Health Reform WK-EDGE Rural hospital reform opportunities face challenges
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Friday, October 28, 2016

Rural hospital reform opportunities face challenges

By Anthony H. Nguyen, J.D.

Although there are distinct challenges, opportunities for delivery system reform initiatives in rural hospitals are available, according to an issue brief by the HHS Office of the Assistant Secretary for Planning and Evaluation (ASPE). While rural hospitals have unique barriers, they have a number of strengths that might enable successful participation in and good performance under delivery reform efforts. The ASPE issue brief examined and discussed: (1) current understanding of rural health and health care, in particular the hospital sector; (2) the participation and performance of rural hospitals in delivery system reform efforts; and (3) potential enabling factors for and barriers to rural hospitals’ successful participation and performance in delivery system reform (ASPE Issue Brief, October 19, 2016).

Background. More than 59 million people–roughly 19 percent of the U.S. population–live in rural areas. These individuals face a number of health-related challenges, some of which are linked to the rural location and others related to regional differences in health and health care in the U.S. Adults living in non-metropolitan areas report poorer health status, higher rates of current tobacco use and major chronic conditions, poorer indicators of oral and mental health, and a lesser likelihood of having health insurance coverage compared to those living in metropolitan areas; these differences are particularly notable in certain parts of the country. Opioid and alcohol abuse has also disproportionately impacted Americans in rural areas. As such, recent improvements in mortality rates and life expectancy have lagged behind in rural area.

Rural hospitals make up roughly 40 percent of acute care hospitals and almost 20 percent of acute care hospital beds across the country, but these hospitals are often paid differently than the urban hospitals. While most acute care hospitals are paid under the Medicare inpatient prospective payment system (IPPS), many rural hospitals are paid under alternate payment programs.

Rural hospital performance under reform programs. There are three main delivery system reform programs that apply to hospitals: (1) Hospital Readmissions Reduction Program (HRRP), which is focused on readmissions; (2) Hospital Value-Based Purchasing Program (HVBP), which evaluates hospitals on processes, outcomes, patient safety, patient experience, and efficiency; and (3) Hospital-Acquired Conditions Reduction Program (HACRP), which is focused on patient safety and infection rates. All three programs are mandatory for hospitals reimbursed through the IPPS. In fiscal year (FY) 2015, 60 percent of rural hospitals were paid through mechanisms other than the IPPS, and thus ineligible to participate in these programs.

However, for rural IPPS hospitals that are subject to payment modification under value-based payment programs, results have generally been good. For example, rural hospitals subject to the HVBP in FY 2015 had a higher mean total performance score relative to urban hospitals, reflecting better performance in the efficiency and patient experience domains. Similarly, for the HACRP in FY 2015, rural hospitals scored better than urban hospitals. In contrast, in FY 2015, participating rural hospitals were slightly more likely to face penalties in the HRRP program (79 percent) than their urban counterparts (76 percent), and penalties were somewhat larger at rural than urban hospitals.

Challenges. There are significant challenges in both qualifying for and succeeding in delivery system reform for rural hospitals, including: (1) payment structures; (2) limited financial resources; (3) low patient volumes; (4) lack of electronic infrastructure; and (5) limited staffing. According to ASPE, the single largest reason that most rural hospitals are ineligible for the three current mandatory hospital-based delivery system reform programs is payment structure. Sixty percent of all rural hospitals are designated as critical access hospitals, which are not paid under IPPS and thus are not subject to the IPPS-based value-based purchasing programs. Rural hospitals have significantly lower occupancy and a more challenging payer mix; occupancy is particularly important to ensure adequate financial stability.

Advantages to rural location. In some communities, rural hospitals share the same physical site and same owner with outpatient and nursing home facilities. In urban settings this type of consolidation may present market sufficiency problems, but the authors noted that in rural areas this may be the practical reality. In payment models that reward coordination and place increasing focus on efficiency and collaborative care, rural hospitals may be poised to perform particularly well. Rural settings have also led the way with telehealth and other emerging technologies, and use of telemedicine has been growing for rural beneficiaries in Medicare as well as the private sector. This infrastructure may be a benefit to rural providers under delivery system reform, because it would increase service capacity and access to care. Finally, rural hospitals often perform particularly well on patient experience metrics.

In addition, CMS and its Innovation Center, CMMI, have implemented a wide range of alternative payment models with potential applicability to the rural setting. Initiatives that have significant participation by rural hospitals include the Medicare Shared Savings Program, the Health Care Innovation (HCIA) Awards, and the State Innovation Models Initiative (SIM).

Additional strategies. The ASPE Issue Brief discussed a number of promising additional strategies for tailoring delivery system reforms to accommodate the goals and needs of rural hospitals. The strategies included focus on measure design, program design, and support services related to a rural setting.

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