flag_160540827This is the fifth article in our series on the effect of the “slow repeal” of the Affordable Care Act (ACA). This week’s article focuses on the potential impact of the slow repeal of the ACA on rural communities and healthcare.

Continued Fragile System Leads to Uncertainty or Closure Causing Economic Ripple Effect Throughout Rural America

There are nearly 5,000 short-term, acute care hospitals in the United States, half of which are in rural areas. About four in 10 rural hospitals are located in the South. More than half of rural hospitals are Critical Access Hospitals (CAHs) (53.5%); a smaller share of rural hospitals are designated as Sole Community Hospitals (SCHs) (13%), Medicare Dependent Hospitals (MDHs) (8%), and Rural Referral Centers (RRCs) (11%). All of these designations provide enhanced or supplemental reimbursement under Medicare, using different formulas. Rural hospitals that do not qualify for these Medicare programs are reimbursed as standard Medicare Prospective Payment System (PPS) hospitals.

Even before the ACA was enacted, rural hospitals were experiencing financial stress. The number of rural hospital closures increased significantly in recent years. According to the North Carolina Rural Health Research Program (NCRHRP), there were 72 rural hospital closures between January 2010 and April 2016, compared to 42 closures between 2005 and 2008. Since the 2008-2009 recession, the annual number of closures has increased each year. More than half of all rural hospital closures since 2010 were in the South, where few Southern states expanded Medicaid under the ACA.

Because rural hospitals are generally more reliant on public payers, changes to Medicare and Medicaid reimbursement can have a more significant effect on these hospitals. An analysis of the profitability of urban and rural hospitals by Medicare payment classification shows that rural PPS hospitals with 26 to 50 beds and MDHs had the lowest profitability.

While Medicaid expansion increases access to care in rural communities, it is only one of many factors that impact hospitals’ financial sustainability. A recent study found that while rural hospitals were showing declines in charity care as a result of the ACA, the net financial impact was less clear because of bad debt from high-deductible plans as well as “shortfalls” between payment and the costs of care in Medicare and Medicaid. The study also noted concern about upcoming cuts to Medicaid Disproportionate Share payments.

Government Initiatives – Past Legislation and the Art of Legislating

There have been past federal government attempts to design alternative healthcare delivery models to preserve access to health services in rural areas while eliminating the financial burden of maintaining an acute inpatient care facility. The REACH Act (Rural Emergency Acute Care Hospital Act), introduced by Sens. Charles Grassley (R-Iowa) and Cory Gardner (R-Colo.), would create a new Medicare payment designation called a Rural Emergency Hospital (REH), to sustain emergency care in rural communities. The Save Rural Hospitals Act introduced by Rep. Sam Graves (R-Mo.) would reverse sequester cuts made to CAHs and small rural hospitals and also seek to preserve or increase federal payments for low-volume and MDHs. Among other provisions, the Graves proposal delays penalties for small rural hospitals that failed to transfer to an electronic health record system and also increases Medicare payments for ground ambulance services in rural areas.

House Speaker Paul Ryan says he plans a House vote on legislation to repeal and replace the ACA by March 31, 2017. As House Republicans debate a range of competing House proposals, many are awaiting the Administration’s own proposal, especially now that Rep. Tom Price (R-Ga.) was confirmed as Secretary of Health & Human Services. While then-candidate Trump campaigned on a promise to repeal the ACA instantly, the fine art of enacting legislation reveals differences between those who would repeal the ACA outright and those who would “fix” it for now.

Rural hospitals and health systems are understandably concerned about how changes to the ACA, Medicaid, and Medicare will affect revenue, which in turn could affect the ability to serve their communities. In part, hospitals’ support for the ACA was based on the understanding that increased insurance coverage would mean a reduction in the financial burden of uncompensated care, which would offset payment reductions associated with the ACA. The Administration’s pledge to repeal and replace the ACA raises questions as to exactly how a replacement law will affect insurance coverage, payment levels, and health system revenue.

In This Period of Uncertainty, Rural Healthcare Providers Will Need to Monitor Activities in Washington, Develop Policy Scenarios and Assess Potential Effects of Each Scenario on Revenue, Cost and Operations

President Trump enjoyed unprecedented support among the very communities rural hospitals serve. The media has reported that rural, aging, and working-class counties who voted overwhelmingly for President Trump also showed large drops in the uninsured rate.

Armed with the implicit support of their patient communities, rural provider organizations should monitor how slow ACA repeal affects regulatory enforcement, rulemaking, budget proposals, and legislative proposals and begin to address key policy issues, including:

  • Methods for funding comprehensive health insurance coverage under the ACA, including the individual mandate, employer mandate, Medicaid expansion, premium subsidies, and taxes
  • Medicaid block grant program
  • Law governing insurance practices and plan design
  • Value-based payment initiatives
  • Reduction in Medicare payment rates or other actions to extend Medicare’s solvency

The U.S. healthcare system, the ACA, and our legislative processes are complex enough that even a relatively prompt repeal and replacement of the ACA would take time to go into effect. The new law needs to be drafted, voted on, amended, and reconciled. Regulations need to be written, reviewed, and implemented. The process is likely to be a moving target for months; and while some effects could be felt in the near term, others may take years.