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: Stark law to undergo interagency review

The CMS Administrator announced plans to convene an inter-agency group to focus on how to minimize the regulatory barriers created by Stark law, which was established in 1989 and underwent expansion in the 1990s. Providers have raised concerns from the beginning of the implementation of the Stark law. The agencies involved in the review will include CMS, OIG, HHS General Counsel, and the DOJ. The Stark law prohibits doctors from referring Medicare patients to hospitals, labs and colleagues with whom they have financial relationships unless they fall under certain exceptions. It also prevents hospitals from paying providers more when they meet certain quality measures, such as reducing hospital-acquired infections, while paying less to those who miss the goals. The result is the law is viewed as making it difficult for physicians to enter innovative payment arrangements because they are not susceptible to fair market value assessment—a Stark requirement. These prohibitions are seen as interfering with key factors related to value-based care. Unlike the Anti-Kickback Statute, which is enforced by the OIG, the Stark law is considered regulatory and falls under CMS jurisdiction. From a regulatory standpoint, there is only so much that CMS can do to make substantive changes. Any real changes in the law will have to come from Congress.

This is not the first time the CMS has tried to move the easing of rules concerning the Stark law.  In 2015, CMS published a Proposed rule relaxing aspects of the Stark law, including easing of some of the strict liability features of the law and CMS’ burden in dealing with the interpretation of key terms, requirements, and other issues. After reviewing an enormous amount of self-disclosures, CMS realized that a large part of the docket involved arrangements that may technically violate the statute but do not actually pose significant risks of abuse. Therefore, it appears that CMS seeks to reduce the number of self-disclosures reported. However, the proposed update is also intended to account for recent changes relating to health care reform and advancements in patient care and payment methodologies. CMS wanted to ensure that Stark does not inhibit Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) reforms and these are the same concerns driving the latest initiative.

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.

Prohibition on paid referrals not limited to ‘relevant decisionmakers’

The Seventh Circuit affirmed the conviction of an individual under the Anti-Kickback Statute (AKS) (42 U.S.C. § 1320a-7b) whose referral agency had provided referrals to a home health company in exchange for $500 per referral. In affirming the lower court’s decision, the Seventh Circuit found that criminal liability under the AKS is not limited to relevant decisionmakers and that no safe harbors applied (U.S. v. George, August 14, 2018, Rovner, I.).

Referrals for money

The referrer was a certified homemaker employed by Help at Home, a home healthcare agency, beginning in 2007. In 2010, she decided to start a referral agency and signed a work for hire agreement with another home health service, Rosner Home Health Care, Inc. (Rosner), in which she agreed to convince providers, including doctors, case managers, discharge planners, and social workers, to refer patients to Rosner. In exchange, Rosner paid the referrer $500 for each patient referred. In 2015, the referrer was indicted and then found guilty of two counts of violating the AKS and one count of violating the general conspiracy statute (see Receipt of per-patient referrals, knowledge of illegality enough to overcome doubt, Health Law Daily, March 25, 2016).

Appeal

Under the AKS, the government must demonstrate that the referrer knowingly and willfully solicited or received remuneration in return for referring an individual to Rosner to provide or arrange services paid at least in part under Medicare. The referrer appealed her conviction arguing that there was insufficient evidence to support the substantive counts of her conviction falling under the AKS. According to the court, rather than merely demonstrate that evidence could have supported a finding of innocence, the referrer must demonstrate on appeal that the evidence could not have allowed a reasonable trier of fact to find her guilty.

Relevant decisionmakers

The referrer argued that she could not be held liable, as the statute applied only to “relevant decisionmakers,” which she was not. In making this argument, the referrer relied on a previous Fifth Circuit decision in which the court held that payments to a marketing firm distributing advertisement brochures of a provider to physicians did not fall within the AKS because they were not payments made to the relevant decisionmaker in exchange for sending patients to the provider. However, the court cited a subsequent case rejecting an interpretation of that case limiting criminal liability to persons would could be deemed relevant decisionmakers.

Safe harbors

The referrer also argued that she had a reasonable basis to believe she fell within the safe harbor provision of the AKS applying to “any amount paid by an employer to an employee (who has a bona fide employment relationship with such employer) for employment in the provision of covered items or services. However, her written agreement with Rosner specifies that she was acting as an independent referral agency, not an employee. The court also noted that the referrer was paid for referrals, not for the provision of items or services covered by Medicare. Thus, the safe harbor provision did not apply.

Kusserow on Compliance: Inappropriate denial of services and payments in the Medicare Advantage program

In an update to its Workplan, the HHS office of Inspector General (OIG) added a new project in June. The OIG Office of Evaluation and Inspection will be reviewing and evaluating the question of inappropriate denial of service and payment in the Medicare Advantage program. Medicare Advantage Plans must cover all of the services that original Medicare covers. Capitated payment models are used for these plans. It is based on payment per person rather than payment per service provided. A central concern about the capitated payment model used in Medicare Advantage is that there may be an incentive to inappropriately deny access to, or reimbursement for, health care services in an attempt to increase profits for managed care plans. There have been questions raised as to whether some of the plans may be inappropriately denying service claims as a means to increase their profits.  The OIG plans to conduct medical record reviews to determine the extent to which beneficiaries and providers were denied preauthorization or payment for medically necessary services covered by Medicare. To the extent possible, we will determine the reasons for any inappropriate denials and the types of services involved.

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.