Rural Hospitals and the Balanced Budget Act

July 1998

Continued upheaval in the health care system and a myriad of changes to the Medicare program make this a challenging time for rural hospitals, according to a panel of experts at the most recent Capital Area Rural Health Roundtable.

The Roundtable forum brought together a crowd of 120 health and service sector associations, legislative staffers and health policy officials for a discussion on how rural hospitals are faring in today’s competitive and turbulent health care environment. Roundtable speakers discussed the changing role of the rural hospital since the crisis of facility closings that marked the early and mid-1980s. Marvin Cole, Director, Regional Health Services, for Seton HealthCare in Austin, Texas pointed out that rural hospitals do more than provide care. They usually play a key role in rural economic development by providing a range of jobs and a building block for attracting other industry. "Each job in health care, generates another job in the rural community," Cole says.

But while moderate and large rural hospitals are surviving and, in some cases, thriving, some smaller hospitals continue to struggle. Forum panelist Scott Olsen, a legislative analyst for Senator Max Baucus, pointed to a new provision in the Balanced Budget Act (BBA) of 1997 that has the potential to stabilize smaller, struggling rural hospitals. The Critical Access Hospital (CAH) program, introduced by Senator Baucus, relaxes some Medicare rules to give the hospitals flexibility in how they deliver health care services. The program (see Insert story for more details) also contains a planning provision where states will work with their rural communities to decide which hospitals will be benefit from these new rules and how they’ll work together to ensure continued delivery of needed health services.

However, while the CAH program is already in place, the funding for the planning has not yet been appropriated by Congress.  Senator Baucus and others are supporting a $25 million appropriation for this program. Congressional appropriators will decide whether to fund this program during the final weeks of the 105th Congress.

"Appropriations for the Medicare Rural Hospital Flexibility program are essential to the continuation of the program," Olsen says.

The CAH program was one of only a number of legislative changes that will affect rural hospitals in the coming years. "Virtually every aspect of Medicare was affected by the BBA," says Barbara Wynn, director of the Plan and Provider Purchasing Group at the Health Care Financing Administration.

The BBA moves more Medicare services away from cost-based reimbursement and into prospective payment systems (PPS) that better help the agency to manage costs. The BBA mandates that HCFA develop PPS for inpatient hospital rehabilitation, skilled nursing facilities, home health, and outpatient services.  The legislation also begins to address the long-standing inequities in the way Medicare pays for managed care services by setting a floor of $367 and creates a system that will eventually include a 50-50 blend of local and national costs. Congress and administration officials are hopeful these changes will help boost managed care payments for Medicare beneficiaries in rural areas, which have traditionally been underpaid.

Another change that will affect rural hospitals are new payment rules for patients transferred from a hospital to post-acute care facilities.  For 10 DRGs specified in the regulation, "discharges" are re-defined as "transfers" for patients moving from a prospective payment system (PPS) facilities to a post-acute care providers such as skilled nursing facilities (swing beds not included), PPS exempt hospitals, and home health care.

The BBA also included the creation of the new Medicare+Choice program which creates a range of new options for Medicare beneficiaries ranging from traditional fee for service to several managed care models:
1. Coordinated care plans, which includes health maintenance organizations (with or without point of service options);
2. Provider-Sponsored Organizations (PSOs) and Preferred Providers Organizations (PPOs), religious fraternal benefits plans, and other coordinated care plans that meet the Medicare+Choice standards;
3. Medical Savings Account (MSA)/High Deductible Plans (under a demonstration in which up to 390,000 beneficiaries may enroll, with no new enrollments permitted after January 1, 2003);
4. Private fee-for-service plans.

According to Roundtable director, Mary Wakefield, the final impact of all of these changes may not be known for some time.  What is clear, she notes, is that rural hospitals continue to face significant challenges and federal programs like the CAH are viewed as essential to the viability of health care delivery in many rural areas.
 

Other Rural Initiatives Under Subtitle C in the BBA

A complete list of rural health programs in the BBA include the following:

• Medicare Rural Hospital Flexibility Program
• Prohibiting Denial of Request by Rural Referral Centers for Reclassification on Basis of Comparability of Wages
• Hospital Geographic Reclassification Permitted for Purposes of Disproportionate Share Adjustments
• Medicare-Dependent, Small Rural Hospital Payment Extension
• Rural Health Clinic Services
• Medicare Reimbursement for Telehealth Services
• Informatics, Telemedicine, and Education Demonstration Project
• Increased Medicare Reimbursement for Nurse Practitioners, Clinical Nurse Specialists, and Physicain Assistants.

For additional detail on Medicare and Medicaid provisions in the BBA see the HCFA website at http://www.hcfa.gov/regs/budget97.htm or the National Rural Health Association Website at www.nrharural.org/dc/a3.html.