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Rural hospitals at a crossroads as margins weaken

Experts see a major change in the model to keep these providers afloat.

There's a crisis in rural health, and while the future for these smaller, remote hospitals may seem bleak, experts see a major change in the model to keep these providers afloat.

Since 2010, across 23 states, 55 rural hospitals--short-term, general-acute, non-federal hospitals outside a metropolitan country--have closed, according to the Sheps Center at the University of North Carolina, Chapel Hill.

The Center's North Carolina Rural Health Research Program traces the closures to the 2008 recession, aided by demographic and market changes, decreased demand and new models of care, including accountable care organizations. "Long-standing trends--such as generally poorer financial performance in the South--may contribute to closure rates" as well as the impact of Affordable Care Act on state Medicaid expansion, it adds.

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"ACA encouraged a 'larger is better' mentality. You see that with hospital systems and health plans. It encouraged greater coordination of care through ACOs and managing risk by taking on greater risk for a population," said Richard Grundling, vice president, healthcare financial practices at the Healthcare Financial Management Association.

[Also: How rural Atlantic General Hospital became a leader in revenue cycle]

"Rural health has lots of challenges, which became particularly true after ACA was passed," said Grundling. "They lack the economies of scale, have limited access to capital. Because of the infrequency of certain surgical procedures, they have difficulty matching quality standards with larger hospitals and limited ability to track and maintain physicians and clinical support staff."

Brock Slabach, senior vice president for member services at the National Rural Health Association in Leawood, Kansas, said staff shortages also plague rural hospitals.

"You have a shortage of primary care physicians, which could provide an impulse to use the emergency room or drive somewhere to get care," said Slabach. "Conditions 30 years ago that put someone in the hospital for five days now are treated as outpatient. Technology and medicine have combined to reduce the need for hospital services," he said.

Rural hospitals will adapt by "growing outpatient and emergency care and shrinking inpatient care," Grundling said. "Develop large emergency rooms with a few beds for observation to hold a patient for transport as part of ACOs."

Grundling also expects federally funded critical access hospitals to play a role in emergency care to rural communities.

Slabach, however, said recent rule changes limit those conversions. "As of 2006, unless you're more than 35 miles from the nearest hospital, you can't come to a CAH. We're going to have to rethink what a hospital means and find a provider type sensitive to the needs of rural communities and adapt it effectively."

[Also: Rural hospital advocates march on Washington as closures loom]

Grundling said rural hospitals have lots of opportunities to take advantage of the dominant position they have in their markets.

"You are the only provider. Strengthen your community connections. Enhance patient experience because most people prefer to have their care closer to home," he said.

Still, there are major challenges. The 2 percent sequestration cuts from the Congressional Budget Control Act of 2012 and 2013 hurt the finances of rural facilities, said Slabach.

"When 80 percent of revenue comes from Medicare, 2 percent represents a large portion of what a facility needs to run its operation," he said, adding that cuts to Medicare's bad debt allowance from 100 percent to 65 percent contributed to closure-related revenue losses.

[Also: As rural hospitals close, focus turns to ambulances]

"We're still very much in a volume business," he said. "Make sure your revenue cycle management is up to snuff, payer contracts are in good shape. Take full advantage of group purchasing organizations. Monitor inventory and utilization so volumes are appropriate. Concentrate on performance and innovation. Maximize efficiency, eradicating waste using lean procedures."

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