A Plan to Help Rural Hospitals Save Money Finds No Takers

Hospitals in rural Georgia haven’t taken advantage of a policy change intended to let them save money. According to Ray Henry of the Associated Press, the change allowed unprofitable hospitals to limit services to emergency room care and some outpatient services. It would apply to hospitals serving counties with a population less than 35,000 people that were no more than 35 miles away from a full service hospital.

From the beginning, though, there was a question over whether the plan would actually save any money.

Analysts have cautioned that the demographics of rural Georgia make it difficult for a hospital to break even, much less turn a profit. Rural areas tend to have higher-than-normal levels of poverty, large pools of uninsured people and too few patients.

Industry data show that an emergency room needs 35 to 40 visits daily to break even, said Charles Horne, an accountant for Draffin & Tucker LLP, who modeled the performance of a freestanding emergency room in Georgia.

His models showed the facilities would suffer losses ranging from $400,000 to $1.2 million. Those figures did not include the cost of a hospital building and other equipment expenses.

Emergency rooms are expensive for hospitals to operate because they have to remain open 24 hours a day, and there has to be staff on hand in case of, well, medical emergencies. In addition, emergency rooms are required by federal law to treat anyone walking in the door, no matter whether they can pay or not. And for many who are covered by insurance, the reimbursement for services provided to them is less than the cost of providing those services, especially in rural areas.

Just over a year ago, we talked about how changes brought on by the Affordable Care Act could affect charity and rural hospitals. The standalone emergency room rule change was one possible idea to address the issue. Unfortunately, it doesn’t appear to have had the desired result.

Two weeks ago, legislators at the Biennial listened to a panel discussion about the merits of setting up standalone treatment centers in order to cut overall healthcare costs. It’s an issue related to the policy change made in order to prop up rural hospitals. From the Morris News coverage of the panel discussion:

Hospital executives say they depend on the law that requires a state certificate of need before any health facility can open. Removing it would jeopardize an estimated 19 rural hospitals that are on the verge of closing, such as Putnam General Hospital in Eatonton.

“You take all the requirements off of hospitals to be open 24/7 and never being able to turn away a patient like these treatment centers enjoy, then our costs will go down,” said Gregory Hearn, the CEO of Ty Cobb Health­care System in Royston.

How to lower overall healthcare costs while ensuring that all Georgians have access to the treatment they need is a challenging issue that could take up legislators’ time when the General Assembly meets in January. And that’s before the U.S. Supreme Court issues a decision on King v. Burwell, a case that could have a major effect on the viability of the Affordable Care Act.

It’s an issue that bears watching.

38 comments

      • Stefan says:

        Except we already know what happens to rural hospitals when we don’t take the expansion versus when they do. The experiences of North Carolina, Tennessee, and Kentucky tell that story plainly. Your point about disproportionate share funding changes is entirely valid, but the question then becomes, do I treat this walk-in for free, or do I take the Medicaid reimbursement rate. There are lots of ways to make the ER a profit center (for instance by having a 24 hour Acute Care clinic adjoining it in rural areas). but one of them isn’t to treat a poor, underinsured, rural population for free, which is what they are being asked to do now.

      • Stefan says:

        That’s a valid point, but ACA’s implicit bargain was that, in exchange for major reductions, not just to DSH payments, but also to basic Medicare fee-for-service reimbursement, hospitals would receive increased revenue when formerly uninsured patients obtained health coverage. This was expected to result primarily from two factors: expanded Medicaid eligibility and new subsidies that help low- and moderate-income households buy coverage through health insurance exchanges. So what we are asking hospitals to do is to give up their previous funding sources without giving them the new ones.

        An open ER will attract sick and injured people, many who are poor and have no other options. The choice is whether we offer them the Medicaid money or not. It seems that from the increased rural hospital closures in Georgia and other similarly situated states, hospitals are more likely to stay open if Medicaid is expanded.

        • Scarlet Hawk says:

          The other part of necessary volume is keeping rural hospitals open- period. To open a hospital in Georgia, the Certificate of Need, the service area (and consideration of served population) is part of the application process. https://dch.georgia.gov/con-filing-requirements and then also the post-CON evaluation. If it’s not meeting volume; the hospital can be closed. This is pretty simple. To offer this option of refusing service is not only not a solution but in fact works against the hospitals’ viability.

        • ER only should not be viewed as a viable business model for a private entity, but rather a public health model similar to EMS.

          Secondly, increased CMS in the payor mix is only viable when coupled with increased private insurance. The exchanges have not been an option for those in rural georgia who want private coverage on the macro level.

          Thirdly, rural healthcare would benefit more from a focus on therapies, family care, and less acute coverage. This whole idea of needing ERs all over the place is only there because of the law that they must take all patients.

          Lastly, if you wanted to boost rural economies with healthcare dollars, let’s see the VA have an extension program for the vets, so they don’t have to hospitals for basic service. Seems to me those service centers could take other insurance as they do now, give Vets options, relieve tension on the service delivery of the VHA, and give the gov a way to accept federal dollars not tied to medic***.

          • Stefan says:

            I agree with all this. The question is whether or not Medicaid expansion can help keep rural hospitals open. I’d suggest it would be easier for rural health care systems to offer the programs you suggest if Medicaid were expanded to 100%+ poverty.

            • Im not sure how expanding Medicaid would keep a rural hospital solvent.

              Are you looking to keep these institutions solvent or are out out looking to provide some sort of “coverage” to poor folks whose needs away not include an ER?

              • Sorry. Freaking iPad.

                Reposting with better editing and completed thought:
                Im not sure how expanding Medicaid would keep a rural hospital solvent.

                Are you looking to keep these institutions solvent or are you looking to provide some sort of “coverage” to poor folks whose needs away not include an ER?

                Also, these institutions may need to fail, because the communities have eroded around them. Pardon my ignorance, but does that play a factor into the pro Medicaid expansion thinking?? I’m trying to avoid confirmation bias on this last point.

                • Stefan says:

                  Toward your last point, certainly if there isn’t sufficient demand for its services a business will close. The issue here isn’t demand, its the ability to pay for the quantity demanded. Really, it isn’t even that, because we’ve decided as a country that we want people to receive emergency medical treatment (and keep in mind, every serious condition is eventually an ER condition) regardless of their ability to pay. The vast majority of people could not pay their own ER bills for a serious injury or illness. It’s just that most of them have insurance. This is just a question about whether or not we are going to insure many of those who are going to seek out care at a rural hospital. If we insure them, it may erode the rural hospital network anyway because more primary care providers may spring up to care for the these newly insured potential customers. I don’t think that will happen, but I bring it up to say that extending medicaid is not simply to buttress rural hospitals against closing.

                  Does that answer your third point?

      • Medicaid spends, on average, $4,174 per adult enrollee in Georgia as of 2011. I will assume instead of Medicaid expansion you support some variant of the Price plan as an alternative. The Price plan gives adults under 200% of the FPL who aren’t eligible for Medicaid a $2,000 tax credit to purchase commercial insurance. Talking about just the Medicaid eligible people – under 138% of the FPL, in order to buy a plan that spends the same amount (let’s assume both Medicaid/private insurance plan have the same actuarial value) this hypothetical person making up to $16,100/year will have to spend an additional $2,174 of their income (at least 13.5% and higher if they make less) just to purchase (in combination with the tax credit) a plan that spends as much per capita as Medicaid currently does.

        Since I don’t think it’s very likely that people in these financial situations under the Price plan would be purchasing insurance with anywhere near the actuarial value of Medicaid, I don’t see in what world you think doctors/hospitals will make more treating these people than under some sort of Medicaid expansion.

          • Perhaps if you were talking about some hypothetical imaginary hospital that served only Medicaid or Medicare patients this would be the case. I think if you join me in the real world you will find that Medicaid is desired by actual hospitals as a way to get some money (even if they are “losing” money) for a percentage of their customers that currently pay 0.

              • The condescension is necessary to argue with people like Charlie who live in a fantasy world where poor people are going to ever have commercial insurance that pays doctors what they would like to get paid. I’m not opposed to Medicaid expansion alternatives, but if your reason for opposing Medicaid expansion is that Medicaid doesn’t pay enough, you really need to convince me that some alternate proposal exists that pays more. What’s even more maddening is the decade+ long existence of Peach Care and the fact that there are no shortage of doctors/dentists who take PeachCare/dental seems to not even dissuade people at all that the market is very good at taking a big block of government money, even if it pays less than the normal rate. See also: “Obama” phones. Somehow AT&T tells me they can’t service a single line for any less than $65 but manages to do it for poor people for $9. I’m not complaining, just pointing out that the economics of Medicaid expansion don’t exist in some sort of fantasy world, but that the people who deny them do.

                • seenbetrdayz says:

                  Actually, AT&T probably couldn’t service a line for just $9/mo. Just because you don’t always see what props up your beloved social programs, it doesn’t mean they’re existing on their own as you might like to believe.

                  Here’s a little background on your “$9” phone service. It’s funny how liberals always run around accusing the right of being for Big Business, when the very programs the left creates to help the poor, are making a few people very rich.
                  http://money.cnn.com/2012/10/26/technology/mobile/tracfone-free-phones/

              • I agree that in a place like Telfair County where providers would see a very large share of Medicaid patients, this could be a problem. But when you look at how expensive commercial insurance is in places like this (largely because as the only payers someone has to make up the bottom line for providers/facilities that treat so many charity cases), it’s hard to argue that expansion wouldn’t at least be a first step to stabilizing things. But also, expansion should cost less in places like Fulton County where there is more of a market to absorb it, so I’m not sure that it isn’t possible to factor this into expansion and how much it pays and paying extra to some places like this.

                Add a wellness component to Medicaid expansion (preventative doctor visit per year) and most of the healthy people who will be in the expansion pool will probably be profitable to GP’s with well visits. Remember that a lot of existing Medicaid reimbursement rate complaining you hear about now is filtered through the lens of only the sickest/poorest/most expensive patients are on Medicaid now.

                But hey – we can choose to believe what we want to believe about hospitals not being able to make it on Medicaid expansion OR we can look at what the actual hospitals in places like Tennessee are saying that are so desperate for it that they’ve actually agreed to pay the excess costs if it costs the state too much. Usually conservatives listen to their counterparts in the private sector when they tell them whether or not their businesses can be profitable under a certain scenario or not. Oddly, not in this case.

                • S. hawk – the condescension is fine – it just makes him lose credibility when trying to explain to me my thinking.

                  The only fantasy at play here is the idea that healthcare is in any way a free market system.

  1. saltycracker says:

    All the free clinics, county clinics, walk in clinics, drug store clinics, mobile clinics, emergency rooms, Medicaid and legislations to protect turf are not bringing down the costs or improving the quality of health care. What the government has done is drive mega corporations, fraud, abuse, costs for the compliant and poorly administered public funds to biblical proportions.
    Something is systemically wrong.

    As for rural counties what’s with these:
    http://www.freemedicalsearch.org/sta/georgia

  2. I was re-reading some of Jon’s words and the article, and a few things occurred to me:

    The argument that if we didn’t have to staff it, it wouldn’t be so expensive is only valid if you don’t have the volumes needed during those hours. Right now, that cost is spread out over the entire month. They already staff down, have on call, and must maintain all other ancilaries, because patients are still in the hospital over night. Have a blood clot in the middle of the night? Man an ultrasound would be nice. Guess who does that? Radiology. Who uses radiology? EVERYONE.

    I could see where EMS is given more leeway to make the call if you need to go to the ED or not. That would cut down on non emergent care, but turn EMS into amazing housecalls.

    Also, if you want to help rural hospitals save money, it would be helpful to standardize care, practices, and infrstructure. Why are IT environments, staffing costs, marketing, legal risk, and physician staffing so wildly different? Make it a commodity. It already is if they proport to use “evidence based” medicine.

    Hospitals should stop trying to differentiate a commodity in general. This CON nonsense jsut feeds that fervor.

    • Scarlet Hawk says:

      Totally agree in standardization of care imperative. In general I’ve never understood why there isn’t more standardization of things across the state. Medical practices, taxation, business licensing….

      For the business end of things, differentiation is key. You don’t stand out in a crowd if you are all the same. Thus, Northside becomes the baby factory to attract Atlanta area moms. For the provision of care this is dicey at best- but then again that brings us back to the moral question of are hospitals here to be successful in provision of care or in business? The two aren’t entirely mutually exclusive, but the answer to that question does set priorities that may come into conflict from time to time.

      • What value does differentiating bring when your CON is supposedly based on service area, not so much marketing strat?

        Furthermore, it does not bring a cost pressure to this managed market.

        Bottom line, hospitals are not the institutions you think they are.

    • MattMD says:

      I think EMS companies would be very hesitant on making the call on whether someone goes to an ED or not even if they could legally do so. I know their insurance carriers would be very wary. There is only so much you can rule out in the field, so I don’t see this ever happening.

      • Harry says:

        What if the EMS techs were equipped with realtime apps to allow doctors to analyze the imagery and vital signs sent from the scene?

        • MattMD says:

          Well, vital signs have been sent from the scene ever since the days of radio. You cannot do a complete diagnostic panel in an ambulance. You need techs, lab, radiology (sometimes), nurses and a doctor. Now if you want to debate whether lab costs and radiology are too high, then fine, hell, I’d probably stipulate on that point.

          However, there is a difference between rhythm strips and an observation with a 12-lead EKG with lab work.

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