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The Plight of Rural Hospitals (Part 1)

Even before the Covid-19 pandemic hit Iowa and the U.S., rural hospitals were confronted with their own pandemic of sorts – a financial crunch that could determine business survival. As we know, all rural communities rely on having viable access to a broad spectrum of essential health care services. Iowa is no exception.

Critical Access Hospitals (CAHs)

For decades, rural hospitals in the U.S. have experienced poor financials due to a number of reasons. One large reason is the gradual exodus of people leaving rural communities for urban areas, primarily for seeking more promising career opportunities. Over time, this migration resulted in an older, lower-income population remaining in rural communities, heavily relying on Medicare and Medicaid for their health coverage. On top of this, rising patient deductibles have contributed to the overall rise in bad hospital debt.

Unfortunately for rural providers, specifically hospitals, government reimbursement levels are often below the cost of providing these services. To help offset this revenue shortage, private payments through commercial insurance carriers and self-insured employers, largely due to cost-shifting, are considerably higher than government reimbursements.

To rescue rural hospitals from the ‘death spiral’ during the 1980s and early 1990s, Congress created the Critical Access Hospital (CAH) designation (Balanced Budget of 1997 – Public Law 105-33). The CAH designation was designed to reduce the financial vulnerability of rural hospitals and improve access to healthcare, thereby keeping essential services in our rural communities. CAHs receive certain benefits, such as cost-based reimbursement for Medicare services.

Over the years, additional legislation has been amended to the CAH designation and related program requirements. As of July 19, 2019, there were 1,350 CAHs located in the U.S. According to the American Hospital Association, there are 5,198 community hospitals. Iowa has 119 community hospitals, with 82 being CAHs.  A July 2020 map shows the locations of each Iowa CAH.

In 2019, the Iowa Hospital Association (IHA) developed a proposal to reform rural health care to help address the growing financial challenges of rural hospitals using a three-pronged approach. The outcome of this initiative is unknown at present.

Arrival of the Covid-19 Pandemic

Just before the pandemic arrived in mid-March, the Cedar Rapids Gazette published an article reporting that rural Iowa hospitals are at risk of closing. The article cites a 2019 national report by Navigant, a Chicago-based consulting company, that found nearly 18 percent of Iowa’s rural facilities (about 17 hospitals) “are at high risk of closing unless their financial situations improve.” Navigant also reported that 21 percent of all U.S. hospitals (430 total) are facing a similar fate.

When the pandemic tsunami arrived, the financial hit to hospitals, specifically small, rural hospitals, became even more acute. The primary reason – due mostly to the suspension of elective procedures in clinics and hospitals, including ambulatory surgeries, inpatient surgeries and inpatient discharges.

In June, the IHA reported that audit firm, CliftonLarsonAllen, through financial modeling, projected a potential ten-figure loss for hospitals statewide due to the pandemic, jeopardizing several rural hospitals. The modeling showed that 89 Iowa hospitals may lose more than $1.4 billion by the end of September, and possibly a worst-case scenario showing more than a $2 billion loss by the end of 2020.

A new analysis by Epic Health Research Network and the Kaiser Family Foundation found that, if recent pandemic trends continue through the 2020 calendar year, total hospital admissions will be down by at least 10.5 percent of predicted levels for the entire year. If this prognostication comes close to reality, loss of revenue will adversely impact many rural hospitals that were merely holding on during the pre-pandemic era. According to an October 16 article from Becker’s Hospital CFO Report, at least 47 U.S. hospitals have closed or entered into bankruptcy in 2020.

Kirk Norris, the CEO of IHA, commented that Iowa hospitals have received millions in federal support from stimulus bills, CARES act and Paycheck Protection Program, but not enough to cover predicted losses.

According to IowaWatch, 77 Iowa hospitals collected $928.3 million in accelerated and advance Medicare payments as a government stimulus to cover expenses in the Covid-19 pandemic’s early days last spring. These funds, however, allowed health care providers to receive, in advance, three months of anticipated Medicare billings that must be paid back to Medicare and Medicaid Services. This program was separate from the CARES Act and other Covid-19-related emergency plans – such as a 20 percent add-on payment by Medicare for inpatient hospital Covid-19 patients. All told, 77 Iowa hospitals applied and received accelerated Medicare payments, including 44 critical access hospitals, who could seek ahead-of-time up to 125% of their anticipated Medicare payments for a six-month period. CMS suspended the accelerated program on April 24 to re-evaluate the other revenue sources being made available to healthcare providers.

Nationally, stimulus efforts included $175 billion in two initial rounds of CARES Act funding, with another $10 billion for rural hospitals and other distributions based on high Covid-19 admissions, etc.

Public Health Plan Option Under Biden

Another storm that could potentially hit rural Iowa hospitals will first depend on the upcoming election results. Joe Biden and the Democrats are proposing to create a public option to compete with private insurance companies. This public option would allow individuals to purchase a public option plan from marketplaces in addition to allowing employees to elect a public option plan through their employers. This would mean the payment mix received by Iowa hospitals would further erode because more Iowans would now have health coverage that reimburses hospital care at a lower rate than private insurance.

The key question, however, is just how much different will the public option reimburse healthcare providers when compared to the current Medicare arrangement? If Biden is elected and the Democrats control Congress, this will be a critical piece to watch when the public option is debated.

The process of culling out the eventual mayhem of rural hospitals under a public option approach began last year. In August 2019, Navigant released an analysis finding that Iowa’s rural hospitals could lose more than $476 million dollars under a public option, putting dozens of rural hospitals at risk for closure. Using three different scenarios, the study suggests that between 25 and 52 of Iowa’s rural hospitals would be at high financial risk for closure due to a loss of revenue.

It must be noted, however, the Navigant study was funded by an industry coalition, Partnership For America’s Health Care Future, an alliance consisting of pharmaceutical, insurance and hospital lobbyists whose desire is to fight off the expansion of Medicare and any government-driven payment system. According to IHA CEO Norris, Medicare is a low payer in Iowa relative to other parts of the country. Again, the big unknown is the reimbursement level a public option would have if passed by Congress and signed by the President. The devil will be in the details.

Transparency in Hospital Financial Reporting

In the U.S., hospitals account for the largest expenditure of healthcare dollars, comprising about 33 cents of each dollar spent. It is imperative, therefore, that to effectively address rising healthcare costs and assure financial viability of all types of hospitals serving Iowa communities, state policymakers and the public will need appropriate financial information necessary to assess and understand the financial health of hospitals.

Each state has disparate reporting requirements for hospitals to report audited financial information – with some states being more comprehensive than others. In addition to the IHA providing some hospital data on their website, Iowa does ‘require’ hospitals and healthcare facilities to report a balance sheet detailing assets, liabilities, net worth, income and expenses and “other reports of the costs incurred in rendering services as the department (of Public Health) may prescribe.” This requirement comes from Iowa Code, Section 135.75.

But is this information adequate?

According to my contact at the Iowa Department of Public Health (IDPH), Iowa hospitals submit their yearly balance sheets and capital expenditures to the IDPH, but not every hospital participates, and the IDPH does “not have the time to track down the ones that do not (report).” This statute does not have a template for hospitals to use when reporting, nor is the information collated when received by IDPH. Hospital financial information is not shared outside IDPH unless it is requested. On an as-needed basis, the financial data is reviewed for “future projects that may trigger a Certificate of Need (process)” In short, “We do not have the staff to do much more with the information and have not had for many years.”

If the fate of each rural hospital is truly critical to our communities and state – and it is – how can Iowa and other states successfully address the needs of each hospital and the communities being served?

Next week’s post will discuss an interesting initiative that a national organization has designed to help state officials assess the financial viability and transparent practices of hospitals.

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My Office in a Treehouse? Pandemic Reflections

Over the years, I have had the luxury of working from home when inclement weather or other circumstances dictated that I do so. Other than making sure that I had my laptop and a reliable internet connection, I was good to go.

This past February, my wife had her knee replaced, requiring us to make necessary changes within the living space at home to ensure a safe and convenient recovery. During this period, I worked remotely without any hiccups. A few days a week, I would stop by the office – just 12 minutes away from home – to pick up the mail and water a few plants.

On March 11, the World Health Organization declared the relatively little-known coronavirus outbreak to be a worldwide pandemic. Two days later, President Trump declared the pandemic a national emergency. Within days, our state and country ground to a halt, profoundly altering our personal and professional lives. ‘Social distancing’ became the new norm. Businesses shut down and our once-busy streets resembled something out of an old western movie, minus the tumbleweeds.

We all painfully know the story since March: Millions of Americans lost their jobs or were furloughed. Those employees fortunate to continue working were relegated to finding new ways to operate out of their homes. For many of us, working remotely continues to this day – and will likely continue into the foreseeable future.

During the last seven months, I have had ample time to reflect on whether or not working in an office – along with its’ associated costs – made economic sense. Much of the work I do revolves around research and analysis – some is outsourced to trusted partners. In short, my work requires a quiet workspace with internet access, a coffee maker and a phone for periodic conversations. Being tethered to a formal office space is optional.

Over time, I have found that phone calls were becoming about as frequent as using the fax (remember that relic?).  Prior to the pandemic, most in-person meetings were conducted over coffee or lunch. It really was that simple.

After weighing the pros and cons, the necessity of having a separate office suite became a very easy decision. Paying office rent and utilities, phone and internet, renter’s insurance and, to a minor extent, fuel to commute to and from the office, was a personal preference – but not a business necessity. All of this can be accomplished from home – or perhaps a slightly advanced treehouse.

In the not too distant past, I may have confused my work-based livelihood with where I worked rather than what I did at work. For me, I have sorted out this seemingly razor-thin difference and have reconciled what is most desirable. I can easily perform this same work in the confines of my home and not skip a beat on my output. The pandemic has proven to be a helpful audition, guiding me to feel more comfortable with this eventual change of converting to a full-time remote workplace.

I recently spoke with a local commercial realtor who told me that office space may become more plentiful because of the pandemic. This glut of office space, however, has not hit the commercial market quite yet, primarily due to the Paycheck Protection Program (PPP) helping offset payroll costs, rent, interest and utilities for small businesses. But with a prolonged pandemic, decisions similar to mine will likely follow. A Des Moines Register article on September 3 approached this topic, using some interesting national statistics.

My office conversion has already begun, and in about eight months when my lease expires, I will be sitting in my home den, lakeside or in other locations – performing the ‘what’ regardless of ‘where.’ I’m very comfortable knowing that making ‘sausage’ in the backroom will be no different from home versus an office suite some 12 minutes away. The treehouse idea, however, may need to wait.

Working remotely will be seamless, while wearing pajamas has yet to be decided!

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Research on ‘Medical Errors’ Published in Journal of Patient Safety

NOTE:  Our peer-reviewed article concerning the prevalence of medical errors experienced by Iowans has been published in the September 2020 issue of the international publication, Journal of Patient Safety (JPS).  The article summarizes the experiences and opinions of a statistically representative sample of 1,010 Iowans, and provides new insights on approaches Iowa can take to determine the extent of the problem and develop solutions to obtain safer care for patients. 

The article, “Medical Errors in Iowa: Prevalence and Patients’ Perspectives,” was co-authored by myself and two others: David R. Andresen, PhD and Andrew Williams, MA. The article reports that medical errors, also known as preventable adverse events, are seldom voluntarily reported by healthcare providers in Iowa and the U.S.

Quantifying the magnitude of the medical error problem is an essential first-step toward solving these safety issues. The hope is that vulnerabilities in the healthcare delivery process will be exposed so that solutions can be found. However, the U.S. does not have a bona fide national strategy to assess medical errors, and, as a result, hospitals and clinicians around the country do not report medical errors accurately and consistently.

The JPS article suggests there is no single method for healthcare providers to promote full, transparent reporting of medical errors. However, the approaches described can serve as a counter-balance to lax provider reporting that includes the patient experience and perspective:

  • Implement mandatory provider reporting and appropriate compliance enforcement. From this, reported errors can help medical organizations more clearly understand exactly what happened, regardless of the outcome of the error, and identify the combination of factors that caused the error or near-miss to occur.
  • Create a central state repository for patients to report medical errors, making sure the reporting process is uncomplicated.
  • Develop an on-going, independent, random-sampling process to survey patients (and family members) who recently received care to document the prevalence and nature of medical errors. This is the most disruptive approach. From this collection process, state authorities, medical providers and the public will gain critical insight on the prevalence of medical errors, allowing for improvements. When errors are not reported and discussed, providers miss crucial feedback and learning opportunities.

The survey process can originate from claims data available through Medicare, Medicaid and private insurance companies. Patient experiences with medical errors can be collected and monitored for each medical provider, who would then receive systematic feedback about these errors to facilitate improvement processes. Through this data collection, results of medical errors would eventually be publicly reported for each institutional provider (e.g. hospital, surgery center, etc.).

A vast majority of Iowans have positive experiences with the healthcare system in Iowa. However, nearly one-in-five Iowa adults (18.8 percent) report having experienced a medical error either personally or with someone close to them during the past five years. Of those, 60 percent say they were not told by the responsible healthcare provider that an error had occurred. The survey found that hospitals were the most frequent site of medical errors (59 percent), while 30 percent of errors occurred in a doctor’s office or clinic, four percent in nursing homes and seven percent at some other location.

Among many important findings, the Iowa survey found that nearly 90 percent of Iowans “strongly agree” that healthcare providers should be required to tell patients about any medical errors. Additionally, 93 percent of Iowans “somewhat agree” (30 percent) or “strongly agree” (63 percent) the public should have access to medical-error information for each hospital and doctor.

Iowans feel strongly that medical errors must not be hidden from the public and should be reported, both to the patient and to an appropriate regulatory agency. Quality of healthcare will only improve when leadership, organizational culture and patient engagement are fully aligned. When seeking healthcare, patients deserve truthful, timely and transparent information about medical errors. Additionally, insurance companies can also contribute by embracing the safety of care their members receive from the medical providers included within their networks.

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