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Post-pandemic tailwinds offer new opportunities in rural health care

OUTLOOK | February 23, 2024

Authored by RSM US LLP

Rural hospitals suffered a downturn in 2022, with more facilities operating in the red than in the preceding two years as the Coronavirus Aid, Relief and Economic Security (CARES) Act funding that had augmented their performance through the pandemic was depleted. The University of North Carolina at Chapel Hill has been tracking rural hospital closures since 2005. Each year, closings across the country leave vulnerable populations and communities with no health care services. Meanwhile, emerging trends such as aging infrastructure, labor constraints and reimbursement challenges continue to pressure rural hospitals.

Staffing challenges hinder service delivery

Labor expenses have grown for rural hospitals. In addition, luring clinical staff to live and work in rural areas remains challenging. However, hospitals are looking to attract employees through incentive programs such as the National Health Service Corps Loan Repayment Program, which repays a portion of student loans of medical school enrollees who agree to work in rural communities.

TAX TREND: Incentive programs

Tax-exempt health care organizations looking to attract executives through incentive programs may avoid costly so-called excess benefit transactions by reporting the fair market value of incentive offerings based on a comparability study for the services performed.

Learn more about RSM’s tax services for exempt organizations.

In addition, some rural and community hospitals are partnering with nursing and vocational schools to offer a fast-track curriculum that leads to full-time employment. And rural hospitals that are part of a network are developing staff-sharing programs, in which nurses and other specialists can sign up for work shifts at other member hospitals and receive grant funds to offset travel costs.

These strategies have allowed rural hospitals to reduce their reliance on contract labor while maintaining or improving care quality and patient satisfaction metrics. Such measures are especially important since these organizations often serve an older population with increased medical needs and limited access to care, especially specialty care.

Rural emergency hospital designation is not the only option

Rural hospitals continue to struggle with rising costs and decreasing reimbursements. In 2020, the rural emergency hospital (REH) program became available in response to rural hospital closures. This Medicare provider designation is designed to reinforce access to outpatient medical services in geographic areas that may not be able to sustain a full-service hospital.

The REH program has received mixed responses because, while it can keep some rural hospitals open, the designation requires hospitals to stop providing acute care inpatient services (with some exceptions, such as post-hospital extended care services) and to not exceed an average patient stay of 24 hours on an annual basis; in addition, they must transport trauma patients to better-equipped facilities. REHs also become ineligible for the federal 340B Drug Pricing Program.

Hospitals that select the REH designation receive fee-for-service Medicare payments for outpatient services at the hospital outpatient prospective payment system rate as well as an extra 5% reimbursement to cover higher expected REH costs. Further, rural hospitals with no more than 50 beds that closed after the law was signed in December 2020 are eligible to apply for the program and reopen with emergency and outpatient services.

This sounds like a good opportunity for some rural hospitals but may not be the best option for all. Facilities designated as “critical access hospitals” by Medicare, for example, are on a cost reimbursement model, and based on the new funding structure for the REH designation, would not be able to cover all their costs. Rural hospitals that choose not to seek the REH designation but are still struggling with costs can look into other options like establishing rural health clinics or obtaining grants through the State Offices of Rural Health or the Medicare Rural Hospital Flexibility Program.

Another strategy for rural hospitals includes forming networks with other regional hospitals to offer shared services and reduce costs. The network approach has been successful in Texas, Wisconsin and North Dakota, where hospital groups have benefited from group purchasing, shared services, and collaboration and were able to add specialty care. These networks have seen improved leverage with commercial insurers, too.

Technology innovations supplement gaps

A recent report from the Center for Healthcare Quality and Payment Reform found that over 600 rural hospitals are at risk of closing. The center found two common contributing factors: persistent financial losses of patient services over a multiyear period (excluding the first year of the COVID-19 pandemic) and low financial reserves, with insufficient net assets to counter losses on patient services.

The U.S. Department of Health and Human Services cites health information technology as an important tool that can improve the quality, safety, effectiveness and delivery of health care services in rural communities and improve the financial stability of an organization. Previously many rural communities struggled with telehealth capabilities because of Wi-Fi inefficiencies. However, through grant programs and other funding sources, rural hospitals can purchase solutions to improve the connection between patients and their providers.

For organizations with staff limitations, however, implementing, maintaining, updating and optimizing health information technology can be an ongoing challenge. Employee turnover can cause training delays, knowledge gaps and shifting operational priorities. Strategically, leaders should focus on organizational needs and formulate a plan that can align technology to address challenges and nurture opportunities. Organizations operating within a network can share costs and can accelerate technology adoption by sharing resources as well.

CONSULTING INSIGHT: The middle market AI playbook

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Telemedicine, remote patient monitoring and “hospital at home” are all innovative models of care available to rural hospital leaders. Utilizing an electronic medical record solution and secondary technology tools, many organizations can capture patient information to continue improving patient care. The ability to know real-time tracking of patients as they move about in a care facility, and for what reason, allows hospitals, even rural hospitals, to operate more efficiently. Artificial intelligence and automation are additional forms of technology that will augment task completion and improve organizational operations through more efficient patient communication, improved staff scheduling, and many other tasks that can free up employees to do other meaningful work.

The takeaway

Rural health care organizations must navigate rising labor and supply costs to remain operational, or risk closing their doors; however, strategies like applying for REH designation and grant funding, forming alliance networks and adopting meaningful technology can help bridge these gaps.

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This article was written by Michael Haas, Danny Schmidt, Matt Wolf and originally appeared on 2024-02-23.
2022 RSM US LLP. All rights reserved.

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