At the Intersection of Health, Health Care and Policy Cite this article as: Michelle M. Casey, Ira Moscovice, G. Mark Holmes, George H. Pink and Peiyin Hung Minimum-Distance Requirements Could Harm High-Performing Critical-Access Hospitals And Rural Communities Health Affairs, 34, no.4 (2015):627-635 doi: 10.1377/hlthaff.2014.0788
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Hospitals By Michelle M. Casey, Ira Moscovice, G. Mark Holmes, George H. Pink, and Peiyin Hung 10.1377/hlthaff.2014.0788 HEALTH AFFAIRS 34, NO. 4 (2015): 627–635 ©2015 Project HOPE— The People-to-People Health Foundation, Inc.
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Minimum-Distance Requirements Could Harm High-Performing Critical-Access Hospitals And Rural Communities
Michelle M. Casey (mcasey@ umn.edu) is a senior research fellow in and deputy director of the Rural Health Research Center, Division of Health Policy and Management, School of Public Health, University of Minnesota, in Minneapolis.
Since the inception of the Medicare Rural Hospital Flexibility Program in 1997, over 1,300 rural hospitals have converted to criticalaccess hospitals, which entitles them to Medicare cost-based reimbursement instead of reimbursement based on the hospital prospective payment system (PPS). Several changes to eligibility for critical-access status have recently been proposed. Most of the changes focus on mandating that hospitals be located a certain minimum distance from the nearest hospital. Our study found that critical-access hospitals located within fifteen miles of another hospital generally are larger, provide better quality, and are financially stronger compared to criticalaccess hospitals located farther from another hospital. Returning to the PPS would have considerable negative impacts on critical-access hospitals that are located near another hospital. We conclude that establishing a minimum-distance requirement would generate modest cost savings for Medicare but would likely be disruptive to the communities that depend on these hospitals for their health care. ABSTRACT
I
n response to concerns about access to care for rural Medicare beneficiaries, the Balanced Budget Act of 1997 established the Medicare Rural Hospital Flexibility Program and criteria for designating institutions as critical-access hospitals. In the years before the creation of the program, rural hospitals experienced widespread financial difficulties and closures. Unlike hospitals in Medicare’s hospital prospective payment system (PPS), whose Medicare reimbursement is based on the average cost of patients in each diagnosisrelated group or ambulatory payment classification, critical-access hospitals receive cost-based Medicare reimbursement (99 percent of allowable costs for inpatient and outpatient services).1 According to section 1820 of the Social Security Act of 1965, to be certified as critical-access hospitals, rural hospitals are required to meet eligibility criteria related to their location in a rural area, number of beds, average length-of-stay,
Ira Moscovice is the Mayo Professor, director of the Rural Health Research Center, and head of the Division of Health Policy and Management, all at the School of Public Health, University of Minnesota. G. Mark Holmes is an associate professor in the Department of Health Policy and Management and director of the North Carolina Rural Health Research and Policy Analysis Center, both at the University of North Carolina at Chapel Hill.
and provision of emergency services. Initially, critical-access hospitals were required to be located more than thirty-five miles from the nearest hospital, or more than fifteen miles in areas with mountainous terrain or only secondary roads. From 1997 through December 2005, however, states could waive the distance requirements for hospitals designated by the governor as “necessary providers” of health care services. Beginning in 2006, any new critical-access hospitals must meet the distance requirements, but existing institutions were allowed to remain in the program. Medicare’s cost-based payments to criticalaccess hospitals (including beneficiary cost sharing) account for only 5 percent of all Medicare inpatient and outpatient payments to hospitals.2 However, they have generated interest from policy makers who are concerned about deficit reduction and about whether the number of critical-access hospitals has expanded beyond April 2 015
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George H. Pink is the Humana Distinguished Professor in the Department of Health Policy and Management and deputy director of the North Carolina Rural Health Research and Policy Analysis Center, both at the University of North Carolina at Chapel Hill. Peiyin Hung is a graduate research assistant in the Division of Health Policy and Management, School of Public Health, University of Minnesota.
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Hospitals the original legislative intent. In 2011 the Congressional Budget Office (CBO) proposed reducing Medicare costs by ending provisions for critical-access hospitals and other special rural hospitals.3 In 2012 the Medicare Payment Advisory Commission (MedPAC) questioned the need for maintaining enhanced payments for all critical-access hospitals.4 In 2013 the Office of Inspector General in the Department of Health and Human Services recommended that the Centers for Medicare and Medicaid Services (CMS) seek legislative authority to remove the “necessary provider” exemption.5 The fiscal year 2015 budget submitted to Congress by the Obama administration proposed to “prohibit CAH [critical-access hospital] designation for facilities that are less than 10 miles from the nearest hospital.”6 If any of these proposals were implemented, there could be two major effects on criticalaccess hospitals: The number of hospitals with that designation would be reduced, and hospitals that lost critical-access status and ended up in the PPS could experience a substantial reduction in Medicare revenue.7,8 Recent studies found that institutions that converted to critical-access hospitals had higher expenses per admission than nonteaching rural hospitals of similar size that did not convert9 and that critical-access hospitals had higher mortality rates for Medicare patients with certain medical conditions than other acute care hospitals did.10 Despite their limitations, including methodological issues related to the comparison group used and the treatment of transferred patients,11–13 these studies have been widely cited as evidence of the need to reexamine cost-based reimbursement for critical-access hospitals.14 However, cost-based reimbursement has financially stabilized many critical-access hospitals15 and allowed them to invest in quality improvement activities, including additional staff and training to improve patient care.16 It has also allowed critical-access hospitals to invest in upgraded facilities and equipment, which may result in improved diagnosis and patient care.17 In addition, subsequent studies of mortality rates at critical-access hospitals have found that their surgical mortality rates are equivalent to those at other types of hospitals,18 and their stroke mortality rates are similar to those at other hospitals with relatively low volumes.19 Researchers have not examined the relationship between distance to another hospital and a critical-access hospital’s financial and quality performance. In this article we compare hospitals that could lose critical-access status because of a minimum-distance requirement to the remaining critical-access hospitals in terms of or628
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ganizational characteristics, quality, and financial performance. We also estimate the potential financial consequences of reversion to the PPS for hospitals that could lose critical-access status.
Study Data and Methods Distance And Hospital Characteristics Using data for the first quarter of 2013 from CMS’s Provider of Services File, geocoded with the SAS system and Pitney Bowes’s MapMarker, we identified all active short-stay nonfederal hospitals, including critical-access hospitals, that were certified by Medicare. We excluded facilities that were not short-term acute care hospitals, such as long-term acute care, psychiatric, children’s, emergency only, or rehabilitation hospitals.20 We used Esri’s ArcGIS to calculate the distance from each critical-access hospital to all other short-term acute care hospitals within 250 linear miles. Driving routes and distances for the five nearest hospitals were calculated. If the nearest hospital was less than a tenth of a mile away from a critical-access hospital, we determined whether or not the two hospitals had the same CMS record number. If they did, we assumed that they were not distinct providers, and we used the next-nearest neighbor instead. All roads were treated as primary roads. Each critical-access hospital was assigned to one of three categories based on its distance from the nearest hospital. Those in the “nearest distance” group were less than 15 miles from the nearest hospital, those in the “middle distance” group were 15–35 miles away, and those in the “farthest distance” group were more than 35 miles away. We used data on hospitals’ size and date of certification from a critical-access hospital database maintained by the Flex Monitoring Team,21 a consortium of rural health research centers funded by the Federal Office of Rural Health Policy in the Health Resources and Services Administration.We also used data on critical-access hospitals’ utilization and organizational characteristics from the American Hospital Association Annual Survey database for fiscal year 2011. Differences in characteristics between the criticalaccess hospitals in the nearest distance group and hospitals in each of the other two distance groups were based on Fisher’s exact tests for categorical variables and on two-sample t-tests for continuous variables. Quality We used publicly available CMS Hospital Compare data—for discharges in the period April 2012–March 2013—for nineteen inpatient and outpatient quality measures that address recommended care for acute myocardial infarc-
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tion, heart failure, pneumonia, surgical care, and immunizations. We excluded measures for which relatively few critical-access hospitals had data (the hospitals do not provide some services, such as percutaneous cardiac intervention) and measures for which only three months of data were available (for example, new stroke and venous thromboembolism measures). The publicly available data were combined with nonpublic CMS data from hospitals that reported ten or fewer cases for a measure. CMS suppresses these data on Hospital Compare, but it makes them available to the Federal Office of Rural Health Policy for aggregate critical-access hospital analyses. For each quality measure, we compared critical-access hospitals in the nearest distance group with hospitals in each of the other two distance groups on both reporting (defined as the percentage of critical-access hospitals that reported data for at least one patient) and performance (defined as the percentage of eligible patients in each group of critical-access hospitals who received the recommended care), using Fisher’s exact tests. We also used logistic regression models to examine the effect on quality performance of controlling for the following hospital characteristics: number of beds, accreditation, system affiliation, ownership, and census region. Financial Performance A model of criticalaccess hospitals’ financial distress that was developed by the Flex Monitoring Team uses historical data on a hospital’s financial performance to predict the probability of signals of financial distress—continued operating losses, decline in equity, or closure—within two years.22,23 Current financial performance variables (current profitability, reinvestment, and hospital size) and market characteristic variables (competition, economic status, and market size) were used in a system of logistic regression models to develop risk scores used to assign critical-access hospitals to one of four levels that predict the risk or likelihood that a hospital will be in financial distress within two years. For example, in our initial analyses, 70 percent of critical-access hospitals in the high-risk category had a negative operating margin in three consecutive years, compared to 8 percent of lowrisk hospitals. Similarly, 30 percent of high-risk hospitals had a negative fund balance compared to 2 percent of low-risk hospitals. To estimate the reduction in Medicare revenue from eliminating the “critical-access hospital” designation, we used fiscal year 2011 Medicare cost reports from the Healthcare Cost Report Information System. Medicare inpatient (including swing beds) and outpatient revenue were calculated for all critical-access hospitals.
(Swing beds are beds that Medicare allows to be used for either acute or skilled nursing facility– level care.) These amounts were reduced by the approximate amount by which the hospital payments exceeded PPS payments in two scenarios: by 20 percent, as estimated by the CBO,3 and by 30 percent, as estimated by MedPAC.8 We recalculated total net patient revenue using the reduced Medicare revenue as an estimate of what revenue would have been under PPS reimbursement. The adjusted revenue calculations were then used to recompute the financial indicators in the critical-access hospital financial distress model, and the hospitals again were assigned to one of four levels of risk of financial distress. This method assumed that only Medicare reimbursement would change and all else would remain the same—for instance, Medicare beneficiary cost sharing, Medicaid and other revenue, expenses, volume, and market share and size. However, administrators might respond to a change in Medicare reimbursement with other changes, including increased attention to efficiency, a decrease in the number of Medicare patients, or changes to corporate strategy. Our approach provides an approximation of shortterm effects before longer-term responses could be implemented.
Study Results Distance And Hospital Characteristics Of the 1,332 critical-access hospitals operating as of June 2013, 19.2 percent were less than 15 miles from the nearest hospital, 65.6 percent were 15– 35 miles away, and 15.1 percent were more than 35 miles away. These are comparable to previous distance estimates from the Office of Inspector General5 and MedPAC.8 Fifty-two percent of the critical-access hospitals in the nearest distance group had another critical-access hospital as their nearest hospital; the other 48 percent were closest to a PPS hospital. Critical-access hospitals in the three distance groups differed significantly on several characteristics (Exhibit 1). Compared to hospitals in the middle and farthest distance groups, those in the nearest distance group were more likely to be private nonprofit hospitals, accredited by the Joint Commission or the American Osteopathic Association, and members of a multihospital system. The majority of hospitals in the nearest distance group were located in the Midwest (59.1 percent) or South (23.7 percent) census regions. Nearly all (93.4 percent) were certified as critical-access hospitals between 2000 and 2005. Compared to critical-access hospitals in the A p r i l 20 1 5
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Hospitals Exhibit 1 Critical-Access Hospital (CAH) Characteristics, By Distance To Nearest Hospital, April 2012–March 2013 Percent of CAHs Characteristic Hospital ownership Public or government Private nonprofit Private for-profit
35 miles (n = 201 CAHs)
31.9% 62.7 5.5
44.1%**** 50.6**** 5.3
42.8%*** 53.2** 4.0
Accreditation System affiliation
42.8 51.0
28.2**** 40.3***
24.4**** 33.3****
5.1 50.2 43.2 1.6
8.7** 54.4 31.9**** 5.0***
9.5** 58.2* 15.4**** 16.9****
4.7 59.1 23.7 12.5
5.5 48.6*** 31.1*** 14.8
3.5 27.4**** 8.5**** 60.7****
38.4
52.7****
Miles to nearest acute care hospital Number of beds
37.4 Mean 11.6 23.1
22.6 22.6
50.5 20.7****
Annual admissions Annual inpatient days
818.3 4,115.3
687.8*** 3,696.7
585.5**** 3,368.1**
Annual outpatient visits (thousands) Annual outpatient surgeriesa
43.8 1,013.4
33.6**** 756.1****
26.9**** 791.2***
Annual inpatient surgeriesb Annual birthsc
203.7 203.6
151.6*** 153.0***
159.3*** 166.2*
Year of CAH certification 1994–99 2000–03 2004–05 2006–13 Census region Northeast Midwest South West Obstetric services
SOURCE Authors’ analysis of data for 2013 from the Flex Monitoring Team (see Note 20 in text) and for fiscal year 2011 from the American Hospital Association Annual Survey. NOTES Significance refers to differences between the closest distance group and each of the other distance groups based on Fisher’s exact tests for categorical values and on two-sample t-tests for continuous variables. a Calculated for hospitals with any outpatient surgeries. bCalculated for hospitals with any inpatient surgeries. cCalculated for hospitals with any births. *p < 0:10 **p < 0:05 ***p < 0:01 ****p < 0:001
middle and farthest distance groups, those in the nearest distance group had significantly more annual admissions, outpatient visits, and inpatient and outpatient surgeries. On average, hospitals in the nearest distance group had significantly more beds and inpatient days than hospitals in the farthest distance group. Quality Compared to critical-access hospitals in the middle distance group, those in the nearest distance group were significantly more likely to publicly report data on twelve of the nineteen quality measures we studied (Exhibit 2). For fifteen of the measures, hospitals in the nearest distance group were significantly more likely to publicly report data than those in the farthest distance group. Critical-access hospitals in the nearest distance group performed better than those in the other distance groups on the majority of quality measures across multiple conditions. In the bivariate results, patients in hospitals in the near630
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est distance group were significantly more likely to receive recommended care than patients in hospitals in the middle-distance group on thirteen of the nineteen measures, and to receive recommended care than patients in hospitals in the farthest distance group on eleven of the measures (p < 0:001, p < 0:01, or p < 0:05, depending on the measure). Other differences in performance between distance groups were not significant. Exhibit 3 shows the nine measures on which the nearest distance group had significantly better quality than both of the other distance groups. The results of the multivariate regression models were generally consistent with the bivariate results. When we controlled for hospital size, ownership, accreditation, system membership, and census region, we found that patients in hospitals in the nearest distance group were significantly more likely to receive recommended care than patients in hospitals in the middle
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Exhibit 2 Critical-Access Hospital (CAH) Public Reporting Of Quality Measures By Distance To Nearest Hospital, April 2012–March 2013 Percent of CAHs reporting data Quality measures Acute myocardial infarction
35 miles
Aspirin prescribed at discharge (inpatient) Statin prescribed at discharge (inpatient) Aspirin at arrival (ED) Heart failure
40.1% 38.1 50.2
32.0%** 31.6* 45.2
34.8%* 31.8 44.3
Discharge instructions provided Evaluation of LVS function ACE inhibitor or ARB for LVSD Pneumonia
82.1 85.2 72.0
78.9 81.2 66.6
77.1 77.6** 52.7****
Blood culture in ED before first antibiotic Appropriate initial antibiotic selection Inpatient surgery
87.5 90.7
78.3**** 82.8***
72.1**** 77.1****
Patients on beta-blockers who received beta-blockers perioperatively Timing of antibiotic prophylaxis Perioperative temperature management Prophylactic antibiotic selection for surgical patients Prophylactic antibiotics end within 24 hours Urinary catheter removed on postoperative day 1 or 2 VTE prophylaxis within 24 hours before or after surgery
45.9 47.9 51.4 47.9 47.9 47.5 49.4
29.5**** 34.0**** 35.1**** 34.0**** 33.9**** 32.2**** 34.0****
29.9**** 35.8**** 34.8**** 35.3*** 35.3*** 31.3**** 33.8****
Timing of antibiotic prophylaxis Prophylactic antibiotic selection for surgical patients
29.2 28.4
18.6**** 18.2****
18.9*** 18.4**
Immunization Pneumococcal immunization Influenza immunization
37.7 36.2
32.3* 30.5*
23.4**** 22.9***
Outpatient surgery
SOURCE Authors’ analysis of Hospital Compare data for the second quarter of 2012 through the first quarter of 2013. NOTES Numbers of hospitals in the three groups are provided in Exhibit 1. Significance refers to differences between critical-access hospitals that are less than fifteen miles from the next nearest hospital and critical-access hospitals in each of the other distance groups based on Fisher’s exact tests. ED is emergency department. LVS is left ventricular systolic. ACE is angiotensin-converting enzyme. ARB is angiotensin receptor blocker. LVSD is left ventricular systolic dysfunction. VTE is venous thromboembolism. *p < 0:10 **p < 0:05 ***p < 0:01 ****p < 0:001
distance group on nine measures, and to receive recommended care than patients in hospitals in the farthest distance group on ten measures (see the online Appendix for additional data).24 Financial Performance For the 1,233 critical-access hospitals with valid 2011 cost report data, total Medicare reimbursement was $6.521 billion, or $5.3 million per hospital. A 20 percent reduction in Medicare reimbursement, therefore, would translate to an average reduction of $1.06 million per critical-access hospital. Hospitals in the nearest distance group had a relatively higher proportion of Medicare reimbursement, however, which resulted in a relatively higher average reduction of $1.27 million. The total savings to Medicare by reducing reimbursement to the hospitals in the nearest distance group would be about $308 million,25 which is 0.056 percent of the $549.1 billion that Medicare spent in 2011.26 Our analysis of the distribution of the 2011
operating margin by Medicare revenue scenario and distance to nearest hospital found that 62 percent of critical-access hospitals in the nearest distance group had a positive operating margin, compared to 53 percent of hospitals in the middle distance group and 49 percent of those in the farthest distance group (p ¼ 0:012, according to a chi-square test). However, these values were all lower than the 71.6 percent of all US hospitals with a positive operating margin in 2011.27 Additionally, the operating margins of hospitals in the nearest distance group would be dramatically affected by the removal of criticalaccess status. If these hospitals were to revert to the hospital PPS and experience a 30 percent decline in Medicare reimbursement, the percentage of critical-access hospitals that had a negative operating margin would double, increasing from 37.6 percent to 75.6 percent. The typical critical-access hospital would expeApril 2 015
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Hospitals Exhibit 3 Critical-Access Hospital Quality Performance, By Distance Group, April 2012–March 2013
SOURCE Authors’ analysis of Hospital Compare data for the second quarter of 2012 through the first quarter of 2013. NOTES Numbers of hospitals in the three groups are provided in Exhibit 1. Significant differences in the percentages of eligible patients receiving recommended care between critical-access hospitals in the nearest distance group (less than 15 miles from the nearest hospital) and hospitals in each of the other distance groups (middle distance, 15–35 miles away; farthest distance, more than 35 miles away) were based on Fisher’s exact tests. All differences were significant (p < 0:001) except heart failure discharge instructions (p < 0:05 for the difference between the nearest and the middle distance groups); timing of antibiotic prophylaxis (p < 0:01 for the difference between the nearest and the middle distance groups); perioperative temperature management (p < 0:05 for the difference between the nearest and the farthest distance groups); and influenza immunization (p < 0:01 for the difference between hospitals in the nearest distance group and those in the middle distance group). LVS is left ventricular systolic. VTE is venous thromboembolism.
rience a decrease of approximately 8 percentage points in operating margin if a 30 percent cut were imposed. For example, hospitals within fifteen miles of another hospital have a median operating margin of 1.8 percent (interquartile range: −3.2, 6.4) under the status quo and would have a margin of −5.3 percent (IQR: −11.0, 0.0) with a 30 percent cut. Exhibit 4 presents the distribution of risk of financial distress (low, mid-low, mid-high, and high risk) among critical-access hospitals in the nearest distance group by Medicare revenue scenario and census region. Sixty-one percent of the hospitals were located in the Midwest. However, they represented only 27 percent of criticalaccess hospitals with the highest risk of financial distress under the current payment scenario. Meanwhile, the hospitals in the South were overrepresented among high-risk hospitals (45 percent of high-risk versus 22 percent of all criticalaccess hospitals). Notably, however, after hospitals reverted to the PPS and experienced a reduction in Medicare revenue of 30 percent, the share of high-risk hospitals in the Midwest would increase from 27 percent to 44 percent. In sum, imposing a minimum distance standard of fifteen miles on critical-access hospitals 632
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would primarily affect institutions in the South and Midwest, with Midwestern critical-access hospitals most likely to experience an increase in the proportion in financial distress.
Discussion This study found that hospitals that could lose critical-access status because of a minimumdistance requirement had a higher volume of patients, were more financially stable, were more likely to publicly report quality data, and had better quality performance than critical-access hospitals located farther from other hospitals. These findings have several policy implications. First, using only distance from another hospital to determine whether a hospital is able to retain critical-access certification is a narrow criterion. Clinical expertise, physician distribution, the availability of technology, sufficient volume to maintain key services, the availability of other health care providers, and the needs of special and underserved populations are surely as important as geographic distance in determining which hospitals should receive cost-based reimbursement. Second, loss of critical-access status and cost-
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Exhibit 4 Distribution Of Financial Distress Risk Across Regions And Scenarios For Critical-Access Hospitals (CAHs) Within 15 Miles Of Another Hospital, Fiscal Year 2011 Midwest
Northeast
South
West
All
Distress risk CAHs
No. 147
% 61
No. 13
% 5
No. 54
% 22
No. 28
% 12
No. 242
Status quo scenario Low Mid-low Mid-high High
113 14 14 6
68 47 58 27
8 2 0 3
5 7 0 14
26 9 9 10
16 30 38 45
19 5 1 3
11 17 4 14
166 30 24 22
69 60 55 40
6 2 2 3
5 4 7 7
15 12 9 18
12 27 31 43
18 4 2 4
14 9 7 10
126 45 29 42
68 61 58 44
6 2 2 3
5 6 6 6
15 9 9 21
13 25 25 42
17 3 4 4
14 8 11 8
120 36 36 50
20% Medicare reduction scenario Low Mid-low Mid-high High
87 27 16 17
30% Medicare reduction scenario Low 82 Mid-low 22 Mid-high 21 High 22
SOURCE Authors’ analysis of data for fiscal year 2011 from Medicare cost reports.
based reimbursement could have potentially devastating financial consequences for many critical-access hospitals. These policy proposals are being made at a time when many of the institutions are already facing financial challenges. For example, Medicare bad-debt payments for critical-access hospitals are being reduced from 100 percent to 65 percent, phased in over a threeyear period beginning in fiscal year 2013.28 In addition, hospitals may not have sufficient time to respond to reimbursement changes by altering their behavior or strategy, such as by joining accountable care organizations, altering service mix, or aggressively trimming costs. Indeed, after loss of critical-access status, the limited liquidity of many critical-access hospitals could limit their ability to operate long enough to develop and implement potential responses. Third, and most important, these policy proposals do not recognize the potential harmful impacts on the rural health care system and access to care for rural residents. Many rural hospitals could be considered critical safety-net facilities despite their close proximity to nearby hospitals if, for example, they have a high proportion of Medicaid patients.29 A substantial reduction in financial support could lead to a renewal of the high rural hospital closure rates of the 1990s, with concomitant deleterious effects
on the health of these communities.30 Because hospitals often are a major employer in their community, changes could also lead to a decline in the economy of many rural communities.31 Finally, if financially vulnerable critical-access hospitals were to close, residents of many areas would experience increased travel time to a different hospital. One study found that residents would have to travel an average of 7.9 miles farther to access a hospital.32
Conclusion Establishing a minimum distance requirement for critical-access hospitals would generate modest cost savings for Medicare but would likely be disruptive to the communities that depend on these hospitals for their health care. Maintaining access to high-quality care for rural residents is a very important health policy priority, and costbased reimbursement can be a strategy to ensure that high-quality rural hospitals are able to continue providing care to their communities. To ensure that cost-based reimbursement is supporting high-quality care for Medicare beneficiaries, all critical-access hospitals should be required to publicly report relevant quality measures and should be supported in efforts to improve their quality of care.33 ▪
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Hospitals
Earlier projected impacts on hospital profitability and distress were presented at the annual conference of the National Rural Health Association, Louisville, Kentucky, May 8, 2013; the Rural Health Care Leadership Conference, Phoenix, Arizona, February 1, 2014; and the Rural Health Policy Institute, Washington, D.C.,
February 6, 2014. Summary results from the quality and financial analyses were presented at the Minnesota Rural Health Conference, Duluth, Minnesota, June 23, 2014. Collection of the data underlying this study was supported by the Federal Office of Rural Health Policy of the Health Resources and Services Administration (PHS Grant
No. U27RH01080). In addition to the presentations mentioned above, earlier projected impacts on hospital profitability and distress were included in a policy brief from the Flex Monitoring Team (see Note 21 in text). The analysis in this article used different categorizations and updated data.
NOTES 1 Under the original legislation, critical-access hospitals received 101 percent of their costs. However, under the Budget Control Act of 2011, Medicare pays 99 percent as a result of payment reductions imposed by a budget sequester on Medicare payments and changes to the share of hospital bad debt payments that are reimbursable by Medicare. 2 Medicare Payment Advisory Commission. Critical access hospitals payment system [Internet]. Washington (DC): MedPAC; 2014 Oct [cited 2015 Feb 23]. Available from: http://medpac.gov/documents/ payment-basics/critical-accesshospitals-payment-system-14.pdf? sfvrsn=0 3 Congressional Budget Office. Reducing the deficit: spending and revenue options [Internet]. Washington (DC): CBO; 2011 Mar [cited 2015 Feb 10]. Available from: http:// www.cbo.gov/sites/default/files/ cbofiles/ftpdocs/120xx/doc12085/ 03-10-reducingthedeficit.pdf 4 Medicare Payment Advisory Commission. Report to the Congress: Medicare and the health care delivery system [Internet]. Washington (DC): MedPAC; 2012 Jun [cited 2015 Feb 10]. Available from: http:// www.medpac.gov/documents/ reports/jun12_entirereport.pdf? sfvrsn=0 5 Department of Health and Human Services, Office of Inspector General. Most critical access hospitals would not meet the location requirements if required to re-enroll in Medicare [Internet]. Washington (DC): HHS; 2013 Aug [cited 2015 Feb 10]. Available from: http://oig.hhs.gov/ oei/reports/oei-05-12-00080.pdf 6 Office of Management and Budget. Fiscal year 2015 budget of the U.S. government [Internet]. Washington (DC): OMB; 2014 [cited 2015 Feb 10]. Available from: http://www .whitehouse.gov/sites/default/files/ omb/budget/fy2015/assets/budget .pdf 7 The effective decrease in Medicare revenue associated with a reversion to the hospital PPS is unknown and would vary by hospital. The Office of Inspector General’s estimate was
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8
9
10
11
12
13
14
15
16
around 17 percent (see Note 5), and MedPAC’s was 28 percent (see Note 8). Hospitals with a higher percentage of revenue from Medicare would see larger decreases in net patient revenue. Since the typical critical-access hospital in our study received 25.3 percent of its net patient revenue from Medicare, reversion to the PPS would effectively reduce revenue by 4 percent (0.17 times 0.253) to 7 percent (0.28 times 0.253). Medicare Payment Advisory Commission. Report to Congress: issues in a modernized Medicare program [Internet]. Washington (DC): MedPAC; 2005 Jun. Chapter 7: Critical access hospitals; [cited 2015 Feb 10]. Available from: http://www.medpac .gov/documents/reports/June05_ Entire_report.pdf?sfvrsn=0 Rosko MD, Mutter RL. Inefficiency differences between critical access hospitals and prospectively paid rural hospitals. J Health Polit Policy Law. 2010;35(1):95–126. Joynt KE, Harris Y, Orav EJ, Jha AK. Quality of care and patient outcomes in critical access rural hospitals. JAMA. 2011;306(1):45–52. Moscovice IS, Casey MM. Quality of care in critical access hospitals. JAMA. 2011;306(15):1653. Westfall JM, Battaglia C, Mill M. Quality of care in critical access hospitals. JAMA. 2011;306(15): 1653–4. Fairchild R. Quality of care in critical access hospitals. JAMA. 2011; 306(15):1654. Gold J. When “critical access” hospitals are not so critical. Kaiser Health News [serial on the Internet]. 2011 Dec 8 [cited 2015 Feb 10]. Available from: http://www.kaiser healthnews.org/stories/2011/ december/08/medicare-criticalaccess-rural-hospitals.aspx Holmes GM, Pink GH, Friedman SA. The financial performance of rural hospitals and implications for elimination of the Critical Access Hospital program. J Rural Health. 2013;29(2):140–9. Casey MM, Moscovice I. Quality improvement strategies and best practices in critical access hospitals. J Rural Health. 2004;20(4):327–34.
17 Nedelea IC, Fannin JM. Impact of conversion to Critical Access Hospital status on hospital efficiency. Socioecon Plann Sci. 2013;47(3): 258–69. 18 Gadzinski AJ, Dimick JB, Ye Z, Miller DC. Utilization and outcomes of inpatient surgical care at critical access hospitals in the United States. JAMA Surg. 2013;148(7):589–96. 19 Lichtman JH, Leifheit-Limson EC, Jones SB, Wang Y, Goldstein LB. 30day risk-standardized mortality and readmission rates after ischemic stroke in critical access hospitals. Stroke. 2012;43(10):2741–7. 20 This is an improvement over the methods used in the Office of Inspector General’s analysis (see Note 5), in which 7 percent of the critical-access hospitals in the “less than fifteen miles” category were assigned to that group on the basis of proximity to long-term acute care, psychiatric, children’s, emergency only, or rehabilitation hospitals instead of proximity to a general acute care hospital. 21 The Flex Monitoring Team, a consortium of the rural health research centers at the Universities of Minnesota, North Carolina at Chapel Hill, and Southern Maine, maintains a national database of critical-access hospitals based on CMS reports and augmented by information provided by state flex coordinators and data collected by the North Carolina Rural Health Research Program on hospital closures. See Flex Monitoring Team. Critical access hospital locations [Internet]. Minneapolis (MN): The Team; [cited 2015 Feb 6]. Available from: http://www .flexmonitoring.org/data/criticalaccess-hospital-locations/ 22 Holmes M, Pink GH. Risk of financial distress among critical access hospitals: a proposed model [Internet]. Minneapolis (MN): Flex Monitoring Team; 2011 Apr [cited 2015 Feb 6]. (Policy Brief No. 20). Available from: http://www .flexmonitoring.org/documents/ PolicyBrief20_Strategies.pdf 23 Holmes M, Pink GH. Change in profitability and financial distress of critical access hospitals from loss of cost-based reimbursement [Inter-
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net]. Chapel Hill (NC): North Carolina Rural Health Research Program; 2013 Dec [cited 2015 Feb 6]. Available from: http://www.shepscenter .unc.edu/wp-content/uploads/ 2013/12/Change-in-Profitabilityand-Financial-Distress-of-CAHsNovember-2013.pdf 24 To access the Appendix, click on the Appendix link in the box to the right of the article online. 25 The Office of Inspector General estimated $449 million in savings for Medicare and its beneficiaries (see Note 5). 26 Boards of Trustees. 2012 annual report of the boards of trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds [Internet]. Baltimore (MD): Centers for Medicare and Medicaid Services; 2012 Apr 23 [cited 2015 Feb 5]. Available from: http://www.cms.gov/ Research-Statistics-Data-andSystems/Statistics-Trends-andReports/ReportsTrustFunds/ downloads/tr2012.pdf
27 American Hospital Association. Trendwatch chartbook 2014: supplementary data tables, trends in hospital financing [Internet]. Chicago (IL): AHA; 2014 [cited 2015 Feb 5]. Available from: http://www .aha.org/research/reports/tw/ chartbook/2014/table4-1.pdf 28 Centers for Medicare and Medicaid Services. Medicare program; endstage renal disease prospective payment system, quality incentive program, and bad debt reductions for all Medicare providers. Final rule. Fed Regist. 2012;77(218):67450–531. 29 National Advisory Committee on Rural Health and Human Services. Implications of proposed changes to rural hospital payment designations [Internet]. Rockville (MD): Health Resources and Services Administration; 2012 Dec [cited 2015 Feb 10]. (Policy Brief). Available from: http://www.hrsa.gov/advisory committees/rural/publications/ rhpdbrief2012.pdf 30 Reif SS, DesHarnais S, Bernard S. Community perceptions of the ef-
fects of rural hospital closure on access to care. J Rural Health. 1999;15(2):202–9. 31 Holmes GM, Slifkin RT, Randolph RK, Poley S. The effect of rural hospital closures on community economic health. Health Serv Res. 2006;41(2):467–85. 32 Freeman VA, Randolph RK, Pink G, Holmes M. Implications for beneficiary travel time if financiallyvulnerable critical access hospitals close [Internet]. Chapel Hill (NC): North Carolina Rural Health Research Program; 2013 Dec [cited 2015 Feb 10]. (Findings Brief). Available from: http://www .shepscenter.unc.edu/wp-content/ uploads/2013/12/Implications-forBeneficiary-Travel-Time-ifFinancially-VulnerableCritical-Access-Hospitals-Close.pdf 33 Casey MM, Moscovice I, Klingner J, Prasad S. Rural relevant quality measures for critical access hospitals. J Rural Health. 2013;29(2): 159–71.
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Hospitals By Michelle M. Casey, Ira Moscovice, G. Mark Holmes, George H. Pink, and Peiyin Hung 10.1377/hlthaff.2014.0788 HEALTH AFFAIRS 34, NO. 4 (2015): 627–635 ©2015 Project HOPE— The People-to-People Health Foundation, Inc.
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Minimum-Distance Requirements Could Harm High-Performing Critical-Access Hospitals And Rural Communities
Michelle M. Casey (mcasey@ umn.edu) is a senior research fellow in and deputy director of the Rural Health Research Center, Division of Health Policy and Management, School of Public Health, University of Minnesota, in Minneapolis.
Since the inception of the Medicare Rural Hospital Flexibility Program in 1997, over 1,300 rural hospitals have converted to criticalaccess hospitals, which entitles them to Medicare cost-based reimbursement instead of reimbursement based on the hospital prospective payment system (PPS). Several changes to eligibility for critical-access status have recently been proposed. Most of the changes focus on mandating that hospitals be located a certain minimum distance from the nearest hospital. Our study found that critical-access hospitals located within fifteen miles of another hospital generally are larger, provide better quality, and are financially stronger compared to criticalaccess hospitals located farther from another hospital. Returning to the PPS would have considerable negative impacts on critical-access hospitals that are located near another hospital. We conclude that establishing a minimum-distance requirement would generate modest cost savings for Medicare but would likely be disruptive to the communities that depend on these hospitals for their health care. ABSTRACT
I
n response to concerns about access to care for rural Medicare beneficiaries, the Balanced Budget Act of 1997 established the Medicare Rural Hospital Flexibility Program and criteria for designating institutions as critical-access hospitals. In the years before the creation of the program, rural hospitals experienced widespread financial difficulties and closures. Unlike hospitals in Medicare’s hospital prospective payment system (PPS), whose Medicare reimbursement is based on the average cost of patients in each diagnosisrelated group or ambulatory payment classification, critical-access hospitals receive cost-based Medicare reimbursement (99 percent of allowable costs for inpatient and outpatient services).1 According to section 1820 of the Social Security Act of 1965, to be certified as critical-access hospitals, rural hospitals are required to meet eligibility criteria related to their location in a rural area, number of beds, average length-of-stay,
Ira Moscovice is the Mayo Professor, director of the Rural Health Research Center, and head of the Division of Health Policy and Management, all at the School of Public Health, University of Minnesota. G. Mark Holmes is an associate professor in the Department of Health Policy and Management and director of the North Carolina Rural Health Research and Policy Analysis Center, both at the University of North Carolina at Chapel Hill.
and provision of emergency services. Initially, critical-access hospitals were required to be located more than thirty-five miles from the nearest hospital, or more than fifteen miles in areas with mountainous terrain or only secondary roads. From 1997 through December 2005, however, states could waive the distance requirements for hospitals designated by the governor as “necessary providers” of health care services. Beginning in 2006, any new critical-access hospitals must meet the distance requirements, but existing institutions were allowed to remain in the program. Medicare’s cost-based payments to criticalaccess hospitals (including beneficiary cost sharing) account for only 5 percent of all Medicare inpatient and outpatient payments to hospitals.2 However, they have generated interest from policy makers who are concerned about deficit reduction and about whether the number of critical-access hospitals has expanded beyond April 2 015
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George H. Pink is the Humana Distinguished Professor in the Department of Health Policy and Management and deputy director of the North Carolina Rural Health Research and Policy Analysis Center, both at the University of North Carolina at Chapel Hill. Peiyin Hung is a graduate research assistant in the Division of Health Policy and Management, School of Public Health, University of Minnesota.
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Hospitals the original legislative intent. In 2011 the Congressional Budget Office (CBO) proposed reducing Medicare costs by ending provisions for critical-access hospitals and other special rural hospitals.3 In 2012 the Medicare Payment Advisory Commission (MedPAC) questioned the need for maintaining enhanced payments for all critical-access hospitals.4 In 2013 the Office of Inspector General in the Department of Health and Human Services recommended that the Centers for Medicare and Medicaid Services (CMS) seek legislative authority to remove the “necessary provider” exemption.5 The fiscal year 2015 budget submitted to Congress by the Obama administration proposed to “prohibit CAH [critical-access hospital] designation for facilities that are less than 10 miles from the nearest hospital.”6 If any of these proposals were implemented, there could be two major effects on criticalaccess hospitals: The number of hospitals with that designation would be reduced, and hospitals that lost critical-access status and ended up in the PPS could experience a substantial reduction in Medicare revenue.7,8 Recent studies found that institutions that converted to critical-access hospitals had higher expenses per admission than nonteaching rural hospitals of similar size that did not convert9 and that critical-access hospitals had higher mortality rates for Medicare patients with certain medical conditions than other acute care hospitals did.10 Despite their limitations, including methodological issues related to the comparison group used and the treatment of transferred patients,11–13 these studies have been widely cited as evidence of the need to reexamine cost-based reimbursement for critical-access hospitals.14 However, cost-based reimbursement has financially stabilized many critical-access hospitals15 and allowed them to invest in quality improvement activities, including additional staff and training to improve patient care.16 It has also allowed critical-access hospitals to invest in upgraded facilities and equipment, which may result in improved diagnosis and patient care.17 In addition, subsequent studies of mortality rates at critical-access hospitals have found that their surgical mortality rates are equivalent to those at other types of hospitals,18 and their stroke mortality rates are similar to those at other hospitals with relatively low volumes.19 Researchers have not examined the relationship between distance to another hospital and a critical-access hospital’s financial and quality performance. In this article we compare hospitals that could lose critical-access status because of a minimum-distance requirement to the remaining critical-access hospitals in terms of or628
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ganizational characteristics, quality, and financial performance. We also estimate the potential financial consequences of reversion to the PPS for hospitals that could lose critical-access status.
Study Data and Methods Distance And Hospital Characteristics Using data for the first quarter of 2013 from CMS’s Provider of Services File, geocoded with the SAS system and Pitney Bowes’s MapMarker, we identified all active short-stay nonfederal hospitals, including critical-access hospitals, that were certified by Medicare. We excluded facilities that were not short-term acute care hospitals, such as long-term acute care, psychiatric, children’s, emergency only, or rehabilitation hospitals.20 We used Esri’s ArcGIS to calculate the distance from each critical-access hospital to all other short-term acute care hospitals within 250 linear miles. Driving routes and distances for the five nearest hospitals were calculated. If the nearest hospital was less than a tenth of a mile away from a critical-access hospital, we determined whether or not the two hospitals had the same CMS record number. If they did, we assumed that they were not distinct providers, and we used the next-nearest neighbor instead. All roads were treated as primary roads. Each critical-access hospital was assigned to one of three categories based on its distance from the nearest hospital. Those in the “nearest distance” group were less than 15 miles from the nearest hospital, those in the “middle distance” group were 15–35 miles away, and those in the “farthest distance” group were more than 35 miles away. We used data on hospitals’ size and date of certification from a critical-access hospital database maintained by the Flex Monitoring Team,21 a consortium of rural health research centers funded by the Federal Office of Rural Health Policy in the Health Resources and Services Administration.We also used data on critical-access hospitals’ utilization and organizational characteristics from the American Hospital Association Annual Survey database for fiscal year 2011. Differences in characteristics between the criticalaccess hospitals in the nearest distance group and hospitals in each of the other two distance groups were based on Fisher’s exact tests for categorical variables and on two-sample t-tests for continuous variables. Quality We used publicly available CMS Hospital Compare data—for discharges in the period April 2012–March 2013—for nineteen inpatient and outpatient quality measures that address recommended care for acute myocardial infarc-
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tion, heart failure, pneumonia, surgical care, and immunizations. We excluded measures for which relatively few critical-access hospitals had data (the hospitals do not provide some services, such as percutaneous cardiac intervention) and measures for which only three months of data were available (for example, new stroke and venous thromboembolism measures). The publicly available data were combined with nonpublic CMS data from hospitals that reported ten or fewer cases for a measure. CMS suppresses these data on Hospital Compare, but it makes them available to the Federal Office of Rural Health Policy for aggregate critical-access hospital analyses. For each quality measure, we compared critical-access hospitals in the nearest distance group with hospitals in each of the other two distance groups on both reporting (defined as the percentage of critical-access hospitals that reported data for at least one patient) and performance (defined as the percentage of eligible patients in each group of critical-access hospitals who received the recommended care), using Fisher’s exact tests. We also used logistic regression models to examine the effect on quality performance of controlling for the following hospital characteristics: number of beds, accreditation, system affiliation, ownership, and census region. Financial Performance A model of criticalaccess hospitals’ financial distress that was developed by the Flex Monitoring Team uses historical data on a hospital’s financial performance to predict the probability of signals of financial distress—continued operating losses, decline in equity, or closure—within two years.22,23 Current financial performance variables (current profitability, reinvestment, and hospital size) and market characteristic variables (competition, economic status, and market size) were used in a system of logistic regression models to develop risk scores used to assign critical-access hospitals to one of four levels that predict the risk or likelihood that a hospital will be in financial distress within two years. For example, in our initial analyses, 70 percent of critical-access hospitals in the high-risk category had a negative operating margin in three consecutive years, compared to 8 percent of lowrisk hospitals. Similarly, 30 percent of high-risk hospitals had a negative fund balance compared to 2 percent of low-risk hospitals. To estimate the reduction in Medicare revenue from eliminating the “critical-access hospital” designation, we used fiscal year 2011 Medicare cost reports from the Healthcare Cost Report Information System. Medicare inpatient (including swing beds) and outpatient revenue were calculated for all critical-access hospitals.
(Swing beds are beds that Medicare allows to be used for either acute or skilled nursing facility– level care.) These amounts were reduced by the approximate amount by which the hospital payments exceeded PPS payments in two scenarios: by 20 percent, as estimated by the CBO,3 and by 30 percent, as estimated by MedPAC.8 We recalculated total net patient revenue using the reduced Medicare revenue as an estimate of what revenue would have been under PPS reimbursement. The adjusted revenue calculations were then used to recompute the financial indicators in the critical-access hospital financial distress model, and the hospitals again were assigned to one of four levels of risk of financial distress. This method assumed that only Medicare reimbursement would change and all else would remain the same—for instance, Medicare beneficiary cost sharing, Medicaid and other revenue, expenses, volume, and market share and size. However, administrators might respond to a change in Medicare reimbursement with other changes, including increased attention to efficiency, a decrease in the number of Medicare patients, or changes to corporate strategy. Our approach provides an approximation of shortterm effects before longer-term responses could be implemented.
Study Results Distance And Hospital Characteristics Of the 1,332 critical-access hospitals operating as of June 2013, 19.2 percent were less than 15 miles from the nearest hospital, 65.6 percent were 15– 35 miles away, and 15.1 percent were more than 35 miles away. These are comparable to previous distance estimates from the Office of Inspector General5 and MedPAC.8 Fifty-two percent of the critical-access hospitals in the nearest distance group had another critical-access hospital as their nearest hospital; the other 48 percent were closest to a PPS hospital. Critical-access hospitals in the three distance groups differed significantly on several characteristics (Exhibit 1). Compared to hospitals in the middle and farthest distance groups, those in the nearest distance group were more likely to be private nonprofit hospitals, accredited by the Joint Commission or the American Osteopathic Association, and members of a multihospital system. The majority of hospitals in the nearest distance group were located in the Midwest (59.1 percent) or South (23.7 percent) census regions. Nearly all (93.4 percent) were certified as critical-access hospitals between 2000 and 2005. Compared to critical-access hospitals in the A p r i l 20 1 5
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Hospitals Exhibit 1 Critical-Access Hospital (CAH) Characteristics, By Distance To Nearest Hospital, April 2012–March 2013 Percent of CAHs Characteristic Hospital ownership Public or government Private nonprofit Private for-profit
35 miles (n = 201 CAHs)
31.9% 62.7 5.5
44.1%**** 50.6**** 5.3
42.8%*** 53.2** 4.0
Accreditation System affiliation
42.8 51.0
28.2**** 40.3***
24.4**** 33.3****
5.1 50.2 43.2 1.6
8.7** 54.4 31.9**** 5.0***
9.5** 58.2* 15.4**** 16.9****
4.7 59.1 23.7 12.5
5.5 48.6*** 31.1*** 14.8
3.5 27.4**** 8.5**** 60.7****
38.4
52.7****
Miles to nearest acute care hospital Number of beds
37.4 Mean 11.6 23.1
22.6 22.6
50.5 20.7****
Annual admissions Annual inpatient days
818.3 4,115.3
687.8*** 3,696.7
585.5**** 3,368.1**
Annual outpatient visits (thousands) Annual outpatient surgeriesa
43.8 1,013.4
33.6**** 756.1****
26.9**** 791.2***
Annual inpatient surgeriesb Annual birthsc
203.7 203.6
151.6*** 153.0***
159.3*** 166.2*
Year of CAH certification 1994–99 2000–03 2004–05 2006–13 Census region Northeast Midwest South West Obstetric services
SOURCE Authors’ analysis of data for 2013 from the Flex Monitoring Team (see Note 20 in text) and for fiscal year 2011 from the American Hospital Association Annual Survey. NOTES Significance refers to differences between the closest distance group and each of the other distance groups based on Fisher’s exact tests for categorical values and on two-sample t-tests for continuous variables. a Calculated for hospitals with any outpatient surgeries. bCalculated for hospitals with any inpatient surgeries. cCalculated for hospitals with any births. *p < 0:10 **p < 0:05 ***p < 0:01 ****p < 0:001
middle and farthest distance groups, those in the nearest distance group had significantly more annual admissions, outpatient visits, and inpatient and outpatient surgeries. On average, hospitals in the nearest distance group had significantly more beds and inpatient days than hospitals in the farthest distance group. Quality Compared to critical-access hospitals in the middle distance group, those in the nearest distance group were significantly more likely to publicly report data on twelve of the nineteen quality measures we studied (Exhibit 2). For fifteen of the measures, hospitals in the nearest distance group were significantly more likely to publicly report data than those in the farthest distance group. Critical-access hospitals in the nearest distance group performed better than those in the other distance groups on the majority of quality measures across multiple conditions. In the bivariate results, patients in hospitals in the near630
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est distance group were significantly more likely to receive recommended care than patients in hospitals in the middle-distance group on thirteen of the nineteen measures, and to receive recommended care than patients in hospitals in the farthest distance group on eleven of the measures (p < 0:001, p < 0:01, or p < 0:05, depending on the measure). Other differences in performance between distance groups were not significant. Exhibit 3 shows the nine measures on which the nearest distance group had significantly better quality than both of the other distance groups. The results of the multivariate regression models were generally consistent with the bivariate results. When we controlled for hospital size, ownership, accreditation, system membership, and census region, we found that patients in hospitals in the nearest distance group were significantly more likely to receive recommended care than patients in hospitals in the middle
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Exhibit 2 Critical-Access Hospital (CAH) Public Reporting Of Quality Measures By Distance To Nearest Hospital, April 2012–March 2013 Percent of CAHs reporting data Quality measures Acute myocardial infarction
35 miles
Aspirin prescribed at discharge (inpatient) Statin prescribed at discharge (inpatient) Aspirin at arrival (ED) Heart failure
40.1% 38.1 50.2
32.0%** 31.6* 45.2
34.8%* 31.8 44.3
Discharge instructions provided Evaluation of LVS function ACE inhibitor or ARB for LVSD Pneumonia
82.1 85.2 72.0
78.9 81.2 66.6
77.1 77.6** 52.7****
Blood culture in ED before first antibiotic Appropriate initial antibiotic selection Inpatient surgery
87.5 90.7
78.3**** 82.8***
72.1**** 77.1****
Patients on beta-blockers who received beta-blockers perioperatively Timing of antibiotic prophylaxis Perioperative temperature management Prophylactic antibiotic selection for surgical patients Prophylactic antibiotics end within 24 hours Urinary catheter removed on postoperative day 1 or 2 VTE prophylaxis within 24 hours before or after surgery
45.9 47.9 51.4 47.9 47.9 47.5 49.4
29.5**** 34.0**** 35.1**** 34.0**** 33.9**** 32.2**** 34.0****
29.9**** 35.8**** 34.8**** 35.3*** 35.3*** 31.3**** 33.8****
Timing of antibiotic prophylaxis Prophylactic antibiotic selection for surgical patients
29.2 28.4
18.6**** 18.2****
18.9*** 18.4**
Immunization Pneumococcal immunization Influenza immunization
37.7 36.2
32.3* 30.5*
23.4**** 22.9***
Outpatient surgery
SOURCE Authors’ analysis of Hospital Compare data for the second quarter of 2012 through the first quarter of 2013. NOTES Numbers of hospitals in the three groups are provided in Exhibit 1. Significance refers to differences between critical-access hospitals that are less than fifteen miles from the next nearest hospital and critical-access hospitals in each of the other distance groups based on Fisher’s exact tests. ED is emergency department. LVS is left ventricular systolic. ACE is angiotensin-converting enzyme. ARB is angiotensin receptor blocker. LVSD is left ventricular systolic dysfunction. VTE is venous thromboembolism. *p < 0:10 **p < 0:05 ***p < 0:01 ****p < 0:001
distance group on nine measures, and to receive recommended care than patients in hospitals in the farthest distance group on ten measures (see the online Appendix for additional data).24 Financial Performance For the 1,233 critical-access hospitals with valid 2011 cost report data, total Medicare reimbursement was $6.521 billion, or $5.3 million per hospital. A 20 percent reduction in Medicare reimbursement, therefore, would translate to an average reduction of $1.06 million per critical-access hospital. Hospitals in the nearest distance group had a relatively higher proportion of Medicare reimbursement, however, which resulted in a relatively higher average reduction of $1.27 million. The total savings to Medicare by reducing reimbursement to the hospitals in the nearest distance group would be about $308 million,25 which is 0.056 percent of the $549.1 billion that Medicare spent in 2011.26 Our analysis of the distribution of the 2011
operating margin by Medicare revenue scenario and distance to nearest hospital found that 62 percent of critical-access hospitals in the nearest distance group had a positive operating margin, compared to 53 percent of hospitals in the middle distance group and 49 percent of those in the farthest distance group (p ¼ 0:012, according to a chi-square test). However, these values were all lower than the 71.6 percent of all US hospitals with a positive operating margin in 2011.27 Additionally, the operating margins of hospitals in the nearest distance group would be dramatically affected by the removal of criticalaccess status. If these hospitals were to revert to the hospital PPS and experience a 30 percent decline in Medicare reimbursement, the percentage of critical-access hospitals that had a negative operating margin would double, increasing from 37.6 percent to 75.6 percent. The typical critical-access hospital would expeApril 2 015
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Hospitals Exhibit 3 Critical-Access Hospital Quality Performance, By Distance Group, April 2012–March 2013
SOURCE Authors’ analysis of Hospital Compare data for the second quarter of 2012 through the first quarter of 2013. NOTES Numbers of hospitals in the three groups are provided in Exhibit 1. Significant differences in the percentages of eligible patients receiving recommended care between critical-access hospitals in the nearest distance group (less than 15 miles from the nearest hospital) and hospitals in each of the other distance groups (middle distance, 15–35 miles away; farthest distance, more than 35 miles away) were based on Fisher’s exact tests. All differences were significant (p < 0:001) except heart failure discharge instructions (p < 0:05 for the difference between the nearest and the middle distance groups); timing of antibiotic prophylaxis (p < 0:01 for the difference between the nearest and the middle distance groups); perioperative temperature management (p < 0:05 for the difference between the nearest and the farthest distance groups); and influenza immunization (p < 0:01 for the difference between hospitals in the nearest distance group and those in the middle distance group). LVS is left ventricular systolic. VTE is venous thromboembolism.
rience a decrease of approximately 8 percentage points in operating margin if a 30 percent cut were imposed. For example, hospitals within fifteen miles of another hospital have a median operating margin of 1.8 percent (interquartile range: −3.2, 6.4) under the status quo and would have a margin of −5.3 percent (IQR: −11.0, 0.0) with a 30 percent cut. Exhibit 4 presents the distribution of risk of financial distress (low, mid-low, mid-high, and high risk) among critical-access hospitals in the nearest distance group by Medicare revenue scenario and census region. Sixty-one percent of the hospitals were located in the Midwest. However, they represented only 27 percent of criticalaccess hospitals with the highest risk of financial distress under the current payment scenario. Meanwhile, the hospitals in the South were overrepresented among high-risk hospitals (45 percent of high-risk versus 22 percent of all criticalaccess hospitals). Notably, however, after hospitals reverted to the PPS and experienced a reduction in Medicare revenue of 30 percent, the share of high-risk hospitals in the Midwest would increase from 27 percent to 44 percent. In sum, imposing a minimum distance standard of fifteen miles on critical-access hospitals 632
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would primarily affect institutions in the South and Midwest, with Midwestern critical-access hospitals most likely to experience an increase in the proportion in financial distress.
Discussion This study found that hospitals that could lose critical-access status because of a minimumdistance requirement had a higher volume of patients, were more financially stable, were more likely to publicly report quality data, and had better quality performance than critical-access hospitals located farther from other hospitals. These findings have several policy implications. First, using only distance from another hospital to determine whether a hospital is able to retain critical-access certification is a narrow criterion. Clinical expertise, physician distribution, the availability of technology, sufficient volume to maintain key services, the availability of other health care providers, and the needs of special and underserved populations are surely as important as geographic distance in determining which hospitals should receive cost-based reimbursement. Second, loss of critical-access status and cost-
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Exhibit 4 Distribution Of Financial Distress Risk Across Regions And Scenarios For Critical-Access Hospitals (CAHs) Within 15 Miles Of Another Hospital, Fiscal Year 2011 Midwest
Northeast
South
West
All
Distress risk CAHs
No. 147
% 61
No. 13
% 5
No. 54
% 22
No. 28
% 12
No. 242
Status quo scenario Low Mid-low Mid-high High
113 14 14 6
68 47 58 27
8 2 0 3
5 7 0 14
26 9 9 10
16 30 38 45
19 5 1 3
11 17 4 14
166 30 24 22
69 60 55 40
6 2 2 3
5 4 7 7
15 12 9 18
12 27 31 43
18 4 2 4
14 9 7 10
126 45 29 42
68 61 58 44
6 2 2 3
5 6 6 6
15 9 9 21
13 25 25 42
17 3 4 4
14 8 11 8
120 36 36 50
20% Medicare reduction scenario Low Mid-low Mid-high High
87 27 16 17
30% Medicare reduction scenario Low 82 Mid-low 22 Mid-high 21 High 22
SOURCE Authors’ analysis of data for fiscal year 2011 from Medicare cost reports.
based reimbursement could have potentially devastating financial consequences for many critical-access hospitals. These policy proposals are being made at a time when many of the institutions are already facing financial challenges. For example, Medicare bad-debt payments for critical-access hospitals are being reduced from 100 percent to 65 percent, phased in over a threeyear period beginning in fiscal year 2013.28 In addition, hospitals may not have sufficient time to respond to reimbursement changes by altering their behavior or strategy, such as by joining accountable care organizations, altering service mix, or aggressively trimming costs. Indeed, after loss of critical-access status, the limited liquidity of many critical-access hospitals could limit their ability to operate long enough to develop and implement potential responses. Third, and most important, these policy proposals do not recognize the potential harmful impacts on the rural health care system and access to care for rural residents. Many rural hospitals could be considered critical safety-net facilities despite their close proximity to nearby hospitals if, for example, they have a high proportion of Medicaid patients.29 A substantial reduction in financial support could lead to a renewal of the high rural hospital closure rates of the 1990s, with concomitant deleterious effects
on the health of these communities.30 Because hospitals often are a major employer in their community, changes could also lead to a decline in the economy of many rural communities.31 Finally, if financially vulnerable critical-access hospitals were to close, residents of many areas would experience increased travel time to a different hospital. One study found that residents would have to travel an average of 7.9 miles farther to access a hospital.32
Conclusion Establishing a minimum distance requirement for critical-access hospitals would generate modest cost savings for Medicare but would likely be disruptive to the communities that depend on these hospitals for their health care. Maintaining access to high-quality care for rural residents is a very important health policy priority, and costbased reimbursement can be a strategy to ensure that high-quality rural hospitals are able to continue providing care to their communities. To ensure that cost-based reimbursement is supporting high-quality care for Medicare beneficiaries, all critical-access hospitals should be required to publicly report relevant quality measures and should be supported in efforts to improve their quality of care.33 ▪
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Hospitals
Earlier projected impacts on hospital profitability and distress were presented at the annual conference of the National Rural Health Association, Louisville, Kentucky, May 8, 2013; the Rural Health Care Leadership Conference, Phoenix, Arizona, February 1, 2014; and the Rural Health Policy Institute, Washington, D.C.,
February 6, 2014. Summary results from the quality and financial analyses were presented at the Minnesota Rural Health Conference, Duluth, Minnesota, June 23, 2014. Collection of the data underlying this study was supported by the Federal Office of Rural Health Policy of the Health Resources and Services Administration (PHS Grant
No. U27RH01080). In addition to the presentations mentioned above, earlier projected impacts on hospital profitability and distress were included in a policy brief from the Flex Monitoring Team (see Note 21 in text). The analysis in this article used different categorizations and updated data.
NOTES 1 Under the original legislation, critical-access hospitals received 101 percent of their costs. However, under the Budget Control Act of 2011, Medicare pays 99 percent as a result of payment reductions imposed by a budget sequester on Medicare payments and changes to the share of hospital bad debt payments that are reimbursable by Medicare. 2 Medicare Payment Advisory Commission. Critical access hospitals payment system [Internet]. Washington (DC): MedPAC; 2014 Oct [cited 2015 Feb 23]. Available from: http://medpac.gov/documents/ payment-basics/critical-accesshospitals-payment-system-14.pdf? sfvrsn=0 3 Congressional Budget Office. Reducing the deficit: spending and revenue options [Internet]. Washington (DC): CBO; 2011 Mar [cited 2015 Feb 10]. Available from: http:// www.cbo.gov/sites/default/files/ cbofiles/ftpdocs/120xx/doc12085/ 03-10-reducingthedeficit.pdf 4 Medicare Payment Advisory Commission. Report to the Congress: Medicare and the health care delivery system [Internet]. Washington (DC): MedPAC; 2012 Jun [cited 2015 Feb 10]. Available from: http:// www.medpac.gov/documents/ reports/jun12_entirereport.pdf? sfvrsn=0 5 Department of Health and Human Services, Office of Inspector General. Most critical access hospitals would not meet the location requirements if required to re-enroll in Medicare [Internet]. Washington (DC): HHS; 2013 Aug [cited 2015 Feb 10]. Available from: http://oig.hhs.gov/ oei/reports/oei-05-12-00080.pdf 6 Office of Management and Budget. Fiscal year 2015 budget of the U.S. government [Internet]. Washington (DC): OMB; 2014 [cited 2015 Feb 10]. Available from: http://www .whitehouse.gov/sites/default/files/ omb/budget/fy2015/assets/budget .pdf 7 The effective decrease in Medicare revenue associated with a reversion to the hospital PPS is unknown and would vary by hospital. The Office of Inspector General’s estimate was
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around 17 percent (see Note 5), and MedPAC’s was 28 percent (see Note 8). Hospitals with a higher percentage of revenue from Medicare would see larger decreases in net patient revenue. Since the typical critical-access hospital in our study received 25.3 percent of its net patient revenue from Medicare, reversion to the PPS would effectively reduce revenue by 4 percent (0.17 times 0.253) to 7 percent (0.28 times 0.253). Medicare Payment Advisory Commission. Report to Congress: issues in a modernized Medicare program [Internet]. Washington (DC): MedPAC; 2005 Jun. Chapter 7: Critical access hospitals; [cited 2015 Feb 10]. Available from: http://www.medpac .gov/documents/reports/June05_ Entire_report.pdf?sfvrsn=0 Rosko MD, Mutter RL. Inefficiency differences between critical access hospitals and prospectively paid rural hospitals. J Health Polit Policy Law. 2010;35(1):95–126. Joynt KE, Harris Y, Orav EJ, Jha AK. Quality of care and patient outcomes in critical access rural hospitals. JAMA. 2011;306(1):45–52. Moscovice IS, Casey MM. Quality of care in critical access hospitals. JAMA. 2011;306(15):1653. Westfall JM, Battaglia C, Mill M. Quality of care in critical access hospitals. JAMA. 2011;306(15): 1653–4. Fairchild R. Quality of care in critical access hospitals. JAMA. 2011; 306(15):1654. Gold J. When “critical access” hospitals are not so critical. Kaiser Health News [serial on the Internet]. 2011 Dec 8 [cited 2015 Feb 10]. Available from: http://www.kaiser healthnews.org/stories/2011/ december/08/medicare-criticalaccess-rural-hospitals.aspx Holmes GM, Pink GH, Friedman SA. The financial performance of rural hospitals and implications for elimination of the Critical Access Hospital program. J Rural Health. 2013;29(2):140–9. Casey MM, Moscovice I. Quality improvement strategies and best practices in critical access hospitals. J Rural Health. 2004;20(4):327–34.
17 Nedelea IC, Fannin JM. Impact of conversion to Critical Access Hospital status on hospital efficiency. Socioecon Plann Sci. 2013;47(3): 258–69. 18 Gadzinski AJ, Dimick JB, Ye Z, Miller DC. Utilization and outcomes of inpatient surgical care at critical access hospitals in the United States. JAMA Surg. 2013;148(7):589–96. 19 Lichtman JH, Leifheit-Limson EC, Jones SB, Wang Y, Goldstein LB. 30day risk-standardized mortality and readmission rates after ischemic stroke in critical access hospitals. Stroke. 2012;43(10):2741–7. 20 This is an improvement over the methods used in the Office of Inspector General’s analysis (see Note 5), in which 7 percent of the critical-access hospitals in the “less than fifteen miles” category were assigned to that group on the basis of proximity to long-term acute care, psychiatric, children’s, emergency only, or rehabilitation hospitals instead of proximity to a general acute care hospital. 21 The Flex Monitoring Team, a consortium of the rural health research centers at the Universities of Minnesota, North Carolina at Chapel Hill, and Southern Maine, maintains a national database of critical-access hospitals based on CMS reports and augmented by information provided by state flex coordinators and data collected by the North Carolina Rural Health Research Program on hospital closures. See Flex Monitoring Team. Critical access hospital locations [Internet]. Minneapolis (MN): The Team; [cited 2015 Feb 6]. Available from: http://www .flexmonitoring.org/data/criticalaccess-hospital-locations/ 22 Holmes M, Pink GH. Risk of financial distress among critical access hospitals: a proposed model [Internet]. Minneapolis (MN): Flex Monitoring Team; 2011 Apr [cited 2015 Feb 6]. (Policy Brief No. 20). Available from: http://www .flexmonitoring.org/documents/ PolicyBrief20_Strategies.pdf 23 Holmes M, Pink GH. Change in profitability and financial distress of critical access hospitals from loss of cost-based reimbursement [Inter-
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net]. Chapel Hill (NC): North Carolina Rural Health Research Program; 2013 Dec [cited 2015 Feb 6]. Available from: http://www.shepscenter .unc.edu/wp-content/uploads/ 2013/12/Change-in-Profitabilityand-Financial-Distress-of-CAHsNovember-2013.pdf 24 To access the Appendix, click on the Appendix link in the box to the right of the article online. 25 The Office of Inspector General estimated $449 million in savings for Medicare and its beneficiaries (see Note 5). 26 Boards of Trustees. 2012 annual report of the boards of trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds [Internet]. Baltimore (MD): Centers for Medicare and Medicaid Services; 2012 Apr 23 [cited 2015 Feb 5]. Available from: http://www.cms.gov/ Research-Statistics-Data-andSystems/Statistics-Trends-andReports/ReportsTrustFunds/ downloads/tr2012.pdf
27 American Hospital Association. Trendwatch chartbook 2014: supplementary data tables, trends in hospital financing [Internet]. Chicago (IL): AHA; 2014 [cited 2015 Feb 5]. Available from: http://www .aha.org/research/reports/tw/ chartbook/2014/table4-1.pdf 28 Centers for Medicare and Medicaid Services. Medicare program; endstage renal disease prospective payment system, quality incentive program, and bad debt reductions for all Medicare providers. Final rule. Fed Regist. 2012;77(218):67450–531. 29 National Advisory Committee on Rural Health and Human Services. Implications of proposed changes to rural hospital payment designations [Internet]. Rockville (MD): Health Resources and Services Administration; 2012 Dec [cited 2015 Feb 10]. (Policy Brief). Available from: http://www.hrsa.gov/advisory committees/rural/publications/ rhpdbrief2012.pdf 30 Reif SS, DesHarnais S, Bernard S. Community perceptions of the ef-
fects of rural hospital closure on access to care. J Rural Health. 1999;15(2):202–9. 31 Holmes GM, Slifkin RT, Randolph RK, Poley S. The effect of rural hospital closures on community economic health. Health Serv Res. 2006;41(2):467–85. 32 Freeman VA, Randolph RK, Pink G, Holmes M. Implications for beneficiary travel time if financiallyvulnerable critical access hospitals close [Internet]. Chapel Hill (NC): North Carolina Rural Health Research Program; 2013 Dec [cited 2015 Feb 10]. (Findings Brief). Available from: http://www .shepscenter.unc.edu/wp-content/ uploads/2013/12/Implications-forBeneficiary-Travel-Time-ifFinancially-VulnerableCritical-Access-Hospitals-Close.pdf 33 Casey MM, Moscovice I, Klingner J, Prasad S. Rural relevant quality measures for critical access hospitals. J Rural Health. 2013;29(2): 159–71.
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