Federal recommendation could whack rural hospital budgets


In the running struggle to maintain good health care services in rural America, facilities called critical access hospitals are among the key players. If you know anything about them, you might have felt the shudder that ran through them Thursday.

These are small, rural hospitals that get extra Medicare money for the very reason that they are rural and on the theory that without them, many rural patients would suffer unduly.

There are 1,329 of these hospitals in the nation. Seventy nine of them are in Minnesota, which means more than half the state's hospitals have this designation.

A federal agency Thursday recommended that two-thirds of hospitals with the critical access designation should be re-assessed and perhaps dropped from getting the extra money. The move could save hundreds of millions of federal dollars every year. But it's a chilling thought for a lot of people because they fear hospitals would close as a result. And Minnesota seems particularly vulnerable.

Here's the argument:

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The original definition of a critical access hospital included the notion that it had to be 35 miles or more from the nearest other hospital. The rationale is obvious--making patients drive farther for services was considered onerous so these hospitals needed some extra financial help from the Medicare system.

But in addition, for a while, states could obtain the designation -- and the extra Medicare money -- for other hospitals as well, even if they didn't meet this distance requirement. The rationale was to create an incentive for hospitals to survive in areas of high unemployment or high poverty, for example, even if other hospitals were relatively close by.  In 2006, states lost this power but those already granted special status were grandfathered in.

As it stands, two-thirds of the nation's critical access hospitals don't meet the original distance requirement. Minnesota could be in a dicier spot than other states because 90 percent of its critical access hospitals fail the distance test. Only eight meet that requirement, those in Baudette, Bigfork, Ely, Grand Marais, Hallock, International Falls, Onamia and Roseau.

So the inspector general for the Department of Health and Human Services now is recommending that the Medicare system be allowed to reassess those non-distance hospitals and possibly eliminate them from the extra reimbursement. The government would save more than $1 million every year for each hospital eliminated.  The Obama Administration had earlier recommended limiting this program to some degree but this proposal would go further.

The recommendation would require congressional action. At first blush, that makes change seem unlikely. And certainly there would be loud cry of objection.

"Absolutely," said Minnesota Hospital Association spokeswoman Wendy Burt of the importance of the extra Medicare reimbursements.  "They are definitely important." Hospitals will argue that "meaningful access" to health care is dependent on more than a simple distance requirement, she said.

On the other hand, it's another challenge -- like the move to reduce funding for rural airports and even the unsuccessful farm bill -- to a program that was designed to subsidize rural life. This seems important amid the debate over whether rural America has lost its voice.

It's also interesting to note that this critical-access designation isn't just for tiny independent hospitals. It's an attractive feature for big health care companies looking to consolidate more providers into their fold. More than a few of Minnesota's critical access hospitals are affiliated with Sanford, Essentia, Mayo Clinic and other big providers.


Terry Hill, executive director of the National Rural Health Resource Center in Duluth, said the inspector general recommendation is "putting fuel on a fire that's already blazing." If adopted, "it would be very significant in Minnesota."

Small rural hospitals are under tremendous pressure as the Affordable Care Act kicks in and, even without a change in critical access hospital rules, many are likely to close in coming years, he said. "They're scared to death. We're going to lose some in Minnesota."

He took issue with the inspector general claim that eliminating critical access hospitals would save Medicare millions. If new rules result in hospital closures, patients forced to come to larger, more centralized facilities will wind up costing the system more than the potential savings, he said.

But it's clear that the critical access hospital system is under pressure. Small hospitals need to adjust to new rules making them more accountable. "We're on the verge of seeing a brand new model for hospitals anyway," Hill said.