In the early 1990s, White Memorial Medical Center, a 353-bed, not-for-profit teaching hospital in East Los Angeles, was struggling and the leadership was contemplating putting the facility up for sale. What ended up breathing life back into White Memorial was the Disproportionate Share Hospital (DSH) program, which covers the cost of providing care to uninsured patients.

The hospital, in an area where close to half the residents live below the poverty line and which provides $26 million worth of free or uncompensated care per year, is again in uncertain times, with the expected reduction of Medicare DSH payments by $22.1 billion through 2019, according to the American Hospital Association. “That really harms the inner-city hospitals because we live and die by that money,” says John Raffoul, White Memorial’s president and chief executive officer.

For both urban and rural facilities, it’s death by a thousand cuts — there are also 2 percent Medicare sequestration cuts, created in 2013 after the country went over the “fiscal cliff,” and readmission penalties, in which hospitals with the highest readmission rates lose 3 percent of each payment, and which impact areas with a larger number of impoverished residents more acutely. A number of studies, including one published recently in the journal JAMA Internal Medicine, have shown that socioeconomic factors have more of an impact on readmissions than hospital performance.

“Patient characteristics not included in Medicare’s current risk-adjustment methods explained much of the difference in readmission risk between patients admitted to hospitals with higher (versus) lower readmission rates,” wrote the authors of the JAMA study. “Hospitals with high readmission rates may be penalized to a large extent based on the patients they serve.”

There is some hope on the horizon. In March, the Establishing Beneficiary Equity in the Hospital Readmission Program Act of 2015 was introduced in both the U.S. Senate and the House of Representatives. The legislation would require the Centers for Medicare and Medicaid Services (CMS) to take the socioeconomic status of patients served by the hospital, as well as the proportion of patients eligible for both Medicare and Medicaid, into account when assessing readmission penalties.

“CMS has the ability to address that,” says Ellen Kugler, executive director of the National Association of Urban Hospitals, which has endorsed the bill. Raffoul says the leadership at his hospital has been aiming to reduce costs and improve care to soften the impact of the cuts. Last year, they brought in a consulting firm to find efficiencies, reducing labor and supply costs and finding $10 million in savings by looking at the hospital’s revenue cycle. The hospital also formed a committee that is looking at ways the facility can improve care for patients with hip and knee issues and reduce cases of sepsis. The hospital partners with outside groups, including home health care agencies and hospice care, to reduce readmissions. Raffoul says the facility has cut its infection rates in half and won a series of awards.

“We’re proud of the things that we’re doing despite the fact that we’re facing all these cuts,” Raffoul says.

But even in spite of the gains White Memorial has made in the last 20 to 30 years, there is always the worry that the amount of the cuts, and the speed at which they are being implemented, will propel the facility back into uncertainty. “We are thankful we have been able to survive these cuts,” Raffoul says. “I can tell you that looking forward, unless some of these initiatives are frozen or taken off the table, we will be put in the same spot in the next few years.”

Continued rural closures
Rural hospitals face many of the same challenges as facilities in large metropolitan areas — DSH and other cuts to reimbursements also impact rural facilities — though limited access to public transportation and a population that tends to skew older, and that is less financially secure because of losses in manufacturing jobs, also hurt. A lower population also hurts rural facilities, even with the transition from volume-to-value-based reimbursement, says Joann Anderson, president and CEO of Southeastern Health, a nonprofit health system in Lumberton, N.C., that runs a 452-bed facility with acute care, intensive care and psychiatric services.

Compared to an urban facility that may treat 100 patients for a similar issue, a rural hospital with one bad outcome is more likely to be penalized, Anderson says. “The way the value is being measured is the percentage of patients with expected outcomes,” Anderson says. “That scale is difficult for us.”

The picture for rural hospitals is similar to last year, with hospitals closing at a rapid pace. Some say this is due to a number of states blocking the Medicaid expansion offered under the Affordable Care Act, though many agree that other factors have combined to make it a particularly tough climate. The North Carolina Rural Health Research Program has estimated 57 rural hospital closures from January 2010 to the present nationwide.

Maggie Elehwany, vice president of government affairs and policy at the National Rural Health Association, says the situation has only gotten worse in the last year, and estimates there are more than 280 hospitals on the verge of closure. “What we are seeing is finally a greater recognition of the problem,” Elehwany says. In July, U.S. Rep. Sam Graves, R-Missouri, introduced the Save Rural Hospitals Act.

The legislation would essentially remove the cuts and penalties that hit rural hospitals particularly hard — among other things, it would eliminate Medicare sequestration cuts for rural hospitals, eliminate rural Medicare and Medicaid DSH reductions and delay the application of penalties for failure to achieve meaningful use with electronic health records. It would also eliminate the requirement for doctors to certify that a Medicare patient will be discharged or transferred to another hospital within 96 hours, which is a condition of payment.

The bill, which is currently with the House Subcommittee on Health, would also reverse cuts to federal reimbursement of bad debt for critical access hospitals and rural hospitals, which has a big impact on these facilities. “There have been studies done on the impact bad debt alone is having on rural hospitals,” Elehwany says. “We know those cuts have had a horrific impact on rural providers.”

The National Rural Health Association worked with Congressional offices to help get the bill introduced. The main solutions, Elehwany says, are stopping the various cuts in Medicare and figuring out a new model for rural hospitals. “We haven’t developed a model since 1997 with critical access hospitals,” Elehwany says.

A Senate bill introduced in June by Sen. Chuck Grassley, R-Iowa, would designate critical access hospitals, or a hospital with a maximum of 50 beds in a rural community, as a rural emergency hospital, meaning the facility would have to provide 24-hour emergency medical and observation care. “It’s really targeted at those small struggling rural hospitals that have a small inpatient volume,” says Priya Bathija, senior associate director of policy for the American Hospital Association. “It will be interesting to see how it moves forward. We think that these ED proposals are a step in the right direction, but it’s not a “one size fits all” solution for rural hospitals.”

The American Hospital Association recently created a task force on ensuring access to health care in vulnerable communities that is exploring other models. Anderson, of Southeastern Health, is one of the task force members. While the AHA task force is in the early stages of its work, Anderson says her organization has been taking proactive steps to avoid becoming a vulnerable rural hospital. Southeastern Health has expanded its clinics to more rural communities, so travel is less of an issue for patients, opened same-day clinics for people who can’t make a set appointment and also offers telemedicine services, though that comes with increased costs that many rural facilities may struggle with.

Southeastern Health has also partnered with Campbell University, a private university in Buies Creek, N.C., to create an osteopathic medicine program with the goal of addressing physician shortages, which is an issue in rural areas. They now have 40 students training through the program, as well as 25 residents who have graduated from other programs helping to start a residency program in family and emergency medicine. “Our goal is to try to infuse physicians in the area through that training program,” Anderson says. “We believe if they are trained in a rural community they will stay in a rural community.”

Being a member of the Coastal Carolina Health Alliance, a network of nine hospitals, also helps. The alliance reduces costs with group purchasing and collaborative educational offerings. “It’s difficult, particularly if you’re not associated with a larger institution,” Anderson says. There are also initiatives not connected to reimbursement, including providing community education on diabetes and other common health issues, and partnering with local churches, which are very important in rural communities. There are 13 churches in Southeastern Health’s communities involved in health education; one church even takes breaks from services to allow worshippers to exercise.

“There’s no payment for that, but we believe we’re helping the community [by teaching them] that they can impact their own health,” Anderson says. The organization is seeing results from its efforts. In the past five years, after opening up access to primary care clinics in more remote locations, emergency room visits have gone down by 12,000 per year, from 80,000 to 68,000 visits. They are also beginning to see admissions reduced because of disease management through primary care.

Some facilities are already creating new models of delivering care. In July 2014, the Carolinas HealthCare System Anson in Wadesboro, N.C., created a new model, which HCB News reported on last year. They built a new hospital, cutting the number of inpatient beds from 52 to 15 and keeping the emergency department. While the new facility still offers surgical procedures, as well as radiology, laboratory, pharmacy and other inpatient services, the big difference is that there is now a patient-centered medical home that is embedded within the ED. The aim is to provide primary care and cut down on costly and unnecessary ER utilization.


Michael Lutes, a senior vice president with Carolinas HealthCare System, says the health system’s experiment has paid off. ER visits at the new facility were down 6 percent in the first year, while visits to the primary care medical home were up 101 percent, from 5,100 visits to more than 10,300 visits (there had previously been a standalone primary care office before the switch, though it was not connected to the ED). Lutes compares this to the greater
Charlotte, N.C., market, where ED visits were up 7 percent.

The system has also recognized the correlation between mental health and many chronic diseases, having therapists see patients in an outpatient setting, in the ER and at the medical home. While the Carolinas HealthCare System’s new model might not be workable in every market, it could be something that some health systems can look to for inspiration. “I think this model could work in most rural communities, but you have to have the resources and we’re fortunate to be part of a health care system that has [resources such as] telemedicine,” Lutes says. “It’s a challenge for most rural hospitals if they’re not part of a health system. But, from a care perspective, it’s the right model for rural communities.”

While Lutes declined to reveal specifics about the hospital’s financial picture, he says the model is financially feasible. “It’s a financially sustainable model that allows us to pursue our mission,” Lutes says. “If we were operating under our previous model, it would not be financially sustainable.”