Rural hospitals have no shortage of problems that present a drag on their bottom lines: low patient volumes, provider shortages, regulatory burdens, high prescription drug costs.
The solution to many problems is simple, according to Derek Morkel, CEO of HealthTechS3 and Gaffey Healthcare, which provides revenue cycle automation technology and services. If the federal government increased the reimbursement rates of its government-sponsored plans, many problems specific to rural hospitals could be avoided or solved.
“Payment rates affect everything,” he says.
Rural hospitals treat a higher percentage of patients with Medicare and Medicaid than do hospitals in urban and suburban centers, with Medicare and Medicaid typically making up more than 70 percent of these hospitals’ total revenue. Because Medicaid and Medicare reimburse providers at a rate of 87 cents for every dollar spent on care, rural hospitals have struggled to stay afloat.
Meanwhile, with patient volumes down significantly in rural hospitals nationwide as a result of the ongoing COVID-19 pandemic, commercial payments have dried up in recent months.
“For a lot of hospitals, the idea is to look at your patient mix and see if you can break even on Medicare and Medicaid, and then whether you can make your profit margin on commercially insured patients,” he says. “But there’s been far fewer commercially insured patients, almost a 20 percent patient reduction. If your business loses 20 percent of its paying customer base, that’s a lot.”
The Value of Value-Based Payment Models
Last year, the American Hospital Association released a study, Rural Report: Challenges Facing Rural Communities and the Roadmap to Ensure Local Access to High-Quality, Affordable Care, which called for new federal policies to help rural hospitals. One of the study’s recommended policy priorities was the introduction of new value-based payment models to increase financial predictability and improve profit margins.
But Morkel says the logistics make measuring their value difficult.
“Talk about a regulatory burden—the mechanics of value-based models are so complicated, it’s nearly impossible for a hospital’s accounting department to figure out whether these programs work well,” he says. “And knowing how to bill and get paid correctly under these models is more complicated than regular billing and collections.”
Telemedicine and its Shortcomings
Fortunately, telemedicine services—which have enjoyed a well-publicized surge during the pandemic—have relatively simple, predictable reimbursement structures. While it’s easy to see the value of telemedicine for rural care providers in 2020, as more patients opt to stay home and communicate with their care providers monitor-to-monitor, Morkel says it’s unlikely to provide the needed financial windfall.
“Right now we’re seeing care providers trying to figure out how to enhance their existing product lines with telemedicine services, and that’s great,” he says. “But one issue with telemedicine is that the reimbursement rates are lower than regular reimbursement rates. Why would a hospital make that switch, if given the choice?”
A Change of Heart
While Morkel anticipates a tough road ahead as long as the virus is still prevalent, he does acknowledge one bright spot: the effect the COVID-19 pandemic has had on rural communities’ evaluation of its local care providers in recent weeks.
“One thing I will say is that we’ve seen a change of heart in many small towns,” he says. “What COVID-19 has proven is that the last thing anyone wants is their hospital to shut down during a crisis. All of a sudden, people are considering putting tax money toward their local hospitals. I think America is beginning to see how important rural communities—and their hospitals—are to this country.”