America’s rural families and communities are entering the new year facing an enormous, and growing, number of challenges. Diminishing access to basic services, persistent poverty, aging infrastructure, workforce shortages, and demographic decline are among the complex web of intensifying challenges with which these individuals are grappling. But chief among them may be difficulties with accessing healthcare.
Rural hospitals provide benefits to their communities that are nearly impossible to overstate. Some can be quantified – the economic benefits that these facilities provide as major employers, for instance – while others are more intangible, but perhaps even more valuable; such as providing access to affordable, high quality healthcare where people live, rather than hours away in large population centers. However, these benefits evaporate if those rural hospitals cannot keep their doors open.
Unfortunately, a number of policies and legislative proposals are in the works that would do just that, offering an existential risk to rural hospitals and the communities they serve. Among the most insipid of these are misguided proposals calling for “site neutral payments” which would reimburse Hospital Outpatient Departments (HOPD) that treat Medicare patients at the exact same rate for outpatient treatment as they do non-hospital settings, such as physician offices or urgent care facilities.
The logic used to justify these lower reimbursement rates to hospitals goes that it costs less to provide certain services at non-hospital facilities, so that figure is what reimbursement rates should be based on. But the reality is that the structure fails to take into consideration the higher inherent operating costs of HOPD’s; and the fact that hospitals treating Medicare patients are often already reimbursed at rates far below the cost of the medical services they provide.
Since HOPDs are extensions of the hospital, they naturally carry larger overhead than non-hospital facilities: for instance, hospitals do not operate on set hours – they are required to be open, staffed, and have services made available 24 hours a day, 7 days a week. In addition, hospitals (and their outpatient departments) are held to higher regulatory and safety standards than non-hospital settings, and those greater regulatory burdens come with inherent costs. It is also important to note that in less densely populated parts of the country, the hospital is often the sole provider for many of the types of outpatient services being targeted by site-neutral requirements, and Medicare recipients in rural areas therefore disproportionately rely on HOPD’s for medical care.
Equating HOPD’s with other outpatient centers is an apples-to-oranges comparison for the purpose of Medicare payments. But of course, this is not simply an abstract theoretical discussion. The real-world impact of instituting site neutral payment policies will be to fatally exacerbate the financial strain already placed on rural hospitals, to the point where many will be forced to close their doors.
For example, one of the proposals out of Washington – the Lower Costs, More Transparency Act, which passed the House of Representatives a year ago – would have hit rural hospitals with $272 million in cuts over the next decade. The SITE Act, a similar version introduced in the Senate, would cost hospitals $34.3 billion over the same time period. Fortunately, neither one of these proposals gained enough traction to make it to the President’s desk, but a newly proposed framework to implement site neutral payments is currently being circulated on Capitol Hill and is something that must be monitored.
The reality is that most hospitals are already being reimbursed at less than cost for Medicare services they provide, and the government payments for those services are falling further behind every year. In 2016, the Medicaid and Medicare reimbursement shortfall to hospitals was roughly $68.8 billion. In 2022, the Medicare shortfall alone was around $100 billion. Economic realities don’t get much bleaker than this, and site neutral payments are clearly an unsustainable formula.
We are long overdue for a serious discussion on the escalating cost of health care in this country, which includes identifying the root cause – government-encouraged overutilization resulting from government-created artificial demand – and workable solutions. But those solutions cannot include pursuing policies that continue to shift the financial burden onto rural hospitals. Site-neutral payments amount to a price control on hospitals, and government price controls lead to only one thing – a reduction in supply. That is something that rural hospitals, and the communities and families they serve, cannot afford.
Matt Soper represents Mesa and Delta Counties in the Colorado House of Representatives and serves on the Board of Directors for Delta County Memorial Hospital, a rural healthcare facility in western Colorado.
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