Arielle Dreher | August 21, 2023
Already struggling rural hospitals see an increasing financial threat from the steady growth in Medicare Advantage enrollment.
Why it matters: Lacking the bargaining powers of their larger peers who depend on commercial payers to turn a profit, some rural hospitals are losing money on private coverage like Medicare Advantage. The Medicare alternative’s popularity with seniors is cutting into a typically better funding source for rural hospitals — traditional Medicare — as hundreds of rural hospitals face down financial calamity.
Context: Over half of Medicare enrollees are now enrolled in Medicare Advantage, up from a third less than a decade ago. That growth hasn’t just been confined to big metropolitan areas — in a third of rural counties, Medicare Advantage accounts for at least 45% of Medicare enrollment, according to the USC Schaeffer Center.
Driving the news: Almost 200 rural hospitals have closed since 2005, and more than 600 rural hospitals are at risk of closure because they lose money on patient services and have low cash reserves, according to a recent report from the Center for Healthcare Quality and Payment Reform. 300 of those facilities are at risk of immediate closure.
- Poor reimbursement from commercial plans and Medicare Advantage is largely to blame, rural hospital leaders say.
- However, it can be hard to determine how much less Medicare Advantage plans pay than traditional Medicare, experts say.
- “CMS cost reports don’t collect data on MA payments, and most hospitals’ own reports lump Medicare Advantage together with regular Medicare,” explained Harold Miller, CEO of the Center for Healthcare Quality and Payment Reform.
How it works: For most other hospitals, Medicare payment is based on a predetermined fixed amount that’s usually below what private insurance pays for the same service. But for certain rural hospitals, like critical access hospitals that are smaller and in typically underserved communities, Medicare pays more because their reimbursement is tied to actual cost of services.
- But Medicare Advantage is different. Hospitals must contract with each MA plan separately, as they do with commercial plans.
- That can be challenging for a rural hospital lacking the resources or staffing capacity to negotiate better contracts.
In a few states where it’s possible to parse out the difference between Medicare and Medicare Advantage payments, the impact can be seen.
- Small rural hospitals in California lost more money on services for MA patients than Medicare patients. MA accounted for the most profit loss for kind of insurance for small facilities, nearly double the losses experienced by those facilities for traditional Medicare patients.
- In Tennessee, where rural hospitals actually make money on commercial payers, they still lose money on Medicare Advantage patients, at about an 18% profit loss on average.
What they’re saying: Leaders at Arkansas-based Ozarks Community Hospital, which runs a 25-bed inpatient hospital and has clinics throughout the state and Missouri, earlier this year found the system was losing the most money on commercial payers.
- “The truth is the more we do for patients covered by commercial payers (including Medicare Advantage plans) the more money we lose,” Paul Taylor, CEO of Ozarks Community Hospital, wrote in an open letter in March.
- After financial losses, including on Medicare Advantage patients, Alliance Healthcare Hospital in Mississippi earlier this year shuttered everything but its emergency services. Alliance is one of the first rural hospitals to opt for the new federal rural emergency hospital designation, which provides a payment bump to keep emergency rooms open at struggling rural facilities that would otherwise close down.
- As of Q2, just six hospitals have converted to rural emergency hospitals, per CMS data.
- About 40% of critical access hospitals, which have 25 beds or fewer, are losing money on commercial plans, according to an analysis of payer data conducted by Peiyin Hung, an assistant professor of public health at the University of South Carolina.
The other side: The leading Medicare Advantage advocacy group, whose membership includes many program insurers, says it’s focused on keeping costs reasonable for seniors.
- “We are concerned with the increase of health care costs broadly, and particularly in communities with limited providers and less competition, such as rural areas,” Mary Beth Donahue, CEO of Better Medicare Alliance, told Axios in a statement. “We support efforts by the Medicare Advantage community to secure quality, affordable health care for seniors and people with disabilities.”
The big picture: Rural hospitals have been struggling for years, and the pandemic only exacerbated their financial difficulties.
- Rural facilities serve older, sicker and fewer patients than urban facilities, making their financial situation more fragile.
- It’s especially challenging for independent rural hospitals. About 40% of freestanding rural hospitals are losing money on commercial plans, compared to 25% of those affiliated with systems, Hung found.
- “They don’t have a lot of private patients to have bargaining power,” Hung said.
Editor’s note: This story has been updated to clarify that the Better Medicare Alliance is an advocacy group that includes Medicare Advantage plans as its members
Source: Axios
https://www.axios.com/2023/08/21/rural-hospitals-medicare-advantage-financial