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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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Hospital Pricing Mandate – A Sort of ‘Bird Box’ Reality

NOTE: This photo is not Sandra Bullock, but rather, a healthcare shopper seeking assistance online.

Over the holidays, my daughter and I watched a newly-released Netflix movie, ‘Bird Box.’ Other than having Sandra Bullock as the lead actress, I knew nothing about the film. The plot of this show, without issuing a spoiler alert, is that some unknown force mysteriously destroys the earth’s population, and the only certainty of survival is to not ‘see’ this evil. To remain alive, survivors must cover their eyes from the evil that chases them. One small peek can spell doom for those curious. In this riveting movie, having blindfold vigilance is the difference between life and death.

Recent findings in the January issue of the Health Affairs journal reveals that higher costs, not better patient care, serve as the primary explanation on why the U.S. spends much more on healthcare than other developed countries. Researchers found that U.S. healthcare spending was $9,892 per person in 2016, about 25 percent more than second-place Switzerland, which averaged $7,919 per person. Our neighbor to the north, Canada, is less than half of what we spend, $4,753.

The drivers for this enormous cost chasm, according to this article, is that the U.S. has higher drug prices, higher salaries for doctors and nurses, higher hospital administration costs and, yes, higher prices for many other medical services. Despite these costs, Americans have less access to many healthcare services than residents of other developed countries. A perfect storm, we might say. I have reported similar findings in a prior blog.

To make matters worse, the same study indicated that in 2015, there were 7.9 practicing nurses and 2.6 practicing physicians for every 1,000 Americans, compared to OECD medians of 9.9 nurses and 3.2 physicians. The long-term prospects of our numbers improving are not promising. Also in 2015, the U.S. had only 7.5 new medical school graduates per 100,000 people, considerably less than the median of 12.1 in developed countries.

Certainly, there must be some good news to share with you, right? Yes…and no.

Hospital Price Transparency Requirement

The prices we pay for hospital care, clinics, surgery centers, and prescribed medications, are usually unknown until sometime AFTER the interaction – typically following review and payment by our insurance vendor. The healthcare infrastructure gives much lip service to patient centricity, but follow through is underwhelming, to put it mildly. Transparency is extremely important these days because most Iowans and Americans are required by their health plans to pay higher deductibles and co-pays when seeking medical care.

Beginning January 1, the Centers for Medicare and Medicaid Service (CMS) is attempting to force price transparency by requiring all hospitals to post their list prices online. Under this arrangement, hospitals are required to publish a list of their standard charges online in a “machine-readable” format and to update this information at least annually. Hospitals are currently required to make this information publicly available or available upon request.

On the surface, this appears to be a hopeful beginning for all shoppers – and it is. However, when I look at hospital websites in Iowa and elsewhere, mandated compliance is far from patient centric. Using two of the largest hospital systems in Des Moines as proof – Mercy Medical Center and UnityPoint – we have a long way to go before price transparency nirvana can be reached.

Mercy Medical Center – Des Moines

The Mercy ‘Cost Estimator’ tab begins with a disclaimer that any costs published are nothing more than ‘estimates.’ The price-shopping patient must first click the “I Agree” button before being allowed to advance to the next page, which is sort of a magical mystery tour (special thanks to Lennon and McCartney). This page shows a similar disclaimer that all prices are mere ‘estimates,’ (special thanks this time to lawyers and marketing). In the left margin, we find links to a dozen ‘body systems’ that will allow price-shoppers to analyze procedures, median charges, various percentile charges, MS-DRG/CPT and Codes.

Not to be outdone, an exhausting ‘list of current standard charges’ is found subtly at the bottom of the ‘Body System’ list. Progress is now being made (tongue in cheek), as the price-shopper (hopefully not needing urgent care while searching for helpful prices) can find a treasure trove of data in an Excel spreadsheet:

  • CDM Numbers
  • Code Descriptions
  • CPT Codes
  • Revenue Codes
  • Charge

This spreadsheet shows 40,054 charge description masters (CDMs), which are incomprehensible medical procedures that are a hodgepodge of numbers and technical medical terms. One example is the 46040 4405 Abscess I&D Ischiorect, which has a charge (before discounts) of $10,936.  Huh?

In fairness to Mercy Medical Center, largely due to their repeated disclaimers, my expectations for finding value were set reasonably low. Put another way, I would not use this website as a shopper, as it is absolutely meaningless. Hospitals provide this data (and the gibberish language that comes with it) only because they are federally required to do so, not because they have a profound desire to empower patients.

Have you ever bought a non-medical product or service using ‘estimated’ prices? I didn’t think so…nor have I.

UnityPoint Health

UnityPoint’s ‘prices’ are found in the tab aptly labeled, ‘Patient Charges and Costs.’ On this page, the hospital does a reasonable job of explaining what the charges are…and are not. About halfway down this page the price-shopper can find two links that provide “Des Moines’s current charge information as of December 31, 2018,” in addition to “Des Moines’s standard Diagnosis-Related Group charge information as of December 31, 2018.” Each link will take the shopper to Excel spreadsheets that make little to no sense…even for someone like me, who makes a living using spreadsheets.

UnityPoint also provides a link to Iowa Hospital Charges Compare, a website provided by the Iowa Hospital Association. In addition to comparing ‘estimated’ hospital inpatient services by selected Iowa hospitals, it also provides ‘estimated’ prices for outpatient surgery procedures.

Trying to determine hospital prices in advance of a test, procedure or stay is daunting, frustrating and futile. This new hospital ‘transparency’ requirement is a very small step that needs a rocket boost into the 21st Century. What price-shoppers now see on hospital websites come from ‘chargemasters,’ which are massive compendiums of prices set by each hospital for every service or drug a patient receives. Historically, even hospital administrators can be flummoxed by how chargemasters are established.

But the real issue is that each published price is nothing more than a ‘list’ or ‘estimated’ cost. Currently, most procedures are still being charged separately, and are not bundled together. In most hospital encounters, it is extremely difficult to determine whether additional procedures will be required PRIOR to the patient entering the hospital. On top of this, the negotiated price of any claim is determined by the third-party payer (e.g. insurance companies, self-funded plans, Medicare, Medicaid, etc.) the shopper uses. Additionally, hospital location and the shopper’s specific health plan features (deductibles, coinsurance, etc.) will also determine the final cost.

Here’s a novel concept: Instead of pricing their services using the ‘horseshoes and hand grenades’ approach, hospitals could take the initiative and partner with ‘motivated’ insurance payers to develop a patient-friendly tool that provides legitimate ‘real-time’ prices along with patient-specific health plan out-of-pocket calculators. This sounds much too simple, doesn’t it?

Transparency WITHOUT the blindfold

To stay alive, Sandra Bullock needed to keep her blindfold close by before navigating outdoors. Healthcare shoppers, on the other hand, are trying remove their blindfolds to make appropriate decisions when seeking high-value healthcare. Unfortunately, to maintain the status quo, the current healthcare infrastructure works very hard to keep the blindfolds tight and opaque. But, to do the right thing in healthcare, we must tear down the existing silos of self-interest that dominate the care that Iowans and Americans deserve – and pay for.

Much work needs to be done to find this common good. By doing so, our blindfolds may finally be removed and clarity revealed.

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Healthcare – Time to Recognize and Confront the ‘Elephant in the Room’

Have you ever been involved with an obvious situation, either personally or professionally, that was largely ignored and going unaddressed? Perhaps a work scenario in which a manager who wields considerable organizational power was impacting the workplace culture in an extremely uncomfortable and unhealthy direction. Speaking up may cause one to lose his/her job or suffer long-term upward job mobility opportunities. Self-preservation is a natural powerful reaction when confronting a seemingly formidable opponent – we simply choose not to act at all.

The fear of speaking up is a metaphor for an ‘Elephant in the room.’

This is happening today in our healthcare delivery and payment environment. We frequently see or experience unacceptable situations that clearly require action to prevent it from happening in the future. As a reader of my blogs, you are keenly aware of the egregious nature of the medical establishment hiding their preventable medical error ‘indiscretions’ in the proverbial litterbox – covering up preventable mistakes that are not meant for public viewing. Yet, without being held accountable for their actions, the medical community will continue to repeat what should be un-repeatable.

The elephant exists in healthcare in a number of ways. Below are just a few prime examples.

Employers are Reluctant

Employers serve as the real payers of healthcare, yet oddly sit on the sidelines exhaustively complaining about the high cost of health insurance and how it adversely impacts their competitiveness in the markets they serve. Unfortunately, most employers are reluctant to bring up the inherent dysfunctional problems because hospitals and medical practices are considered to be ‘other’ large, recognizable community members that are off-limits to public correction. In fact, many business owners are board members at the local hospital, making it difficult to publicly speak up while serving in a ‘distinguished’ role. As real payers, employers can clearly climb into the driver’s seat to collectively initiate sorely-needed changes in how the healthcare establishment behaves. But to do so, they must firmly take hold of the steering wheel to begin the journey. Instead, the employers have historically farmed out this responsibility to the insurance companies.

Insurance Companies Lack Initiative

One can be equally mystified by insurance companies’ lack of initiative when it comes to medical errors. By default, these ‘third-party payers’ assume the purchasing role as an intermediary between the real payers and health providers. More often than not, employers assume that insurance companies are adequately vetting the quality-of-care their network providers are giving to their employees and family members. This is largely not happening. As a paid intermediary, insurers can play a vital role in determining whether their subscribers are receiving the best possible outcomes from the care being purchased through the insurers’ networks.

Because the medical community will not admit their playful litterbox games, an appropriate opportunity for safety-conscious insurers would be to randomly survey their members after they have been discharged from a hospital to learn about their experiences – specifically as it relates to preventable medical errors. Doing so could be a great branding opportunity for innovative, forward-thinking insurance carriers. Over time, when enough patient feedback has been collected and analyzed, insurers can then become a more engaged advocate for employers and their employees when vetting network providers. Why are insurers not performing this difficult but necessary work on behalf of their members? Great question. They should.

Medical Community Touts Economic Strength

The medical community, specifically hospitals, spend a good deal of our[1] money to help perpetuate their economic value in the communities they serve. Recently, the Iowa Hospital Association purchased airtime on at least one local television station to help educate Iowans about the “economic impact” hospitals have in Iowa, including:

  • Number of hospital workers employed in Iowa
  • Benefits hospitals provide to the communities
  • Number of additional jobs created by hospitals

Similar to a certain species of cicadas, which are insects that remain underground from 2-to-17 years before emerging to be seen and heard, the hospital community will annually reveal themselves to promote their substantial workforce and economic growth – but remain curiously silent on the indiscretions buried deep inside the litterbox. Apparently, this marketing scheme successfully elevates their status as the elephant in any room, whether it be in Iowa or some other state. This diversional tactic makes it difficult for others to honestly speak out about the associated problems the elephant causes within our communities. After all, who doesn’t want jobs? No one wants to be ridiculed as a ‘naysayer.’ Unfortunately, honesty may come at a great expense.

Joe Gardyasz of the Des Moines Business Record recently wrote an insightful piece (subscription required) about healthcare jobs in Iowa. Even though jobs in the healthcare sector have surpassed U.S. manufacturing and retail sectors for the first time in 2017, Iowa’s manufacturing sector – at least for now – still outpaces healthcare jobs in our state.

Why healthcare has become the most dominant sector in our country

Other than rising demographic trends of an older population requiring more healthcare services, the most plausible reason for more healthcare jobs is likely due to gross inefficiencies in an inordinately complex environment. As mentioned in my previous blog, “Healthcare Billing Process – The Cost of Doing Business,” non-healthcare industries might typically employ 100 full-time equivalents to collect payment for $1 billion in services, but healthcare employs 770 full-time equivalents per $1 billion of physician services. Keep in mind, healthcare is now a $3+ trillion-dollar industry – which primarily explains why healthcare jobs are soaring past other more-efficient sectors.

Put another way, if non-healthcare sectors wish to tout their economic dominance in their respective communities or state, they would need to become bloated with inefficiencies that would inflate costs, revenue and increase employment opportunities. Thankfully, largely due to powerful market forces that are embedded with price and quality transparencies, those sectors are forced to act efficiently by offering reasonably-priced products and services that are of the highest value. The healthcare industry, it seems, is oddly immune from having to play by these transparency rules. According to Warren Buffett, “Healthcare is the tapeworm of the American economy.”

Through our entrenched relationships (e.g. family, work, business and community), we are too often reticent about changing the status quo when it might possibly ‘threaten’ the comforts of doing nothing. Employers, insurance companies and the medical establishment are each capable of making the necessary changes, but at times, must be ‘nudged’ to do so. The late Stephen Hawking made a great point by writing, “I have noticed even people who claim everything is predestined, and that we can do nothing to change it, look before they cross the road.”

What IS the Elephant?

Regarding healthcare, if each of us fails to recognize, acknowledge and confront the elephant in the room, we too become complicit in this persistent, serious and increasingly costly and harmful problem. If we continue to sit on our hands and do nothing, we eventually enable the elephant to become even larger and more undisciplined.

So what is this elephant in our collective “healthcare room?” John Atkinson of Wrong Hands developed a ‘chartoon‘ about this metaphor, whether the elephant appears in healthcare or elsewhere.

Isn’t it time to begin “eating” this elephant one bite at a time? It starts by recognizing and acknowledging the elephant in the room, and then crossing that road to initiate necessary improvement.

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[1] For the services they provide, hospitals are predominantly recipients of our tax dollars, government-related grants, philanthropic donations, insurance premiums and personal out-of-pocket payments.