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The Plight of Rural Hospitals (Part 2)

As shared in last week’s post, hospitals, specifically critical access hospitals (CAHs), are having a difficult time surviving under the strain of various financial challenges. This week discusses how highly-stressed hospitals can possibly be identified to warrent additional attention.

Similar to our vehicle’s check engine light, we hope to be alerted with any major problem BEFORE something catastrophic happens. Sometimes, however, depending on the make, model and year of the vehicle, once the red or yellow light is flashing, the damage may have been done, leaving us shocked, frustrated and perhaps stranded in the middle of nowhere.

Similarly, we don’t want this to happen to our CAHs. If a financial stress light is not activated early enough, indicating that a particular rural hospital is in deep financial trouble, local officials and state policymakers are forced to react to something that could’ve been addressed earlier had the problem been closely monitored. It’s about being proactive and having the right tools to assess and manage over a period of time.

National Academy for State Health Policy

In early August, I received an email from the National Academy for State Health Policy (NASHP) that caught my attention. NASHP is a “nonpartisan forum of policymakers throughout state governments” whose mission is to convene state leaders on health policy issues to help “lead and implement innovative solutions to health policy challenges.”

The email’s headline was simple and direct: “Transparency Model Law Requires Hospitals to Report their Financial Health.” In order to address rising healthcare costs and/or assure financial stability for hospitals so they continue to provide access to care, NASHP’s approach is for state policymakers and the public to have “detailed hospital financial information to understand a hospital’s assets as well as its expenses and liabilities.” Hospitals encompass one-third of each dollar spent on healthcare.

After reviewing many policies and practices from other states, NASHP developed hospital transparency model legislation that would give states the authority to collect data needed from hospitals – including what data to be collected and which hospital documents to be used to obtain this information. It is also important to determine which state agency or office would be responsible for analyzing this data on an ongoing basis.

The model legislation also includes a reporting template for hospitals. (Click on the ‘Hospital Financial Transparency Report Template’ link to download an Excel spreadsheet template.) By having this template, the state agency would receive standardized financial information from all hospital and medical organizations that would be required to annually submit this information. Additionally, NASHP provides a Q&A on how states can use this Model Law and Template to increase hospital and health care system financial transparency. Finally, NASHP shares A Community Leader’s Guide to Hospital Finance, which provides an overview of key questions policymakers can ask to better understand hospital finances.

Current Iowa Hospital Financial Reporting vs. NASHP Model

The NASHP Model legislation and reporting template naturally created more questions about ‘if’ and ‘how’ Iowa hospitals currently report audited financial statements to the Iowa Department of Public Health (IDPH). As mentioned in my Part 1 post, Iowa Code Section 135.75 generally outlines basic annual reports that hospitals and health care facilities must file to the IDPH. From this requirement, other Codes also apply, including:

Are the data elements found in the Iowa reporting requirements adequate to address rising healthcare costs and/or hospital solvency metrics? NASHP provided me with a very brief side-by-side comparison of the Iowa Hospital Financial Reporting versus the NASHP Model. It is worthwhile to mention that the NASHP model is intended to give broad authority to a designated state agency that would implement a uniform reporting system via regulations. The specific data elements of the NASHP Model are outlined in the template rather than in the legislation. Iowa’s current law appears to prescribe a few specific reporting elements that the IDPH must incorporate in a uniform reporting system. However, there is no Iowa ‘template’ and IDPH has indicated that not every hospital participates, nor is the information collated when received by IDPH. Finally, IDPH is not adequately staffed to do much with the information collected from hospitals.

According to NASHP, a few key takeaways from the brief comparison include:

  • The NASHP Model is more comprehensive and breaks down each data element – such as all types of assets, liabilities, gross and net patient revenue by payer while Iowa’s law broadly indicates that hospitals must report assets, liabilities, income, and expenses.
  • NASHP recommends reporting on a system-level basis while Iowa invites hospitals and facilities to report per facility. NASHP’s systems approach is based on the fact that, because of increased consolidation, most hospitals and health systems are now part of larger systems, and data must be collected from each parent system.
  • NASHPs Model template automatically analyzes hospital-reported data and requires the state agency to produce annual reports while Iowa no longer has an annual reporting requirement.

In other words, the NASHP Model requests data that is immediately actionable and helps policymakers understand key metrics of a hospital system’s financial status. This is very important, because state agencies – the IDPH included – may not have the necessary resources (personnel and financial) to analyze and summarize this data appropriately. What one does with the collected data is often just as important as the type of data being collected.

The Iowa Hospital Association and American Hospital Association Annual Survey 

After the Part 1 post was published last week, Perry Meyer, executive vice president of the Iowa Hospital Association (IHA), brought to my attention that the IHA, in conjunction with the American Hospital Association (AHA), “works with ALL Iowa hospitals each year to collect the AHA Annual Survey of Hospitals.” Perry further mentioned, “This is a comprehensive survey that includes Iowa hospitals reporting their audited financial information. Each year when completed, IHA provides this data on all Iowa hospitals to the IPDH in lieu of IDPH conducting a separate licensure survey. This agreement between IHA and IDPH has been in place for 30+ years. The comprehensive survey data is public and IDPH should have the information.”

This information from Perry is greatly appreciated. The IHA has a good pulse on what is happening to its hospital members, and with this knowledge, serves as a lobbyist for their members in Iowa legislative sessions. IDPH acknowledged receipt of the AHA/IHA survey results. And the data, according to my IDPH contact, is used to “check the number of licensed beds of each hospital.” The limited use of this data is a bit underwhelming, if not concerning, as the AHA annual survey also includes audited financial information that can be reviewed and analyzed. The IHA – presumably with the blessing of the state – appears to assume the check engine role for financially-stressed hospitals within our communities.

Going Forward…

The upcoming election will begin to determine the ‘new normal’ during the next two-to-four years. If former V.P. Joe Biden is elected president and the Democrats take hold of the Senate in addition to maintaining House majority, healthcare policy will be – along with Covid-19 and the economy – the top issue for years to come. Under this scenario, the Biden public health option will most likely be front and center, and the battles will become contentious by political party, payer and healthcare provider. As a result, one large battle will likely be centered around reimbursements for providers, specifically hospitals.  Bundled payments and alternative payment methods will presumably be analyzed to ensure that quality of care is being incentivized appropriately. But a key issue for hospitals and other providers will be just how much the public option will reimburse hospitals and how does it compare to current Medicare reimbursements that are largely considered to be at or below hospital cost.

In the final analysis, having a due diligence process in place, similar to the NASHP Model, will be necessary when assessing the survival of our critical access hospitals.

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