Aid to Rural Hospitals Is Threatened Again, but It Still Has Reliable Allies

By David Harrison, CQ Staff Writer

Lawmakers, advocates and health care providers are gearing up for a fight to preserve special government assistance for rural hospitals that President Obama has targeted in his deficit reduction proposal.

The White House plan estimates saving $6 billion over 10 years by trimming Medicare funding to rural facilities known as critical access hospitals. They serve patients in sparsely populated areas in all but five states: Maryland, New Jersey, Connecticut, Delaware and Rhode Island.

For years, lawmakers from rural states have fought to defend the special assistance programs from budget cuts. But the deficit-cutting drive under way in Congress is now threatening the payments, particularly with a new joint committee charged with suggesting at least $1.2 trillion in deficit reduction proposals.

Look for Obama’s plan to encounter stiff resistance from lawmakers such as Senate Finance Chairman Max Baucus, a Montana Democrat who serves on the joint deficit reduction panel and was instrumental in creating the critical access hospital designation in the late 1990s. One of the Finance panel’s senior Republicans, Charles E. Grassley of Iowa, wants a broad overhaul of the Medicare payment system to rural health care facilities. “It doesn’t make sense to take away critical-access hospital designation . . . unless Congress also fixes the severe disparities that already are hurting other rural hospitals,” he said.

The American Hospital Association also is organizing advocates to press lawmakers Oct. 4 to protect health programs, particularly at rural hospitals. Thomas Nickels, senior vice president for federal relations at the association, said the deficit reduction talks led last summer by Vice President Joseph R. Biden Jr. had put rural hospitals in line for cuts. Last year’s presidential Bowles-Simpson commission did not.

Few expect Obama’s deficit-cutting plan to be adopted in its entirety, but lawmakers, hospital advocates and lobbyists are increasingly concerned that cutting rural hospital funding could find its way into the joint deficit committee’s proposal. “They’re really beginning to look at Medicare, Medicaid and health programs but I think that any cuts that were considered previously — Bowles-Simpson, the Biden group, the president’s proposal — any proposals that were in those documents will be under consideration by the supercommittee. So if you’re on those lists you have reason to be concerned,” Nickels said.

Medicare now reimburses critical access hospitals for 101 percent of the costs the facilities incur treating Medicare patients. Under the Obama proposal, they would be reimbursed for 100 percent of their costs, a rate that is still considerably higher than what other hospitals receive. Critical access hospitals tend to serve more Medicare patients than other facilities and a cut in their reimbursement rate would make it hard to continue to operate, advocates say.

Obama’s plan also calls for paring by about 100 the approximately 1,300 critical access hospitals defined as those located further than 35 miles by highway and 15 miles by secondary road from another hospital. Until 2006, states were empowered to waive that provision, resulting in a sharp climb in their numbers. Many facilities are closer to other hospitals and enjoy the designation because Congress gave some an exception when it created the designation in the 1997 Balanced Budget Act (PL 105-33) to ensure rural areas have access to hospital services. The hospitals have received about $8 billion from Medicare since 1997, roughly $2 billion more than they would have received without the designation, according to a September report by the Medicare Payment Advisory Commission.

Reducing the number of critical access hospitals and trimming their reimbursement rate would shave $4 billion from the deficit over a decade. The remaining $2.2 billion would come from lowering payments to health care providers in “frontier states” that meet a population definition in the health care overhaul (PL 111-148, PL 111-152). Grassley opposes that program, which serves Montana, North Dakota, South Dakota, Nevada and Wyoming.

Some Plans Would Cut Further

A leaked memo from House Ways and Means Committee Democrats estimated that eliminating all rural hospital assistance programs, a proposal far more sweeping than Obama’s focus on critical access hospitals, could save as much as $62.2 billion. This is just one sign that some lawmakers may be willing to back the president’s proposal. At a Sept. 21 hearing, Rep. Wally Herger, R-Calif., chairman of the Ways and Means Subcommittee on Health, pressed lawmakers to look for Medicare savings, and aides say they are considering Obama’s proposal.

But Rich Donkle, director of financial consulting services for the Rural Wisconsin Health Cooperative, said the president’s changes would be devastating for rural hospitals. “For the most part, a significant part of their business is with Medicare patients. If you make no margin on a significant portion of your business where do you make your margin? It’s a slow death,” he said. “There’s a reason why these are called critical access hospitals. They provide a really critical access to people who otherwise may not have access to care. It’s not entirely a dollars issue.”