The National Advisory Committee
on Rural Health and Human Services
U.S. Department of Health and Human Services
The 2008 Report to the Secretary: Rural Health and Human Service Issues
April 2008
Key Changes
There have been a number of key legislative and regulatory changes affecting
health and human services delivery in rural
Health Care
Rural Hospitals
Major policy changes in rural health care over the
past 20 years have focused heavily on hospitals.
Medicare coverage of the elderly and its steady stream of cost-based
payments to hospitals has been a major force in mitigating elderly poverty
in rural
Prior to the IPPS, inpatient hospital payments had been made on a cost-based system, which reimbursed hospitals for the allowable full cost of services provided. The new payment system, known as the Prospective Payment System (PPS), a method of reimbursement in which Medicare payment is made based on a predetermined, fixed amount, was developed and implemented rapidly at a national level without much study of the potential rural impact. As small, low-volume rural hospitals cannot achieve the same economies of scale as high-volume urban hospitals, the fixed reimbursements determined by national averages were often not sufficient to cover rural hospitals’ operating costs. The move to PPS added a host of financial problems for these hospitals in the mid-1980s resulting in the closure of 304 rural hospitals between 1983 and 1991.2 This crisis surprised policy makers who saw the need to pay closer attention to the impact of Federal programs on rural areas. Congress responded, in 1987, by establishing the Office of Rural Health Policy (ORHP) and the NACRHHS to act as internal and external voices for rural health, respectively.
Many Medicare policies since 1983 can be characterized as ‘fixes’ to problems originating in prospective payment. The 1983 legislation helped plant the seeds for a strong rural voice in Federal policy by creating a highly visible problem affecting a large segment of rural health care delivery systems.
In 1983, Congress created the Sole Community Hospital (SCH) designation. The intent of the SCH designation was to maintain access to care by providing financial assistance to hospitals that are geographically isolated. These facilities are rural hospitals with fewer than 50 acute care beds and are located at least 35 miles from the nearest hospital. As of 2007, there were 407 SCHs.3
The Medicare-Dependent Hospital (MDH) designation was created by Congress in 1987 to support small rural hospitals for which Medicare payments make up at least 60 percent of payment for inpatient services. The MDH designation was designed to reduce the financial risk for rural hospitals with a greater dependence on Medicare due to prospective payment.
In 1983, Congress created the Rural Referral Centers (RRC) program for rural tertiary hospitals that receive referrals from surrounding small primary care hospitals. The RRC designation was intended to support the costs these facilities may have due to a higher intensity of services provided than other rural providers. The RRC status makes it easier for these facilities to reclassify their wage index to an urban rate. The wage index is an adjustment in the Medicare payment formula designed to take into account the relative wages a particular hospital has to pay its workforce. In 1989, Congress also changed the Medicare regulations to allow other rural hospitals to apply for a higher wage adjustment to their wages. This provision allowed qualifying rural hospitals to increase their Medicare reimbursement by qualifying for a higher wage index.
In addition to allowing for different types of hospitals and associated payment systems, in 1980, Medicare policy authorized payment for swing beds in rural hospitals with fewer than 100 acute care beds in order to enhance access to long-term care in rural communities. The swing bed provision allows rural hospitals to provide long-term care services to Medicare and Medicaid patients without establishing a separate unit. As of 2005, there were 1,152 rural hospitals using swing beds.
During the late 1980s and early 1990s, Medicare began
examining different models of acute care delivery for small rural communities.
This began with the Medical Assistance Facility (MAF) demonstration
in
The findings from both of those demonstrations helped pave the way for a new class of rural hospitals. The Balanced Budget Act (BBA) of 1997 created a new type of Medicare provider called the Critical Access Hospital (CAH) and also created the Rural Hospital Flexibility (Flex) program to provide additional support to these facilities by making grants available to State Offices of Rural Health and State Hospital Associations. CAHs were originally restricted to 15 acute care inpatient beds plus 10 swing beds and had to be located at least 35 miles from the nearest hospital of any type unless a State plan used other criteria to declare them a necessary. The criteria were modified by the Balanced Budget Refinement Act of 1999; the Medicare, Medicaid, and State Children’s Health Insurance Program (SCHIP) Benefits Improvement and Protection Act of 2000; and the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA). Now CAHs can staff up to 25 beds of any type and States can no longer designate hospitals as CAHs that do not meet the original Federal legislative restrictions regarding distance from other hospitals. CAHs were originally reimbursed for both inpatient and outpatient services based on allowable costs, which has since been changed to be 101 percent of costs. As of December 2007, there were 1,292 CAHs (Figure 7, p. 33).4
Ambulatory and Post-Acute Care
The 1997 BBA made a number of other key changes to the Medicare program by extending the methodology of PPS to other payment policies, such as hospital outpatient services, home health, and skilled nursing care. These changes were the final move from payment systems based on cost to prospective payment. This transition created some initial challenges for rural communities as they adjusted to the new payment systems, but the process was relatively smooth compared to IPPS implementation in the 1980s.
Outpatient Care
Rural hospitals have long been dependent on outpatient reimbursement.5 When Medicare began developing regulations for a new Outpatient Prospective Payment system (OPPS) to be implemented by 1999 there was initial concern about its impact on rural hospitals, including concerns over low volume and case mix.6 Although the initial regulations did not include any special protections for rural hospitals, Congress mandated that CMS implement a “hold harmless” protection for rural hospitals with 100 beds or fewer. Under this provision, rural hospitals were guaranteed to get the higher of either OPPS payment or an approximation of what they would have received based on a 1996 base year. This protection was extended in the MMA in 2003 and again in the Deficit Reduction Act of 2005, although the latter legislation called for a gradual phase-out of the payments by the end of 2008. After the first few years of the OPPS, CMS analyzed payment data to assess whether the methodology had a negative impact on rural hospitals. As a result of that analysis, CMS created a payment adjustment for SCHs that provided a 7.1 percent increase for all OPPS services and procedures in 2006. Thus far, the hold harmless provision has played a key role in mitigating any dramatic negative impacts of the OPPS. When the hold harmless protection ceases in 2009, the resulting change in revenue may pose a challenge for rural hospitals.
Figure 7: Location
of Critical Access Hospitals, 2006
[D]
Home Health
After several years of decline, the number of Medicare-certified home health agencies (HHAs) has once again begun to increase. Between 2002 and 2006, the number of home health agencies grew at a rate of 6.1 percent. Currently, home health care services are offered by 8,880 agencies located throughout the U.S.7 Data from 2003 indicate that approximately one third of these agencies are located in rural communities.8 The initial implementation of the home health PPS, done through an interim payment system, precipitated some initial loss of agencies. However, subsequent analyses by the Medicare Payment Advisory Commission (MedPAC) and the Government Accountability Office (GAO) have not identified any broad access problems in rural areas, although there are anecdotal reports of some access concerns in rural areas. From 2004 through 2006, HHAs received a 5 percent add-on for serving patients located in rural areas, a reduction from earlier years when agencies received a 10 percent add-on for treating rural beneficiaries. The HHA add-on payment expired January 1, 2007.9
Skilled Nursing Facilities
Payment for skilled nursing care in freestanding Skilled Nursing Facilities (SNFs) and hospital-based SNF units transitioned from cost-based reimbursement to a per-diem-based prospective payment system (SNF PPS) with a three year phase-in, beginning in 1998. In 2002, Medicare payment for skilled nursing care provided in PPS hospital swing beds also came under SNF PPS. Although there has been a decrease in the number of hospital-based SNF units since the implementation of SNF PPS, the 34 percent decline in urban areas between 1997 and 2004 was greater than the 20 percent decrease in rural.10 The number of freestanding SNFs actually increased during the same time period, with a greater percentage increase in rural areas. Between 1997 and 2004, the number of freestanding SNFs increased by 11 percent in non-metropolitan counties and by 4 percent in metropolitan counties, including growth in the use of swing beds to deliver skilled nursing care.
Federally Supported Primary Care Facilities
As noted earlier, there has been substantial growth in the number of Federally Qualified Health Centers (FQHCs) and Rural Health Clinics (RHCs) providing services in rural areas. The growth in FQHCs can be attributed to the President’s Health Centers Initiative, which began in 2002 and ended in 2006. In 2007, HRSA funded a specific expansion for health centers in high-poverty counties, many of which are in rural areas. FQHCs continue to be attractive models for communities because the associated Federal funds help defray the cost of providing care to the rising number of uninsured. In addition, FQHCs are eligible for the 340B drug discount program which gives them access to reduced prices on outpatient prescription drugs, and health centers funded under Section 330 of the Public Health Service Act have the ability to obtain malpractice insurance for their providers under the Federal Tort Claims Act (FTCA).
The RHC designation has been available since 1977, but by 1987 only slightly more than 400 clinics had been certified as RHCs. From 1990 through 1995, however, the number of RHCs grew by 650 percent to 2,350 clinics. This significant growth was fueled by program and reimbursement enhancements, efforts by Federal officials to promote the designation, streamlining of State scope of practice regulations for midlevel health professionals, and a changing reimbursement environment that increased interest in RHC certification.11
Following this period of growth in the number of facilities designated as RHCs and resulting increases in Medicare and Medicaid payments to RHCs, State and Federal policy makers commissioned a number of studies to evaluate the extent to which the RHC program was meeting its original goals.12 In response to these studies and to budgetary concerns, the BBA of 1997 created reimbursement and regulatory changes to curb the growth in RHC spending while also tightening program eligibility criteria to ensure that RHCs continued to serve rural areas facing shortages of primary care providers. The BBA changes, however, were never implemented and are still pending the regulatory process. RHCs continue to be an important source of primary care in rural communities with 3,673 clinics providing services in 46 States as of 2006.13
State Children’s Health Insurance Program
The BBA of 1997 created the State Children’s Health Insurance Program (SCHIP), a national program designed for families with incomes too high to qualify for Medicaid, yet who cannot afford to buy private insurance. SCHIP represented a significant expansion of eligibility for publicly funded health insurance for children. The program has been particularly important for rural communities given their higher rates of child poverty. SCHIP and Medicaid continue to be important programs that help to provide basic health insurance coverage to low-income rural children; 32 percent of rural children are enrolled in these programs, compared to 26 percent of urban children.14
The MMA: Medicare Advantage (Part C) and Prescription Drug Benefit (Part D)
The MMA has been the largest expansion in Medicare benefits since the program’s inception, in part due to the addition of a prescription drug benefit. This program has had particularly positive effects on rural elderly. Studies prior to the creation of the Medicare Part D prescription drug benefit found that 46 percent of the rural elderly did not have private prescription drug coverage, compared to 31 percent of urban seniors. In addition, rural Medicare beneficiaries were paying more than $500 in out-of-pocket prescription drug costs compared to $125 in urban areas.15 A 2006 study found that more than half (53.2 percent) of all rural Medicare beneficiaries were enrolled in a Medicare Part D prescription drug plan, compared to 51.2 percent of urban beneficiaries.16
While the Part D benefit has had a positive impact on costs for rural beneficiaries, it has also precipitated some challenges for rural pharmacists. As a result of Part D, rural pharmacists have struggled with decreased cash flow and other administrative burdens associated with contracting with Part D plans. In addition, some rural pharmacists have noted that they have had to hire extra staff to help counsel Medicare beneficiaries about how to choose a plan or to collect payment from the Part D plans.17 The emerging challenges to rural pharmacists are discussed in more depth on p. 47.
The MMA also made significant changes to the managed care benefits offered to Medicare beneficiaries. The Medicare program took several small steps toward offering managed care options through the 1990s, including offering cost-based managed care plans and creating the Medicare+Choice program. The creation of Medicare Advantage (MA) from Medicare+Choice in the MMA increased the number of plan options that were offered through third-party insurance companies. The goal of the new MA options was to create more choices for beneficiaries. Enrollment in the plans has been higher for rural beneficiaries than enrollment in the Medicare+Choice program. More than 845,000 rural Medicare beneficiaries were enrolled in an MA plan as of September 2007, which is an increase of 50 percent since November 2006.18 Still, even with that increase, MA plans remain more popular in urban areas where 21.7 percent of seniors are enrolled, compared to 8.6 percent of rural seniors.19 The impact of the MA program on rural provider reimbursement is still emerging though some rural experts have expressed concern about how the plans will affect a fragile rural health care delivery system.
Health Care Quality Improvement
In recent years, a national focus on the quality of care provided in health care facilities has been spurred by landmark reports published by the Institute of Medicine (IOM) – To Err is Human (1999) and Crossing the Quality Chasm (2001). These reports, and subsequent efforts by the IOM, have spurred national interest in quality improvement strategies.20 In response, national and State organizations, Federal agencies, business coalitions, and health care providers have begun implementing multiple initiatives to improve health care quality and reduce medical errors. The emphasis on quality improvement is positive for all health care providers and patients including those in rural areas.
Over time, the quality discussion has led to the establishment of public reporting of quality data in order to provide information to consumers and allow health care providers to implement quality improvement activities. Currently, rural PPS hospitals and over half of the CAHs are participating in public reporting of quality measure data on the CMS Hospital Compare web site. However, as the NACRHHS noted in its 2003 report, the majority of the quality discussion up until that time had failed to acknowledge the contextual differences between rural and urban health care environments.21 The report contained a vision for the future in which rural settings could function as a location to test quality-focused innovations.
Rural health leaders were also interested in this emerging national movement and pushed for the IOM to include rural health care in its ongoing work on quality. The IOM, with funding from HRSA’s ORHP, the Agency for Healthcare Research and Quality (AHRQ), the Substance Abuse and Mental Health Services Administration (SAMHSA) and the Kellogg Foundation, produced a third report as part of the quality series, Quality Through Collaboration: The Future of Rural Health, in 2005. This report provided a detailed analysis of health quality issues as seen through the rural lens and provided an impetus to rural health care providers to focus on quality improvement.
Efforts to incorporate the unique aspects of rural health care provision into national quality improvement initiatives are ongoing. These are discussed further in the next chapter, p. 45.
Health Information Technology
The use of health information technology (HIT) has gained momentum in the past few years. Proponents believe that this technology can decrease administrative costs and improve the quality of care by ensuring that providers have access to up-to-date patient information and decision support technology that aids clinical decision-making while also helping to avoid medical errors.22 Electronic health records (EHRs) can make complete medical information about patients available to clinicians at the point of care and help improve coordination of care, especially for patients with multiple chronic conditions. Clinical decision support systems can help improve treatment decisions by providing clinicians with the most current information about medical conditions and treatment options, and computerized pharmacy systems can help prevent medication errors. Telepharmacy and telehealth applications can improve access to specialty care for patients living in isolated rural areas.
Use rates for many types of HIT tend to be lower in
rural areas than in urban areas. Some
studies on the cost-effectiveness of HIT found that it is difficult
to generalize findings from the many studies of HIT implementation in
large academic and institutional environments to small physician practices
and small hospitals.23Over
95 percent of CAHs use HIT for administrative applications such as claims
submission and billing, but fewer than one third use HIT for most clinical
applications except teleradiology.24 In its 2006 Report to the Secretary, the NACRHHS
concluded that rural communities face many challenges in adopting HIT,
including limited access to capital and infrastructure, lack of workforce
expertise, and difficulty in obtaining community buy-in. However, rural communities also have strengths
that may facilitate HIT adoption, including the smaller size and less
complex nature of rural health care systems.25
Human Services
Over the past 20 years, rural human services programs have changed in
significant ways. In some cases,
this change has happened incrementally with much iteration, and in others,
with major paradigmatic shifts.This
section focuses on three major changes: welfare reform, changes to the Older Americans Act (OAA), and
the creation of Early Head Start.
Welfare Reform
From 1935 to 1996, the primary vehicle to support low-income
families was the Aid to Families with Dependent Children (AFDC) program. This program was administered by HHS’ Office
of Family Assistance (OFA) and functioned as the primary Federal social
welfare program in the
In 1996, the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) transformed AFDC to Temporary Assistance for Needy Families (TANF). TANF sought to “end the dependence of needy parents on government benefits.”26 Instead of welfare providing assistance to help low-income individuals maintain sufficient resources, TANF was designed to transition these low-income people to higher incomes with more economic security. TANF is administered through the OFA in the Administration for Children and Families (ACF) as a block grant to States rather than as an entitlement. There is a five year life-time limit on receiving cash through TANF and one must be either employed or actively seeking work within the first two years to remain eligible for benefits. These changes transformed the program. This paradigm shift from welfare to work also resulted in significant reductions in the caseload (Figure 8). This decrease has occurred symmetrically in both rural and urban areas (Figure 9, p. 38).
The transition to TANF has been challenging for some rural communities. In the 2005 report, the NACRHHS found that the lack of available jobs in rural areas complicated the work requirement. Long distances to jobs, insufficient reliable transportation, inaccessibility of key social and educational services, and few child care options impede the move from welfare to work in many rural areas.27 In addition, the poorest and most remote rural counties show fewer positive outcomes compared to urban and adjacent rural counties. The life-time limit of five years on TANF means that many people choose to save that allotment for a more difficult time in their lives. Thus, people cannot find jobs because of these specific rural factors, nor can they continuously stay on welfare because of the five-year life-time cap with the welfare-to-work model.
Despite these challenges, an Urban Institute study of 12 counties in 4 States concluded that various cultural and structural factors in some rural communities influenced the positive reception and implementation of TANF.28 TANF policies offered some benefits for rural areas. TANF strengthened the general support for work that exists in some rural communities and it permitted flexibility in the use of funds, which enabled those communities to tailor their services to their unique circumstances. TANF also stimulated employer and community support for welfare recipients. Many rural communities noted that the proximity of family and friends provided not only emotional support, but also in-kind support, such as child care, meals, and housing.
Figure 9: Rural
and Urban TANF Caseload Changes, 1997-2003
Changes to the Older Americans Act
As discussed earlier, the OAA created the AoA and a
variety of programs to serve the elderly.
Between 1987 and 2007, Congress reauthorized the act three times,
each with implications for rural
President George W. Bush signed the 2006 reauthorization
of the OAA into law on October 17, 2006, extending the OAA for five
more years. The legislation streamlines,
consolidates, and grants more flexibility to State Units on Aging (SUAs)
and Area Agencies on Aging (AAAs) in developing comprehensive and coordinated
service systems. The primary change
in the legislation was that principles of the “Choices for
Early Head Start
Head Start has been
an important program in child development in rural locations. Committee members have seen the lack of available
high quality preschool on site visits and in their professional experience.
In 1996, Head Start was expanded to create Early Head Start,
a program similar to Head Start that serves children from birth until
they are 3 years old. In fiscal year 2006, 62,000 children in all 50
States participated in Early Head Start.29 A 2006 ACF report based on a survey of Early
Head Start programs found that there are equal numbers of programs in
rural and urban areas.30 Rural
programs were found to be staffed by individuals with fewer credentials
and by fewer specialists compared to urban programs.31
References
1 Gornick, M.E., Warren, J.L., Eggers, P.W., Lubitz, J.D., De Lew, N., Davis, M.H. & Cooper, B.S. (Winter 1996). “Thirty Years of Medicare: Impact on the Covered Population.” Health Care Financing Review. Vol. 18, no. 2. 182.
2
Health Care Information Resources Group. (March 1994). Hospital Closures
1980-1993: A Statistical Profile.
3 Centers for Medicaid and Medicare Services. (December 27, 2000). Table: “Impact of Changes for CY2008 Hospital Outpatient Prospective Payment System.” Hospital Outpatient Prospective Payment System and CY 2008 payment rates, etc. Federal Register. Vol. 72, no. 227. 66912.
4 Flex Monitoring Team. (December 17, 2007). Table: “A Complete List of Critical Access Hospitals.” CAH Information. http://www.Flexmonitoring.org/cahlistRA.cgi
5
Mohr, P., Blanchfield, B., Cheng, C., Evans, M. & Franco, S. (1998).
The Financial Dependence of Rural Hospitals on Outpatient Revenue.
6
Franco, S. & Mohr, P. (1999). Implications for Rural Hospitals
of the Medicare Outpatient Prospective Payment Proposed Rule.
7 Christman, E. (December 7, 2007). “Assessment of Payment Adequacy: Home Health.” Remarks to the December public meeting of the Medicare Payment Advisory Commission.
8
Medicare Payment Advisory Commission. (March 2005). “Home Health Services.”
Report to the Congress: Medicare Payment Policy.
9
10
11
Gale, J.A. & Coburn, A.F. (2003). The Characteristics and Roles
of Rural Health Clinics in the
12 Ibid.
13
Centers for Medicare and Medicaid Services. (April 3, 2006). Database:
“Provider of Services File covering the period ending 3/31/2006.”
14
O’Hare, W. (2007). Rural Children Increasingly Rely on Medicaid and
State Child Health Insurance Programs for Medical Care. (Policy
Brief no. 6).
15 Coburn, A., Ziller,
E., et al. (August 2000). Designing a Prescription Drug Benefit
for Rural Medicare Beneficiaries: Principles, Criteria, and Assessment.
(Pub. no. P2000-14). The
16
McBride, T., Terry, T. & Mueller, K. (2007). Enrollment in Medicare
Part D for Rural Beneficiaries is Encouraging. Rural Policy Brief.
Vol. 12, Issue 1. (Pub no. PB2007-1).
17
Radford, A., Mason, M.,
18
McBride, T.D. & Mueller, K.J. (October 2007). Update on Rural Enrollment
in Medicare Advantage: Growth Continues. (Rural Policy Brief no. 2007-7).
19
McBride, T., Terry, T. & Mueller, K. (July 2007). Rural Enrollment
in Medicare Advantage Growing Rapidly in 2007, Especially in Private
Fee For Service Plans. Rural Policy Brief. Vol. 12, no. 3. (Pub.
no. PB2007-3 ).
20
Institute of Medicine, Committee on Quality of Health Care in
21
National Advisory Committee on Rural Health and Human Services. (2003).
Health Care Quality: The Rural Context. Report to the DHHS Secretary.
22
Medicare Payment Advisory Commission. (2004). “Information Technology
in Health Care.” Report to the Congress: New Approaches in Medicare.
23
Shekelle, P., Morton, S. & Keeler, E. (April 2006). Costs and
Benefits of Health Information Technology. Evidence Report/Technology
Assessment no. 132. (Prepared by the Southern California Evidence-based
24
Casey, M., Klingner, J., Gregg, W., Moscovice,
25
National Advisory Committee on Rural Health and Human Services. (2006).
“Health Information Technology in Rural Areas.” The 2006 Report to
the Secretary: Rural Health and Human Service Issues.
26
The Personal Responsibility and Work
27
Whitener, L., Gibbs, R. & Kusmin, L. (June 2003). “Rural Welfare
Reform: Lessons Learned.” Amber Waves. Vol. 1, Issue 3.
28
29
Office of Head Start. (February 2007). Table: “Fiscal Year 2007.” Head
Start Program Fact Sheet.
30
Vogel, C., Aikens, N., Burwick, A., Hawkinson, L.,
31 Ibid, xxvii.
References for
Figures
Figure 7 North
Carolina Rural Health Research and
Figure 8
Office of Family Assistance. (September 12, 2007). Data Files: “Temporary
Assistance for Needy
Figure 9