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On January 1, 2017, the KHI News Service became part of KCUR public radio’s new initiative, the Kansas News Service. The Kansas News Service will continue to cover health policy news and broaden its scope to include education and politics. All stories produced by the former KHI News Service are archived here. Stories and photos may be republished at no cost with proper attribution and a link back to KHI.org.

Rural hospitals search for ways to survive

Shrinking populations, Medicare reimbursement cuts present challenges for critical access hospitals

By Bryan Thompson | June 26, 2015

Rural hospitals search for ways to survive
Photo by Bryan Thompson Edwards County Hospital in Kinsley is participating in a Kansas Hospital Association initiative aimed at helping rural hospitals.

A lot of the hospitals in rural Kansas are called “critical access hospitals.” It’s an important designation that the federal government created to maintain access to health care in rural areas.

But many Kansas critical access hospitals are in financial trouble. Although Medicare requires them to offer 24-hour emergency services, most don’t have enough ER patients to justify that cost, said Melissa Hungerford, senior vice president for health care leadership at the Kansas Hospital Association.

“Keeping staff and supplies and equipment and buildings and all of the facilities that it takes to deliver that around-the-clock, quality inpatient care is an expensive system,” she said.

Hungerford is in charge of a new Kansas Hospital Association initiative aimed at helping rural hospital administrators devise what might be called strategic survival plans.

One idea is to allow small hospitals to give up some or all of their acute care services and become “primary health centers.” These centers would stabilize patients and transfer them to larger hospitals. Some might still offer emergency care 24 hours a day. But others might only operate their ERs for 12 hours.

Five hospitals have signed up to participate. Hungerford said they have agreed to keep two sets of books – one that documents their current procedures, outcomes and costs, and another that estimates how much could be saved by operating as a primary health center.

“We will be able to look at the patients that they have served, and say, ‘So, what would have happened differently from what happened in today’s environment?’ And then look at what the cost of that entity might be and see if there are any opportunities for savings,” she said.

A matter of survival

The Edwards County Hospital in Kinsley is participating in the experiment.

“I don’t think it’s going be a first choice for anyone,” said the hospital’s chief executive officer, Bob Krickbaum. “But the time is coming that I think it will be something that a lot of these small community hospitals have to consider.”

The southwest Kansas town has been losing population for 60 years. It peaked at nearly 2,500 people in the 1950s, but Kinsley’s population is now around 1,500. About as many live in the rest of Edwards County. Krickbaum said it’s not easy to keep a hospital open with numbers like those.

“If we can get through a year here, and we can make 1 or 2 percent on the bottom line to reinvest right back in this facility, we’ve had a really good year,” he said. “The really bad years, those numbers are red.”

Eighty percent of the hospital’s revenue comes from the federal Medicare program. But Krickbaum said reimbursement cuts are taking a toll.

Photo by Bryan Thompson Bob Krickbaum, chief executive officer of Edwards County Hospital, said Medicare reimbursement cuts are taking a toll on the hospital’s finances.

View larger photo

“We are continuing to see a decline in Medicare support,” he said. “I don’t want to be over-dramatic, but I would use the term, honestly, we’re under siege.”

Effects of sequestration

Medicare established critical access hospitals in 1997 to help preserve access to health care in rural areas by reimbursing the hospitals for their actual costs.

But sequestration — the across-the-board budget cut that Congress adopted in 2012 that is still controlling budgets — reduced those payments by 2 percent.

That may not sound like much. But Brock Slabach, senior vice president of the National Rural Health Association, said it’s the main reason why 35 percent of the rural hospitals in America are operating at a loss.

“When you have 80 percent of your volume controlled by one payer and you take a 2 percent cut on that, that’s a significant number, proportionally,” Slabach said.

“I don’t want to be over-dramatic, but I would use the term, honestly, we’re under siege.”

- Bob Krickbaum, chief executive officer of Edwards County Hospital

Many small-town hospitals balance their books with local tax subsidies. The Edwards County Hospital gets $385,000 a year from county taxpayers. But Krickbaum said the tax base is shrinking in many Kansas communities.

“There is no doubt that we will not be able to continue to support 84 critical access hospitals in Kansas,” Slabach said, “and right now, the choice is they stay critical access or they close. And that is going to leave a lot of rural communities without care.”

Changes in the way critical access hospitals operate would require corresponding changes in federal Medicare rules. If the results of the experiment are promising, Hungerford of the Kansas Hospital Association said the next step is to ask the federal government to fund a demonstration project as a final test.