Rural Hospitals Push Congress to Address Key Financial Issue

One rural hospital executive told Congress the change to the Medicare Area Wage Index would increase Medicare revenue at his organization, which has a $12 million margin, by $30 million.

Sept. 26—Amid rising concern in Congress over rural hospital failures, some stakeholders are renewing their push for a long-sought Medicare payment change that was described during a recent hearing as “one of the single most important” financial fixes for those organizations.

The Medicare Area Wage Index (AWI) adjusts payments for differences in hospital wage levels across geographic areas. This week, a rural hospital advocate urged senators to pass the Fair Medicare Hospital Payments Act of 2017, which would create a national minimum AWI of 0.874. Hospitals with AWIs below that level would receive increased Medicare payments based on that floor. Nationally, hospitals range in AWI from 0.68 to 1.9.

“The intent of the [AWI] was to recognize that costs were higher in rural areas and therefore you’d have to pay more [in salary] to get people there, and somewhere along the way it got turned on its head,” Alan Levine, executive chairman, president, and CEO of Ballad Health in Johnson City, Tenn., told a Senate panel on Sept. 25.

Although the system was designed for the national average AWI to be 1.0, only 10 percent of counties have an AWI that is greater than that threshold, while 2,600 counties have a lower AWI, Levine said.

Senate Support

The push to change the AWI drew bipartisan support from senators that have large rural areas in their states.

Sen. Lamar Alexander (R-Tenn.) said he had spoken this week to hospital executives in his state who emphasized the AWI problem and urged action.

The AWI “is a major problem for our country,” Levine told the Senate Subcommittee on Primary Health and Retirement Security. Passage of the AWI bill “would be one of the single most important things you can do for rural hospitals and nonurban hospitals.”

Levine illustrated the financial significance of the legislation by noting it would increase his organization’s annual Medicare revenue by $30 million. Ballad Health had a $12 million, or 0.6 percent, operating margin in 2017.

Even small differences in the AWI would have a significant financial impact on rural hospitals in many states, said Will Faber, MD, managing partner and chief medical officer for Lumina Health Partners.

Rural hospital leaders “have a valid point that at some point the wage index makes it untenable for rural hospitals to stay in business,” Faber said in an interview.

Eighty-seven rural hospitals have closed since January 2010, including five so far this year, according to tracking by the Sheps Center at the University of North Carolina.

The National Rural Healthcare Association, which backs the legislation, has urged a three-pronged approach to prevent widespread rural hospital closures. The first step in the strategy is “to ensure rural providers’ reimbursement rates are sufficient to allow them to keep their doors open.”

Legislative Outlook

Since the bill is cost-neutral, the nationwide floor would increase the AWI for hospitals in the South and Midwest while decreasing for hospitals in some coastal states. The AWI would be cut for hospitals in California, New York, Massachusetts, Connecticut, and New Jersey if the national AWI rate were set at 0.91, or slightly higher than the rate in the proposed legislation, according to an analysis by the Kentucky Hospital Association. Nationally, the AWI is used to adjust Medicare rates for 5,500 hospitals, Alexander said.

The legislation has been endorsed by many hospital associations across the South and Midwest, including the Virginia Hospital and Healthcare Association, which has at least 19 member hospitals that have an AWI below 0.874 and thus would benefit from the rule change.

However, such a change remains controversial with hospitals in the states that would be adversely affected. Hospital leaders were unable to reach a nationwide compromise through a task force organized in 2013 by the American Hospital Association (AHA). In a published interview, Richard Umbdenstock, former president of AHA, said after his 2015 departure that one of his big regrets was an inability to get hospitals to agree on a compromise regarding the AWI.

Faber said the feasibility of the legislation was shown by a previous legislative adjustment, known as the “Frontier State Fix,” that established an AWI floor of 1.0 for North Dakota, South Dakota, Montana, Wyoming, and Nevada.

But the outlook for the pending bill was not great.

“It’s hard to change [funding] formulas in the United States Congress,” said Alexander, one of the bill’s cosponsors.

Despite having 10 Republican and four Democratic cosponsors, the Senate bill has not advanced in the legislative process—nor has a companion House bill. Similar bills introduced in the last Congress never advanced, either.

Other federal policy changes urged by Levine included tweaks to Stark Law regulations and anti-kickback provisions, without which “a comprehensive hospital has very limited options for meaningfully integrating with physicians,” he said.

In August, the HHS Office of Inspector General issued a request for public feedback on potential reforms to the Stark Law. The office said the goal was to foster arrangements that would promote care coordination and advance the delivery of value-based care, while also protecting against harms caused by fraud and abuse. Comments can be submitted online through Oct. 26.

Rural hospitals also need the 340B program to be preserved, Levine said. The discount drug program will provide an estimated $53 million to Ballad Health in FY19.

“Again, considering the fact that our total operating margin of 0.6 percent led to only $12 million in operating surplus last year, losing access to the savings produced by participation in the 340B Drug Discount Program would be devastating for our health system and the patients and communities we serve,” Levine said.

Rich Daly is a senior writer/editor in HFMA’s Washington, D.C., office. Follow Rich on Twitter: @rdalyhealthcare