Rural hospitals get financial assistance as COVID-19 exacerbates their struggles

Rural hospitals will receive at least $1 million each, plus payments based on annual expenses.

Expense payments will be based on total Medicare expenses in the last cost report filed with CMS.

Advocates are asking Congress to forgive advance Medicare payments — which functionally are loans — to rural hospitals.

The federal government has begun to release targeted financial assistance to rural hospitals, but more help may be needed.

Rural hospitals have continued to struggle financially amid the coronavirus pandemic as they face increased costs and reduced income from the cancellation of elective procedures. One indicator is the closure of three such facilities — two in West Virginia and one in Tennessee — since the start of the national health emergency, observers say.

“Approximately half of all rural hospitals operate in the red on an annual basis, and not being able to do routine and elective visits and procedures during COVID-19 further strains their finances today,” said Carrie Henning-Smith, PhD, an assistant professor at the University of Minnesota.

Brock Slabach, a senior vice president with the National Rural Health Association (NRHA), noted increasing concern that a wave of closures or mergers and acquisitions is coming for rural independent hospitals.

“The pandemic has shined a bright light on the widening fractures that exist in the rural health safety net,” Slabach said.

Hundreds of rural hospitals, rural health clinics and small physician practices are on the verge of closure due to cash shortages, and many have had to cut staff, according to the NRHA.

New federal funds are on the way

On May 1, the U.S. Department of Health and Human Services (HHS) began distribution of $10 billion it had designated for rural providers as part of provider assistance included in the Coronavirus Aid, Relief, and Economic Security (CARES) Act. That funding is in addition to the $50 billion in CARES Act general-distribution funding that providers have received in recent weeks.

Recipients of the $10 billion will include:

• Rural acute care general hospitals
• Critical access hospitals (CAHs)
• Rural health clinics (RHCs)
• Community health centers located in rural areas

The funding entails a minimum base payment  plus a percentage of annual expenses for hospitals and RHCs. The add-on will amount to approximately 2% of a facility’s operating expenses, Slabach said. The expense-based method accounts for operating costs and lost revenue incurred by rural hospitals for both inpatient and outpatient services, an HHS release stated.

Rural acute care general hospitals and CAHs will receive at least $1 million each before additional funding is added based on operating expenses, according to HHS.

Base payments also aim to account for RHCs with no reported Medicare claims, such as pediatric RHCs, and CHCs lacking expense data, and to ensure all nonhospital clinical sites receive at least $100,000 before additional payments based on operating expenses.

The payments will come through direct deposit, and eligibility will be based on the physical address of the facilities as reported to CMS and the Health Resources and Services Administration, regardless of any affiliation with organizations that are based in urban areas.

NRHA also has learned the add-on payments will be based on:

• The most recent cost report filed with CMS
• Medicare cost report worksheet G3 Line 4, if applicable, or total Medicare expenses

“These substantial targeted rural payments will help to stabilize rural hospitals during this stressful time,” Slabach said.

The rural funding comes with its own set of “terms and conditions” to which hospitals must agree. Such requirements in other CARES Act funding pools have raised concerns from some industry observers.  

Additional steps are needed

NRHA is preparing recommended steps to further bolster rural providers in the next coronavirus legislation that Congress is expected to consider.

A major request will be forgiveness of funding forwarded to hospitals through Medicare’s Accelerated and Advance Payment Program. As of April 27, CMS said it had given 21,000 Part A providers $59.6 billion in advance payments.

Some providers have criticized the funding program — through which payments effectively are loans — because hospitals will need to repay the assistance within 120 days of receipt or have future Medicare payments withheld. That may create challenges for hospitals where Medicare volumes remain low. Additionally, 10.25% interest payments are due starting 30 days after the 120-day period, and full repayment is due within one year.

Beyond receiving federal assistance, rural hospitals want to restart elective procedures to help their finances in the longer term. Slabach said those organizations are “actively planning to restart elective services when it is safe and there are adequate supplies of PPE.”