Rural Healthcare Providers Fight Proposed Reimbursement Changes

February 28, 2011--Big changes could come to rural hospitals if legislation passes to review and potentially change their Medicaid reimbursement rates to reflect demographic and economic shifts in the areas they serve.

 

But employees and operators of these hospitals fear that such a law would force them to cut services and affordable care for some of the state’s most vulnerable populations.

 

“If you take funding away, we lose the opportunity to provide immediate care,” Ken Hector of the Silverton Hospital Network told legislators Wednesday. “We need to save money, but we need to save lives too.”

 

Currently, most of Oregon’s rural hospitals are classified either as Type A – fewer than 50 beds, and more than 30 miles from the nearest urban area – or Type B – also fewer than 50 beds, but 30 miles or fewer from the nearest urban area.

 

These rural hospitals receive full Medicaid cost reimbursement as recognition of the unique challenges they face, including their older and poorer patient base, many of which are Medicare or Medicaid recipients.

 

By contrast, the state’s larger urban hospitals, even those in underserved neighborhoods, receive Medicaid reimbursement at a fixed, per-patient rate that is dependent on the diagnostic-related group, or DRG, a patient falls into (based on diagnosis and treatment). It’s a national standard intended to curb costs associated with line-item reimbursements for hospital procedures.

 

Senate Bill 239, backed by Sen. Alan Bates (D-Ashland), calls for a review of Type B hospitals’ net profits at least once every five years, and would change the reimbursement rate for hospitals with a 5 percent or greater five-year average profit margin from full-cost to the fixed DRG rate.

 

Why the change? Because, according to a 2008 study by the Oregon Office for Health Policy and Research, some Type B hospitals could do just fine without the full-cost Medicaid payment.

 

The study recommended keeping reimbursement for Type A hospitals the same – because they “generally struggle to maintain positive operating margins” – but change the reimbursement policy for Type Bs, because some of those facilities, due to changes in population size and other demographics, “may not require the differential Medicaid payment in order to remain financially healthy.”

 

“Just letting systems sit there and not looking at them ever makes no sense,” said Bates during the bill’s hearing before the Senate Health, Human Services and Rural Health Policy Committee Wednesday. “All we want to do is have a mechanism to look at this [system] … and see if it is appropriate or not.”

 

In 2009, Type B hospitals recorded average operating margins at 2.2 percent, however, hospitals tied to larger systems reported higher returns. For instance, Providence Hood River had a 10.3 percent operating margin and St. Charles Medical Center in Redmond reported margins at 6.3 percent. 

 

Some rural healthcare insurance providers support the bill.

 

“Within [rural] classifications, we have some hospitals that are truly stand-alone, and others who’ve grown out of and outpaced that system,” said Sean Riesterer, the chief operating office of MVP Health Authority, which contracts with insurance companies to provide healthcare coverage to Marion and Polk County residents.

 

He added, “In terms of scarce resources and applying them best, I think it’s only fair for a broader system” like that proposed in Senate Bill 239 to be implemented.

 

This idea faces staunch opposition from many in the communities served by Type Bs, who claim that reduced Medicaid reimbursement would shift costs to community members with commercial or private insurance, and leave hospitals in a financial lurch that could force them to cut back on services.

 

“I don’t think that a bill that could jeopardize B hospitals is a good idea at all,” said Rep. Vic Gilliam (R-Molalla), whose local hospital in Silverton would be impacted by the bill. “We have a huge rural-urban divide, and we don’t want this bill to make that divide worse.”

 

Sen. Chip Shields (D-Portland), who represents perennially underserved North and Northeast Portland, questioned why hospitals in high-poverty urban areas, like Legacy Emanuel in his district, should be reimbursed less than rural hospitals.

 

“Fifty percent of our patients are OB [birth delivery] patients,” Hector responded. “OB is not a profitable venture, but large hospitals make up the difference on cancer, cardiology and big-ticket procedures we can’t provide.”

 

Additionally, “We have a disproportionately high proportion of Medicaid and Oregon Health Plan patients,” Hector said. “That’s why the impact for us is so much higher.”

 

Bates will work with the bill’s opponents to craft amendments that address their concerns.

 

 

Office for Oregon Health Policy and Research 2008 study of Medicaid reimbursement of Type A and Type B hospitals click here.