Texas rural hospitals could get stomped by federal budget cuts

December 11, 2012

Over the days and weeks ahead, the Congress of the United States will be wrestling with the deficit, automatic budget reductions, and a possible end to income tax cuts, as well trying to keep from going over the so called “fiscal cliff”. They will weigh reductions in one area of the budget versus another. Buried within all the confusion and with no major news coverage are some almost invisible Medicare provisions that could make the difference in whether many rural hospitals in Texas can keep their doors open.
A quick history lesson. In the late 1980’s, hoping to save money, Congress changed how hospitals are paid by Medicare. They shifted the payment system from the cost of services in individual hospitals to a more standardized and averaged payment methodology known as the prospective payment system. The government felt that the cost of the same medical services across the country should be similar, with some small deviations. The problem with this urban, high volume hospital model was that it did not take into account the unique operating dynamics of rural hospitals, especially those in very small communities. Rural hospitals are different. They often have a narrower financial margin than urban hospitals. Few rural hospitals provide more profitable advanced services and medical procedures to offset losses in other areas such as emergency care. Also of note, the level of uninsured patients is higher in rural Texas counties. It is not unusual for the operating cost in a rural hospital to be slightly higher on a per-patient basis because of the challenging dynamics such as low patient volume, dramatic swings in patient numbers from day to day, medical staff recruitment difficulties which can drive up payroll costs, and a general lack of an economy of scale in purchasing and procurement. If you have seven patients on one day and twenty-four the next day, you have to staff for twenty-four patients. The emergency room must be there 24 hours a day, seven days a week even with periods of nothing. This is just the cost associated with having a hospital in so many of our rural communities.
So when the new payment system hit the rural hospitals, it was devastating and many closed. Almost 500 rural hospitals across the country were boarded up in late 1980s and early 1990s. More than 70 were in Texas.
Reacting to the damage done, over time Congress would create a number of “fixes” or patches in the payment system to address the rural hospital issue. Programs like the Critical Access Hospital and Sole Community Hospital designations were born giving many small, low volume hospitals a bump in Medicare payments. Other rural provisions known as Medicare Dependent Hospitals and Low Volume Adjustment were enacted, each having a purpose addressing a particular problem in the Medicare payment methodology for rural hospitals depending on size and patient volume. And the list goes on and on with various provisions responding to problems that have developed over the years. Congress decided it was worth spending just a little more to make sure rural hospitals were open.
Many of the provisions had expiration dates as Congress hoped the problems would work out or they wanted to keep the apparent “cost” down. The problems are still there so these provisions need to continue. Another important point is that most of these provisions were enacted long before the country had such a debt problem and none of these provisions can honestly be linked to creating the debt nightmare.
Moving the clock back to the current time, Congress now finds itself trying to find cuts all through the federal budget and discover ways to make those cuts in a manner that does not economically disrupt the country – with a little politics thrown in for good measure.. The situation is dangerous for rural areas because most members of Congress were not around when many of the rural hospital provisions were created. Many members have been replaced with people who are mostly urban and ran on a “cut the federal budget at all cost” platform. They don’t have the history, they didn’t live the rural hospital closure experience, and some don’t care. Most don’t need the rural areas to get reelected.
The problem for rural Texas is there is now talk of eliminating some of the rural hospital provisions. Texas rural hospitals could collectively suffer more than $75 million in cuts annually should many of these rural hospital payment provisions expire or payments to rural hospitals be reduced by even small percentages. Some of the hospitals could close soon, while others might manage for a few years on reserve funds or higher local taxes.
So what can be done about this? For a start, the federal budget is all about priorities and politics. Every citizen in every rural community in Texas – and especially the local elected officials – should immediately call their Congressman in Washington and tell them that their rural hospital is critical to the local community, it must stay open, and no cuts should be made in the federal budget that reduce Medicare payments to the hospital. Even if you don’t live in a rural area, you should also be concerned because you probably have family that does live in a rural area. And you will most certainly drive through a rural area while traversing this great state.
In the meantime, those in rural Texas will standby and wait to see if Congress is more interested in addressing budget cuts in a prudent way without damaging the rural health and safety net, or if this country will return to the 1980s with shuttered rural hospitals and long distances between emergency care.

Don McBeath is Director of Government Relations for the Texas Organization of Rural & Community Hospitals.

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