reports and provider-facing tools currently in development.

 

Richard P. Kusserow served as DHHS Inspector General for 11 years. He currently is CEO of Strategic Management Services, LLC (SM), a firm that has assisted more than 3,000 organizations and entities with compliance related matters. The SM sister company, CRC, provides a wide range of compliance tools including sanction-screening.

Connect with Richard Kusserow on Google+ or LinkedIn.

Subscribe to the Kusserow on Compliance Newsletter

Copyright © 2018 Strategic Management Services, LLC. Published with permission.

Kusserow on Compliance: GAO calls for CMS to mitigate program risks in managed care

·       Medicaid enrollment in managed care rose in three years from 35 to 55 million beneficiaries

·       $170 billion Medicaid managed care is half of total federal Medicaid expenditures

·       CMS is not doing enough to ensure accuracy in payments

 

Congress called for the Government Accountability Office (GAO) to conduct a study of the Payment Error Rate Measurement (PERM), which  measures the accuracy of capitated payments for managed care, including CMS’s and states’ oversight. Driving this inquiry was the rapid growth of Medicaid managed care enrollment, which increased by 56 percent in three years, jumping from covering 35 million beneficiaries to 54.6 million beneficiaries. Federal Medicaid managed care expenditures last year were $171 billion, almost half of the total for Medicaid. The GAO focused on weaknesses in oversight, given the recent rapid growth. The GAO reviewed program integrity risks reported in 27 federal and state audits and investigations over a five year period; federal regulations and guidance on the PERM; and the CMS’s Focused Program Integrity Reviews. The GAO also contacted program integrity officials in the 16 states with a majority of 2016 Medicaid spending for managed care. The GAO found:

  1. Ten of 27 federal and state audits and investigations identified about $68 million in overpayments and unallowable MCO costs, not accounted for by PERM estimates.
  2. Another investigation resulted in a $137.5 million settlement.
  3. CMS does not have a process to track managed care overpayments and cannot determine whether states considered those overpayments when they set capitation rates.
  4. CMS is not doing enough to ensure that states are adequately paying managed Medicaid companies and that the plans are making correct payments to providers.
  5. The managed care component of the PERM neither includes a medical review of services delivered to enrollees, nor reviews of MCO records or data.
  6. CMS and states have updated regulations, focused reviews, and used federal program integrity contractors’ audits of managed care services, however, some of this is only recent, and it may not fully address risks across all states.
  7. CMS does not ensure identification and reporting of overpayments to providers and unallowable costs by MCOs.

The GAO called for CMS to consider and take steps to mitigate the program risks that are not measured in the PERM, such as overpayments and unallowable costs. Such an effort could include actions such as revising the PERM methodology or focusing additional audit resources on managed care. The GAO also recommended CMS expedite the release of planned guidance and requirements for states to report to the CMS overpayments made between managed-care providers and plans.

 

 

 

 

Richard P. Kusserow served as DHHS Inspector General for 11 years. He currently is CEO of Strategic Management Services, LLC (SM), a firm that has assisted more than 3,000 organizations and entities with compliance related matters. The SM sister company, CRC, provides a wide range of compliance tools including sanction-screening.

Connect with Richard Kusserow on Google+ or LinkedIn.

Subscribe to the Kusserow on Compliance Newsletter

Copyright © 2017 Strategic Management Services, LLC. Published with permission.