Struggling to survive, the first rural hospitals line up for new federal lifeline

Just off the historic U.S. Route 66 in eastern New Mexico, a 10-bed hospital has for decades provided emergency care for a steady flow of people injured in car crashes and ranching accidents.

It also has served as a close-to-home option for the occasional overnight patient, usually older residents with pneumonia or heart trouble. It's the only hospital for the more than 4,500 people living on a swath of 3,000 square miles of high plains and lakes east of Albuquerque.

"We want to be the facility that saves lives," said Christina Campos, administrator of Guadalupe County Hospital in Santa Rosa. Its leaders have no desire to grow or be a big, profitable business, she said.

But even with a tax levy to help support the medical outpost, the facility lost more than $1 million in the past six months, Campos said: "For years, we've been anticipating kind of our own demise, praying that a program would come along and make us sustainable."

Guadalupe is one of the nation's first to start the process of converting into a Rural Emergency Hospital. The designation was created as part of the first new federal payment program launched by the Centers for Medicare & Medicaid Services for rural providers in 25 years. And though it is not expected to be a permanent solution to pressures facing rural America, policymakers and hospital operators alike hope it will slow the financial hemorrhage that continues to shutter those communities' hospitals.

More than 140 rural hospitals have closed nationwide since 2010, and health policy watchers aren't sure how many of the more than 1,700 rural facilities eligible for the new designation will apply. CMS officials said late last month that seven have already filed applications. Dr. Lee Fleisher, director of the Center for Clinical Standards and Quality at CMS, said how long it will take to review the applications will vary. The agency declined to provide the names or locations of hospitals seeking the designation.

Facilities that convert will get a 5% increase in Medicare payments as well as an average annual facility fee payment of about $3.2 million in exchange for giving up their expensive inpatient beds and focusing solely on emergency and outpatient care. Rural hospitals with no more than 50 beds that closed after the law passed on Dec. 27, 2020, are eligible to apply for the new payment model if they reopen.

The new program "strikes me as the first time we are saying, you know, maybe we can just take the beds away," said Dr. Paula Chatterjee, an assistant professor at the University of Pennsylvania's Perelman School of Medicine. Outpatient and emergency visits already make up about 66% of Medicare payments for rural hospitals that are eligible to convert, according to Chatterjee's recent research.

Still, she found that many would likely need to scale up some outpatient services, such as telehealth and substance use care. Even then the payment model might not be able to shift the "foundational pressures" of declining, aging, and sicker populations that are making it hard to deliver care in rural America, she said.

"This feels like rearranging deck chairs on the Titanic," Chatterjee said.

More than 50 hospitals and other organizations have expressed interest in the rural emergency designation, said Janice Walters, chief operating officer of programs for the Rural Health Redesign Center, which has a federal grant to provide technical assistance to facilities interested in converting.

Most hospitals "are still trying to figure out, 'Is the math going to work?'" Walters said.

Those showing immediate interest are very small, with three or fewer patients staying overnight any given day, and, generally, they long ago gave up maternity care to save on expenses. The federal law will need to be amended to help larger rural hospitals with more overnight stays, said Brock Slabach, chief operations officer for the National Rural Health Association.

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"It's enough for now," Slabach said. "But is it going to be enough for the long term? I don't think so." Top priorities for the group include adding the ability for hospitals to participate in a federal drug discount program and allowing for longer patient stays.

At Stillwater Medical in Oklahoma, Chief Administrative Officer Steven Taylor said the switch already makes sense for two of the system's smaller hospitals that "have struggled financially." The small regional health system's outpost in Perry, which rarely has more than two inpatients a day, has already filed an application, and its facility in Blackwell will likely do so soon, he said.

Keeping emergency services "is the most important thing" for the small communities, he said. The new model requires a 24-hour emergency department and a clinician on call. It also caps the average length of patient stays at 24 hours — which Taylor said is not a problem. One patient may need to be watched for 12 hours for chest pain while another, with pneumonia, may need to stay for 36 hours, but that will average out to less than 24 hours for the year, he said.

Plus, he said, anybody who needs more intense care can be transferred to their regional hospital in Stillwater. Oklahoma, like other states, is working to update state laws for licensing or regulations to ensure hospitals can be credentialed with the rural emergency designation quickly.

John Henderson, president and chief executive of the Texas Organization of Rural & Community Hospitals, agreed with other speakers at the National Rural Health Association's February policy conference in Washington, D.C. The new rule "could be a relief valve" for very small rural hospitals, he said. A two-bed facility in Crosbyton confirmed for Henderson earlier that day that it was the first in Texas to be approved for the new payment mechanism.

Henderson said he knew of several more of the state's 158 rural hospitals that are applying or have already applied, and others are considering it: "These are the folks that are just hanging on."

Dr. Denise Brown, CEO of virtual care provider Fident, spoke up from the front row during Henderson’s presentation. Her company uses telehealth so doctors and other clinicians can work virtually with multiple hospitals in different states. Brown said she was concerned that hospitals that convert won't have enough ambulances available to transport or a place to send sicker patients, especially if they aren't part of a larger health system.

Heads began to nod throughout the crowded room. Many rural hospitals needed every bed they had during the worst of the covid-19 pandemic, and to give up those beds now seems counterintuitive.

Those same rural hospitals often find that larger facilities refuse to take their patients who need specialized care, Brown said.

"How do I know that I can guarantee somebody a bed?" Brown said, adding that she prefers rural hospitals keep patients longer. How would she explain to concerned family members that their loved one was "two or three hours from home"?