A Targeted Look

at the Rural

Health Care Safety Net

A Report to the Secretary,

U.S. Department of Health and Human Services

The National Advisory

Committee on Rural Health

April 2002
2

Acknowledgments

This report was prepared with the assistance of many people. Their time, feedback, and suggestions

were critical in helping the Committee meet its deadline and charge.

We wish to acknowledge the hard work of Thomas Rowley, the primary author of the report, as well as the

Committee members for identifying this topic, developing an agenda and continually reviewing and editing

multiple drafts that led to the final report. In particular, we want to thank Rachel Gonzales Hanson, for

chairing the Report Subcommittee. Her guidance was invaluable. We also want to thank the Committeeís

former chair, Senator Nancy Kassebaum, for helping guide the Committee in choosing what to focus on

within the broad array of concerns for the health care safety net. We also wish to thank the current chair,

Governor David Beasley, for steering the Committee through final review and edits to the report.

We also want to acknowledge the help of Bill Finerfrock, Executive Director of the National

Association of Rural Health Clinics, Craig Kennedy of the National Association of Community

Health Centers, and Jerry Coopey of the Office of Rural Health Policy.

Sincerely,

Marcia Brand, PhD

Executive Secretary

Staff

Tom Morris, MPA

Michele Pray, MHS

Sahira Rafiullah, MPA
3

National Advisory Committee on Rural Health

Chairman

The Honorable David Beasley

Darlington, South Carolina

Executive Secretary

Marcia K. Brand, Ph.D.

Rockville, MD

Members

James F. Ahrens

MHA...An Association of Health Care Providers

Helena, MT

Stephanie Bailey BC, MD, MSHSA *

Metro Nashville/Davidson County Health Department

Nashville, TN

David L. Berk

Rural Health Financial Services

Anacortes, WA

H.D. Cannington

Emanuel Medical Center

Swainsboro, GA

Shelly L. Crow *

Rural Health Consultant

Henryetta, OK

Steve Eckstat, DO

Mercy West Medical Clinic

Clive, IA

Dana S. Fitzimmons, RPh

Pfizer Clinical Consultant

Houston, TX

Rachel A. Gonzales-Hanson **

Uvalde County Clinic, Inc

Uvalde, TX

Alison M. Hughes *

Rural Health Office

University of Arizona College of Medicine

Tucson, AZ

John L. Martin

University of Maine at Fort Kent

Fort Kent, ME

Keith J. Mueller, PhD *

RUPRI Center for Rural Health Policy Analysis,

University of Nebraska Medical Center

Omaha, NE

Thomas S. Nesbitt, M.D., M.P.H.

U.C. Davis Medical Center

Sacramento, CA

Sally K. Richardson

Center for Healthcare Policy and Research, Robert C.

Byrd Health Sciences Center, West Virginia University

Charleston, WV

 Monnieque Singleton MD *

Voorhees College

Center for Excellence in Rural and Minority Health

Bamberg, SC

Mary K. Wakefield, PhD

Center for Rural Health

University of North Dakota

Grand Forks, ND

* Member of Report Subcommittee ** Chair of Report Subcommittee
4

About the Committee

The National Advisory Committee on Rural Health (NACRH) is a 16-member citizensí panel of

nationally recognized rural health experts that provides recommendations on rural health issues to

the Secretary of the Department of Health and Human Services. The Committee was chartered in

1987 to advise the Secretary on ways to address health care problems in rural America. Chaired by

former South Carolina Governor David Beasley, the Committeeís private and public-sector members

reflect wide-ranging, firsthand experience with rural issuesóin medicine, nursing, administration, finance,

law, research, business, and public health.

The Committee is currently composed of 16 members, including the Chairman, who serve overlapping fouryear terms. The members represent expertise in the delivery, financing, research, development, and administration of health care services in rural areas. Several members are involved in training rural health professionals. Others are representatives of state government, provider associations, and other rural interest groups.
5

Table of Contents

Executive Summary ............................................................................................................................ 6

Introduction ........................................................................................................................................ 8

 The Rural Safety Net ....................................................................................................................... 8

Programs That Support the Rural Safety Net ............................................................................... 12

Key Programs: A Deeper Analysis .................................................................................................. 15

 Ensuring Access to Hospital Services ........................................................................................... 15

 Medicare DSH Payments.......................................................................................................... 15

 Medicaid DSH Payments.......................................................................................................... 17

 Critical Access Hospitals and the Medicare Rural Hospital Flexibility Grant Program .......... 18

 Ensuring Access to Primary Care .................................................................................................. 20

 Federally Qualified Health Centers .......................................................................................... 20

 Rural Health Clinics .................................................................................................................. 24

 A Shared Challenge: Medicaid PPS.......................................................................................... 25

 Community Access Program (CAP) ......................................................................................... 26

 Charity Care ............................................................................................................................... 27

 The 340B Discount Drug Program ........................................................................................... 27

 Maintaining an Adequate Workforce ............................................................................................. 28

 National Health Service Corps ................................................................................................. 28

 J-1 Visa Waiver Program ............................................................................................................ 28

 Medicare Incentive Payments ...................................................................................................... 29

Mending the Net, Extending the Net ............................................................................................... 31

Endnotes ............................................................................................................................................ 33
6

Executive Summary

One of the key features of the modern health care

system is the safety net, the web of professionals

and institutions that provide care to the poor and

uninsured regardless of ability to pay. Unfortunately, changes in the health care environment

are buffeting and in some cases battering the

safety net. As a result, the safety net needs both

mending and expandingóparticularly in rural

areas. To help facilitate that, this report examines

several key safety net programs under the purview of the Secretary of Health and Human

Services that the National Advisory Committee

on Rural Health feels are critically important to

rural communities. It also includes recommendations for improving the programs and strengthening the rural safety net.

The Rural Safety Net

While the rural and urban safety nets are similar

in purpose and many of the pressures they face,

the two vary a great deal in structure and context.

As a result of these differences, the rural safety

net may be more vulnerable. There are so few

providers in rural areas, that the weakening of

even one could ultimately unravel the entire net.

Programs That Support the Rural

Safety Net

Because the rural safety net is broad, many

programs support it directly or indirectly. The

foci of such programs include: workforce development and retention, capacity expansion, public

health, capital improvement, telemedicine, and

insurance assistance. Some of these programs are

targeted to rural areas; others are not. Some fall

under the purview of the Secretary; others do

not.

Key Rural Safety Net Programs:

A Deeper Analysis

Important as the range of programs are, the Committee is charged with advising the Secretary of

Health and Human Services. Therefore, it focuses in

this report on several programs under the

Secretaryís purview that it considers critical in

providing safety net services in rural areas. They fall

into three categories according to their primary

purpose:

Ensuring Access to Hospital Services

Rural hospitals play a critical role in the safety net

because they are so often the locus of care in rural

areas. The Department of Health and Humans

Services (DHHS) has several formal hospital safety

net authorities: Medicare disproportionate share

hospital payment adjustments; Medicaid disproportionate share hospital payment adjustments; and

Critical Access Hospitals and the Medicare Rural

Hospital Flexibility Grant Program.

Ensuring Access to Primary Care

Access to primary care is a key feature of any

health care safety net. DHHS operates several

programs and payment mechanisms that help

ensure access to primary care and prescription

drugs for the rural poor and uninsured: Federally

Qualified Health Centers; Rural Health Clinics;

The Community Access Program; Charity Care

and Medicare; the 340B Discount Drug Program.
7

Maintaining an Adequate Workforce

The safety net depends upon the availability of an

adequate health care workforce. Three programs

within the Secretaryís purview focus primarily on

building and strengthening the workforce that serves

the rural poor and uninsured: National Health

Service Corps; J1 Visa Waiver Program; and

Medicare Incentive Payments.

Conclusions: Mending the Net,

Extending the Net

Because elements of the rural safety net are

interdependent, deterioration in one part of the

system adds stress to other parts. Likewise,

mending one part of the net will in all likelihood

strengthen other parts. Therefore, while the

issues raised in this report are in one sense

discreet and require focused attention, they

cannot be considered in a vacuum.

This mending, however, will not be enough. The

Committee, therefore, urges that the net also be

extended. Doing so will require the efforts of

many Federal agencies, Congress, State and local

governments, and the private sector. As a result,

coordination will be critical, and the Committee

urges the Secretary to convene an intergovernmental, interagency group to examine ways to

mend, modify, and extend the rural safety net.
8

One of the key features of the modern health care

system is the safety net, that web of health care

professionals and institutions that provide the

care to the poor and uninsured regardless of

ability to pay. Unfortunately, that safety net is

currently buffeted, and in some cases, battered by

two forces. First, throughout most of the 1990s,

the number and percentage of people in the

United States without health insurance rose

across all regions. While the numbers did drop in

the most recent accounting, poor economic

performance (as is projected for the near term)

could well erase those gains. Second, the health

care payment systemóboth private and publicó

is undergoing significant changes: managed care

continues to expand its role, insurers increasingly cover only the costs of those they insure

and there is continuing pressure to restrain the

growing costs of the Medicaid and Medicare

programs. This comes at a time when both of

these programs are seeing payment reductions.

Not surprisingly then, concern for and attention

to the safety net is increasing in the research and

policy arenas, as well as among the general

public. Reports from the Institute of Medicine,

The Urban Institute, the Kaiser Family Foundation and others have brought much-needed

attention to the issues.1

 While some of the work

has dealt with rural issues, most has focused

primarily on the urban safety net. With this

report, the National Advisory Committee on

Rural Health takes a targeted look at several key

safety net programs under the purview of the

Secretary of Health and Human Services that the

Committee feels are critically important to rural

communities. This group of programs, however,

is not meant to represent the full Federal investment in the safety net. Rather, it is a snapshot of

the handful of programs identified by the Committee as being key components of that safety net

in rural settings.

The Rural Safety Net

As of 1998, some 9 million people in rural

America were without health insurance. More

than 2 million of them were children. An increasing number are foreign-born immigrants. In

addition, others are underinsured. Often, the

uninsured and underinsured are poor, even

though many of them have jobs. Finally, other

rural Americans, despite the fact they may have

some form of insurance, live in areas so geographically isolated, that they too are

underserved. The care of these people falls

primarily on the web of providers known collectively as the rural safety net.

Introduction

Definitions

While there is no legal or technical definition of the

rural safety net, it is best described as:

A complex web of public and private

professionals and institutionsóincluding

public and or community hospitals, public

health departments, Federally Qualified

Health Centers, Rural Health Clinics, free

clinics, and private providersóthat deliver a

disproportionate share of health care and

related services to the uninsured,

underinsured, low-income, Medicare and

Medicaid recipients. They provide this care

because of legal requirements or out of a

sense of charity and duty.2

Others would also add to the list of safety-net

providers in a range of other important entities

including home health, nursing homes and adult

day care providers.
9

In the past, safety net providers were able to cover

the cost of caring for the poor and uninsured by cost

shiftingóusing revenues from various payers to

subsidize non-reimbursed expenses. According to

Ricketts et al, cost shifting was possible for several

reasons:

ï reimbursement from self-pay patients, State

employee benefit systems, or private insurance

was often higher than the actual cost of covered

services;

ï prior to the prospective payment system,

Medicare or Medicaid payments to hospitals

incorporated the cost of service provision to

indigents and;

ï other special governmental funding

systems recognized the need to support costs

beyond direct service.3

However, the health care environment is changing. Changes in payment policy have made cost

shifting more difficult. The changes began in

Alaska and Hawaii not to scale

County Type

(# Counties)

Nonmetropolitan (2270)

Metropolitan (870)

Source: U.S. Bureau of the Census; Office of Management and Budget, 1999.

Produced by: North Carolina Rural Health Research and Policy Analysis Center, Cecil G. Sheps Center

for Health Services Research, University of North Carolina at Chapel Hill.

Alaska and Hawaii not to scale
10

1983 when Medicare moved to an inpatient prospective payment system and in subsequent years to

a physician fee schedule. Many private payers,

particularly managed care and state Medicaid

programs, followed suit. This creates trouble for

many charity care providers, particularly if other

public subsidies for care of the uninsured are reduced.4

 That is even more pronounced in rural

communities, where third-party payers make up a

smaller amount of the payer base compared to

Medicare and Medicaid.5

In its June 2001 report, Medicare in Rural

America, the Medicare Payment Advisory Commission (MedPAC) found that changing population demographics, specifically the emigration of

working-age residents, have had a dramatic

effect on rural communities. These changes, the

Commission notes, can affect the amount and

types of health facilities and practitioners that

rural communities need while also increasing

their vulnerability to changes in Medicare and

Medicaid policy.6

While the rural and urban safety nets are similar

in purpose and in many of the pressures they

face, the two vary a great deal in structure and

context. As for structure, urban systems often

depend heavily on teaching hospitals and professional educational programs that use trainees to

care for low-income patients. The rural safety

net, however, rarely has access to those resources. It depends on a variety of different

individual providers and provider types. This

includes rural health clinics, private practitioners, community health centers, and outpatient

departments in rural hospitals.7 Public health

departments also play a critical role. Local public

health departments in rural areas are more likely

to list family planning and home health care

services as a priority than their urban counterparts.8

The context within which the rural safety net

operates also differs. MedPACís notes in its June,

2001 report that some rural communities face

challenges in sustaining the infrastructure needed to

meet their residentsí health care needs. The challenges come from a combination of conditions,

including small and declining populations, low

household incomes, high unemployment, the aging

of the population or disproportionate numbers of

minority residents. This makes it difficult to attract

and retain providers by limiting the demand for

services, raising providersí unit costs, and/or

reduce revenues by increasing uncompensated care

burdens.9

 Although focusing on the larger rural

health care system, MedPACís characterization

also accurately describes the rural safety net.

According to The Urban Institute, changes in

the health care sector threaten many providersórural and urban. The consequences of

provider failure are potentially greater in rural

areas, however, because alternative sources of

care in the community are scarce. Each provider

plays a critical part in maintaining access to

health care services and should be considered

part of the health care safety netóìif not

directly through their care for vulnerable populations, then indirectly through their contribution to the stability of the communityís health

care infrastructure.î10

As a result of these differences, the rural safety

net may be more vulnerable because of concerns about the economic viability of key

individual providers who care for the poor and

the uninsured in rural areas. There are so few

providers in rural areas, the weakening of even

one could ultimately unravel the entire rural

health care safety net.
11

Focus of the Report

The Committeeís report identifies a range of

safety net programs that serve rural

communities and then examines several key

programs in greater detail. The Committee is

charged with advising the Secretary of Health

and Human Services on rural health issues and

purposely limited the scope of this report to

those programs and issues that fall within the

purview of the Secretary.

Selecting ìcritical rural safety net programsî is a

subjective task. The issues that are discussed in

this one report cannot represent the entirety of

the rural safety net. The programs that support

the rural safety net are far too many to focus

upon in great detail in this report. As a result, the

Committee chose to focus in detail on only a

subset of the many important safety net

programs that are critical to rural communities.

The selection of these issues should not be

interpreted as support for some programs at the

expense of others.

The safety net is a complex web of providers and

programs. This report attempts to shed light on

the U.S. Department of Health and Human

Services (DHHS) role in supporting that web.

The first section begins with a description of

some general programs and authorities that play

a role in supporting the rural health care safety

net. The next section identifies in greater detail a

range of other safety net programs that the

Committee believes are particularly important to

ensuring access to care for the poor and uninsured that are within the purview of the Secretary. The final section examines some of the

common themes among the elements of the rural

safety net and lays out the challenges ahead.

Where appropriate, the Committee offers recommendations on ways to mend, extend, and

improve those programs that serve the rural

health safety net.
12

Programs That Support the Rural Safety Net

DHHS operates many programs that support the

rural health care safety net. The Medicare,

Medicaid and the State Childrenís Health Insurance programs (SCHIP) are key players in the

safety net by virtue of their respective missions

and the large number of beneficiaries or enrollees. Medicare is a nationwide health insurance

program for the aged and certain disabled persons. Medicaid is a Federal-State partnership that

pays for medical assistance for certain individuals and families with low incomes and resources.

Medicaid is the largest source of funding for

medical and health-related services for lowincome or disabled Americans.11 SCHIP, like

Medicaid, is operated as a partnership between

the Federal government and the States to provide

health care services to low-income children

otherwise not eligible for Medicaid.

There are a variety of other programs and authorities and providers that also support the rural

health care safety net. Some of these are targeted

to rural communities. Others may not have a

specific rural focus but have become valuable

parts of the larger health care safety net in rural

communities. The following is a loose grouping

of those programs, authorities and provider types

that fall into that category:

ï DHHS operates several programs aimed

at maintaining the health care workforce (the

backbone of the health care safety net), yet are

broader in scope than the rural safety net.

These programs include the Quentin N.

Burdick Rural Interdisciplinary Training

Grants, which promote collaboration among

rural providers; Title VII Primary Care Training Grants, which help train primary care

providers; the Health Career Opportunity

Program, which helps minority students enter

the medical profession; and the Area Health

Education Centers, which promote communitybased training.12 Each of these programs supports the rural safety net by helping to train and

retain health care workers in underserved areas.

ï DHHS operates several grant programs designed to support the rural safety

net by expanding capacity in rural areas.

The State Offices of Rural Health program

helps states develop and maintain a focal

point for rural health. Rural Health Outreach Grants support innovative demonstration grants in rural areas that focus on

improving access to care. Network Development grants support the development of

vertical and horizontal networks of care in

rural communities.

 Medicare GME

Medicare payments for graduate medical

education (GME), which support resident training,

also play a role in the overall safety net but

mostly in urban areas. The justification for

Medicare payment of GME is that teaching

hospitalsófacilities that operate approved

residency training programsógenerally incur

higher expenses than hospitals without teaching

programs. In FY 1999, for example, these

payments were approximately $6.2 billion.13

Medicare GME payments, as currently

constructed, are geared primarily toward

residents in a large, multi-specialty hospital

setting. Consequently, this means the bulks of

GME funds go to urban hospitals. In the most

recent year for which accurate cost reports are

available, only slightly more than 1 percent of

GME funding went to rural hospitals.14 So while

GME funding plays a key role in the ability of

academic medical centers to support safety net

activities, it is largely an urban phenomena.
13

ï Free care clinics and uncompensated care

by physicians in general contribute directly to

the rural health safety net by providing care to

the poor and uninsured. There is, however, no

program under the Secretaryís purview

related to free or charity care. This report,

however, does discuss in greater detail the

Departmentís role in allowing providers to

use a sliding fee scale to treat low-income

patients as it relates to Medicare law.

ï There is one program under the

Secretaryís purview designed to help provide

capital with which to build and maintain the

buildings, facilities, and equipment that

underpin health care services, including

safety net services. Historically, the HillBurton program was the primary program that

supported capital funding. That program

funded more than 10,700 capital projects

between 1948 and 1974 but is no longer in

existence. The only DHHS avenue for capital

funding is the Department of Housing and

Urban Development (HUD) 242 program,

which is jointly administered by DHHS and

HUD and provides mortgage insurance for

health care capital projects. The majority of

program funds are geared toward larger,

urban facilities.15 However, this program has

not been a viable option for many rural

hospitals because they have trouble qualifying

for the mortgage insurance or face difficulty

in paying the loans back.

ï Local public health departments help assure

the conditions in which peopleówealthy and

poor, insured and uninsuredócan be healthy.

The primary mission of local health departments

is to promote and protect the general health of

the population. This focuses on regulatory

activities related to food, water and air quality or

through primary prevention activities like immunization. In many cases, they also provide direct

care. As such, they are at the core of the safety

net in many rural communities. DHHS plays a

strong role in public health at the State level

through two primary means. The first is

through block grant funding such as the

Preventive Health Services Block Grant and

the Maternal Child Health Block Grant. The

second is through Medicaid reimbursement

for personal health services offered at public

health departments. It is this latter authority

that has the most direct link to the rural health

care safety net. DHHSí Community Access

Program (CAP) offers another link to the

safety net and is discussed in greater detail

later in this report.

ï DHHS supports many telemedicine

demonstration programs that have helped to

improve access to specialty care for isolated

rural communities and train and support rural

health care practitioners. These programs are

supportive of the rural safety net and offer

potential for serving poor and isolated rural

communities. They can provide access to

Mental Health: A Hole in the

Safety Net

One of the few key mental health safety net

programs within DHHS is the Community Mental

Health Centers (CMHCs). At its inception, the

CMHC program proved to be a particularly good

fit for rural communities because of its focus on

meeting individual community needs. However,

the move to block grant funding and subsequent

funding reductions in the 1980s for this program

and other changes in the fee-for-service sector

have shifted the focus of CMHCs. The CMHCs

have since become less able to respond to

evolving community mental health needs and

instead have tended to focus on the most

seriously impaired.16
14

ï DHHS administers the State Planning

Grant Program, which provides one-year

grants to States to develop plans for providing

access to affordable health insurance coverage

to all their citizens. States are designing

approaches that provide health insurance

benefits similar in scope to the Federal Employees Health Benefit Plan, Medicaid, coverage

offered to State employees, or other similar

quality benchmarks. At the conclusion of the

grant, each State will submit a report to the

Secretary of Health and Human Services that

identifies the characteristics of the uninsured

within its State and proposals for providing them

with affordable health insurance coverage.

Together, these reports will provide additional

data about the characteristics of the uninsured

generally and potential models for other States

seeking to provide comprehensive coverage. The

Health Resources and Services Administration

(HRSA) awarded 11 state planning grants in

2000 and another nine in 2001. These grants are

broadly focused but have the potential to

strengthen the rural safety net by reducing the

number of uninsured.

specialty services via teleconsultations. They

can also help retain key health care providers

through practice support and continuing

medical education for clinicians via

videoconferencing. Telehealth consultations

can also help strengthen rural health care

delivery systems by retaining the patient care

in the local community rather than having the

patients travel to distant urban areas to see

specialists. That also can help retain health

care dollars in the rural community since any

ancillary tests associated with the

teleconsultation take place in the community.

ï Medicare operates four separate dualeligible programs that help low-income Medicare

beneficiaries cover the costs of premiums,

deductibles and coinsurance through the state

Medicaid program. These programs (which fall

under the authorities of the Qualified Medicare

Beneficiary program and the Specified LowIncome Medicare Beneficiary program), may not

always be thought of as primary parts of the

formal safety net. They do, however, play a role

if for no other reason than by targeting a lowincome population in a way that increases access

to care by removing financial barriers.

Oral Health: A Hole in the

Safety Net

There are no formal or direct Federal programs

to support access to oral health services for poor

and underserved populations other than those

oral health services that are offered through

Community Health Centers and public health

departments. The primary policy tool to reach out

to poor and underserved populations is Medicaid

and SCHIP, but payment rates are generally low

and participation by private dentists in the

programs is limited. The only other Federal tool

for addressing oral health needs is the direct

care provided by National Health Service Corps

dental scholars or loan recipients.
15

Medicare DSH Payments

Since 1986, Medicare has made special payments

to hospitals that provide care to a disproportionate

share of poor patients. However, MedPAC and

others have long noted that the current disproportionate share (DSH) payment policy favors hospitals

located in urban areas.

Almost half of all urban hospitals receive DSH

payments. In contrast, only one-fifth of rural

hospitals receive Medicare DSH payments. To

address this, Congress, in 2000, created uniform

eligibility standards for all hospitals. The standardization of eligibility thresholds should result

in significant payment gains for rural hospitals.

However, the amount of DSH adjustments still

differs for rural and urban hospitals, with urban

hospitals of more than 100 beds being rewarded

by steeply graduated payment adjustments.18

Indeed, urban facilities can receive unlimited

In addition to the programs cited previously, there is

a range of programs that the Committee considers

critical in providing safety net services in rural

communities. These programs fall into three categories according to their primary purpose:

ï Helping to ensure access to hospital services;

ï Helping to ensure access to primary and

preventive health care services; and

ï Helping to maintain the health care

workforce.

For each program, the report presents a brief

background discussion, followed by a description of challenges faced and recommendations to

the Secretary on how existing Federal authorities

can be improved to help meet those challenges.

The report concludes with a brief discussion of the

need for a more comprehensive approach to both

mending and extending the rural health care safety

net.

Ensuring Access to Hospital

Services

Rural hospitals play a critical role in the safety

net because they are so often the locus of care in

rural communities. More than in urban areas,

where alternatives are more prevalent, ìthe

hospital serves as the sine qua non of local

health services in rural communities.î17 Consequently, Federal support for rural hospitals is

essential if the safety net is to be maintained.

The Federal government uses several payment

mechanisms in the Medicare program to support

and stabilize rural hospitals financially (i.e., the

payment designations of Sole Community

Hospital, Critical Access Hospitals, Medicare

Dependent Hospital, and Rural Referral Centers). However, these payment designations are

not directly tied to a safety net role. The formal

hospital safety net authorities are

ï Medicare disproportionate share hospital

payment adjustments;

ï Medicaid disproportionate share hospital

payment adjustments; and

ï Critical Access Hospitals and the Medicare Rural Hospital Flexibility Grant Program.

Key Programs: A Deeper Analysis
16

add-ons corresponding with the amount of patients

served. Most rural add-ons, however, are capped

at 5.25 percent of the total amount of the inpatient

payment.19

In addition, ìthe current low-income share measure

does not include care to all the poor, most notably

omitting uncompensated care.î20 The Balanced

Budget Refinement Act included a provision that

directs the Secretary to begin collecting data on the

costs incurred by hospitals for providing inpatient

and outpatient hospital services for which the

hospital is not compensated, including non-Medicaid bad debt, charity care, and charges for Medicaid and indigent care.21 While these data are now

being captured as part of the annual cost-reporting

process, it will take several years before they can be

verified and used as part of an improved DSH

methodology.

Committee Recommendations:

ï The Secretary should work with

Congress to require the use of a uniform

Medicare DSH adjustment policy that treats

all hospitals the same regardless of their

urban or rural location.

ï The Secretary should work with

Congress to raise the cap on Medicare DSH

payments for rural hospitals to an

appropriate level that provides equity for

rural hospitals.

Rural Hospital Programs and Policy Issues

There are a variety of hospital designations and payment adjustments under Medicare that play a key role

in the financial viability of rural hospitals and in the ability of these facilities to be a part of the broader rural

health care safety net.

Medicare allows certain rural hospitals to be designated as either Sole Community Hospitals (SCH),

Medicare Dependent Hospitals (MDH) or Rural Referral Centers (RRCs). Hospitals designated as SCH or

MDH get enhanced Medicare reimbursement. RRCs have more flexibility for reclassification to a higher

urban wage index and may receive higher DSH payments than small urban or most other rural hospitals.

These designations play an important role in providing a sound financial footing for small and isolated

facilities.

The wage index and the base payment are two key Medicare policies that directly affect the financial

viability of rural hospitals and, consequently, have an impact on their role in the health care safety net. The

Committee continues to be concerned about the impact of the wage index on rural hospitals (see the

Committeeís recommendations from its May 2001 Report, ìMedicare Reform: A Rural Perspectiveî). In

addition, the Committee also questions the continued reliance on two separate base payment rates, one

for large urban and the other for other urban and rural hospitals. Research by MedPAC and others

indicates that this differential is not justified.
17

Medicaid DSH Payments

Medicaid, like Medicare, also makes DSH payments to offset the costs of providing uncompensated care and serving low-income populations. The

Federal government and the States share in the

costs of these payments, which were created in

1981. While many States use payment methodology

similar to Medicare DSH, they also have a great

deal of flexibility to develop their own methodologies. For example, States can determine:

ï How much they spend on their DSH

program;

ï Which hospitals receive DSH payments;

ï How payments are divided among

facilities;

ï What the size of the DSH payments are;

and

ï Whether there are any conditions on the

hospitals that receive DSH payments.

Medicaid DSH payments represent a significant

part of Medicaid spendingósome $9 billion.

Indeed, the Congressional Budget Office estimated that the Federal government spent more

than four times as much on Medicaid DSH as it

did on SCHIP in FY2000.22

The extent of Medicaid DSH payments to rural

hospitals is not known because the data on

spending is broken down only on a State-by-State

basis, not on a rural-urban basis. Experience

suggests, however, that the States have not used

Medicaid DSH payments as a way to help rural

hospitals and that the funds represent an untapped

resource, especially for rural hospitals in the South,

where poverty, uncompensated care burdens and

high Medicaid match rates prevail. As a result, DSH

funds are not distributed evenly. The amount of

Federal funds available per uninsured individual can

average from $1 to $214 per person.23

To be fair, the Statesí determinations are subject to

Federal requirements. Specifically, Federal law

requires that a Medicaid Disproportionate Share

Hospital have at least one percent of its total inpatient days attributable to Medicaid patients, and if

the hospital offers obstetrical services, it must have

at least two physicians who can provide nonemergent obstetrical care who also serve Medicaid

beneficiaries. In addition, Federal law requires

States to deem hospitals as DSH when those

facilities meet one or more of a set of criteria

pertaining to the relative number of Medicaid

patients, low-income patients and charity patients it

serves.24

Committee Recommendations:

ï The Secretary should work with States

to expand options for using Medicaid DSH

payments for eligible rural hospitals,

including the ability with current statutory

authority to upgrade the financial stability

of rural hospitals or to assist rural hospitals

to develop physician or clinic networks.
18

Critical Access Hospitals and the Medicare

Rural Hospital Flexibility Grant Program

The Medicare Rural Hospital Flexibility Programó

authorized in the Balanced Budget Act of 1997

and more commonly known as the Flex Programóhas become a key support mechanism for

rural health care delivery systems. The legislation

has two distinct and related goals. The first, which

falls under the authority of the Centers for Medicare and Medicaid Services (CMS), allows

Medicare to certify certain hospitals as Critical

Access Hospitals (CAHs). These CAHs serve as

the sole source of inpatient care in a community

either because they are geographically isolated or

because severe weather conditions or local topography prevents travel to another hospital, and

therefore play a critical safety net role. Under the

program, CAHs are allowed to receive cost-based

rather than formula-based reimbursement from

Medicare for inpatient and outpatient Part A

services and also have greater flexibility in dealing

with staffing and coverage regulations.

Alaska and Hawaii not

to scale

Legend

( ) = N

Nonmetropolitan County

Metropolitan County

State Not Elligible or Not Participating

Sources: CMS Regional Office, ORHP, and State Offices Coordinating with MRHFP, 2002.

Produced by: North Carolina Rural Health Research and Policy Analysis Center, Cecil G. Sheps Center for Health

Services Research, University of North Carolina at Chapel Hill.

Critical Access Hospital (570)
19

The other key part of the legislation was the creation

of a grant program, the Flex Program, which is

administered by the Office of Rural Health Policy.

This program provides grants to states to support

conversion to CAH, promote networking and the

integration of emergency medical services and to

promote quality. In effect, the grant funding has

helped states work with their rural hospitals and the

communities they serve on a comprehensive and

system-wide basis that heretofore has not occurred.

While the CAH designation and the Flex Program

are not formally authorized as a safety-net, they

have become a key part of the rural safety net. The

cost-based reimbursement provided by Medicare

has allowed many of these facilities to have a

positive operating margin thereby keeping their

doors open. The Committee believes that Congressí

intent in combining the CAH designation with the

grant program was to ensure that isolated rural

hospitals that serve as key access points in their

communities would remain viable to serve the needs

of Medicare beneficiaries. There are more than 500

CAHs and more than 90 percent of those facilities

are located in either a health professional shortage

area or a medically underserved area.

Committee Recommendations:

ï The Secretary should work with the

Congress to ensure re-authorization and

continued funding of the of the Medicare

Rural Hospital Flexibility Grant Program,

which is up for re-authorization in FY 2002.
20

Ensuring Access to Primary Care

Access to primary care is a key feature of any health

care safety net. DHHS operates several programs

and payment mechanisms that help ensure access to

primary care and prescription drugs for the poor and

uninsured. The following programs are all under the

purview of the Secretary and play a key role in

supporting the rural health care safety net:

ï Federally Qualified Health Centers

ï Rural Health Clinics

ï The Community Access Program

ï Charity Care and Medicare

ï The 340B Discount Drug Program

Federally Qualified Health Centers

The Community Health Center Program began in

1965 to meet both the medical and social needs

of low-income and minority populations. The

centers received direct Federal grants from

Section 330 of the Public Health Service Act to

cover the cost of providing care to this

underserved population and included requirements that the centers be run by the community.

The success of that program led Congress in

1989 to create a new categorical definition,

Federally Qualified Health Centers (FQHCs),

that allowed these providers to receive costbased reimbursement from Medicare and

enhanced reimbursement from Medicaid.

FQHCs can be located in urban or rural areas.

They include community health centers,

migrant health centers, public housing programs, and health care for the homeless.

In addition, community-based health care

providers that satisfy 330 grant requirements,

but do not receive the grants, can gain status as

so-called ìlook alikes.î While look-alikes do

not receive 330 grants, these facilities are eligible

for cost-based reimbursement under Medicaid

and Medicare, they can serve as placement sites

for National Health Service Corps (NHSC)

providers and they are also eligible to participate

in the 340(b) Federal Drug Pricing Program (See

text box).25

FQHCs and look-alikes are required to provide

care to any individual, regardless of ability to

pay. In addition, FQHCs and look-alikes

provide enabling servicesóoutreach, translation, transportation, etc.óthat help patients gain

access to health care.

FQHCs and RHCs

Any discussion of key rural safety net providers

tends to begin with Federally Qualified Health

Centers and Rural Health Clinics. While both act

as key access points in the rural health care

safety net, they are very different in terms of their

underlying legislative authority and orientation.

FQHCs by their very configuration are community

run and tend to have more of a program focus,

especially those that receive Section 330 funding.

By contrast, RHC designation is solely a

payment designation under Medicare that aims to

ensure access to care for Medicare and Medicaid

beneficiaries in rural communities. So, while they

are often linked together in discussion, they are,

in fact, very different.
21

The Bureau of Primary Health Care deems a

FQHC or an FQHC look-alike as being rural if it

notes that it serves a rural population. Based on that

standard, more than 4.8 million of the 9.7 million

people served by health centers in 2000 were

residents of rural communities. In addition, approximately 86 percent of the FQHC patient population

is either publicly insured or uninsured.26 Other

analysis using the Office of Management and

Budgetís (OMB) definition of rural shows that 38

percent of FQHCs are in nonmetropolitan, or rural,

counties. The OMB definition, however, is countybased, and fails to capture those FQHCs that are

located in urban counties but serve rural populations

or those FQHCs in large urban counties that have

significant rural populations. It also does not pick up

many of the satellite clinics operated by FQHCs on

a hub-and-spoke basis. 27

FQHCS and the Uninsured and Underserved

In recognition of the growing numbers of uninsured

and underserved Americans and the declining ability

of other providers to continue offering uncompensated care, a bipartisan majority in the Congress

have endorsed a plan to double the capacity of

health centers over the next five years (2001-2006),

through the Resolution to Expand Access to Health

Centers (REACH) Initiative. Under the initiative,

funding for health centers would be doubled, to

more than $2.2 billion annually, over that period. It

is anticipated, because of provisions in the Section

330 health centers law, that half of the additional 10

million patients who will be served will be rural

Americans. President Bush has also pledged to

increase health centersí funding by nearly 70 percent (to approximately $2 billion annually) over the

next 5 years, beginning with a $124 million increase

in funding for FY 2002. The Presidentís proposed

FY 2003 budget includes $1.5 billion for community-based health centers, a $114 million increase.

Health Care Shortage Areas

Health care shortage designations are the key

targeting devices for Federal health care

resources. The two primary designations used by

DHHS are health professional shortage areas

(HPSAs) and medically underserved areas or

populations (MUA/Ps). These designations are

based on criteria established through regulation to

identify geographic areas or population groups

with a shortage of primary health care services.

The HPSA designation criteria includes primary

medical care, mental health, and dental care.

MUA/Ps designation is a prerequisite to

requesting grant awards to plan, develop, and

operate a community health center under section

330 of the Public Health Service Act.

While the HPSAs are updated on a regular basis,

the MUA/Ps have never been updated. DHHS is

revising the shortage designation process and

issued a preliminary regulation on this in 1998. It

was withdrawn, however, because of concerns

among various constituency groups, including

rural advocates, about its impact on the health

care delivery system.

The shortage designation process will have a

dramatic effect on the entire health care safety net

but perhaps even more dramatically in rural areas

due to limited access and the reliance of these

communities on programs such as rural health

clinics or the HPSA bonus payments that are

dependent on shortage designation criteria. While

a target date for the next version of the new

designation process has not been set, the

Committee urges the Secretary to ensure that the

revised process does not have a differential impact

on rural communities.
22

New Start Applicants

Many rural advocates are hopeful that the increased

funding will allow the rural areas without centers to

tap into this funding and shore up gaps in local

safety nets. FQHCs have long been a key element

of the rural health care safety net, particularly in the

South and the Southwest. However, there are some

rural areas that have not attracted health center

funding, particularly the upper Midwest and Great

Plains States. This is driven partly by demographics.

A clinic must be in a Medically Underserved Area

(MUA) or serving a Medically Underserved Population (MUP) to be eligible to be an FQHC. Many

of the underserved rural areas in the upper Midwest

are more likely to be designated as Health Professional Shortage Areas (HPSAs) than MUAs or

MUPs. Another contributing factor has to do with

how new applications are scored. The current

scoring for new applicants includes measures for

demographic factors such as the percentage of

minority residents in a service area or the incidence

Legend

( ) = N

Alaska and Hawaii not

to scale

Source: HCFA Online Survey and Certification Reporting System (OSCAR), April 2001.

Produced by: North Carolina Rural Health Research and Policy Analysis Center, Cecil G. Sheps Center for Health Services

Research, University of North Carolina at Chapel Hill.

Note: FQHC sites included are locations where the following

federally funded programs were in operation in 2001:

Community Health Centers (CHCs); Migrant Health Centers

(MHCs); Public Housing Primary Care (PH); Healthcare for

the Homeless (HC). Does not include FQHC Look-Alikes.

Nonmetropolitan County

Metropolitan County

Federally Qualified Health

Center (1,959)

Location of Federally Qualified Health Centers, 2001
23

of infant mortality. Both of those measures tend to

be low in many of the upper Midwest and Great

Plains States, which can make it hard for applicants

from these areas to score high enough on the

application to be reviewed for possible funding.

Other communities in those areas may have trouble

qualifying for funding because of low population in

the service area. They may not have enough of a

patient base to support a full-service community

health center.

Frontier Issues

Some rural advocates believe that some of the

administrative requirements for Community

Health Centers (CHCs) fail to take into account

the needs of sparsely populated frontier areas.

The Bureau of Primary Health Care (BPHC),

which administers the CHC program, has attempted to address the concern. The Bureau

gives special consideration to Community and

Migrant Health Center new start applications in

sparsely populated rural areas, which are defined

as geographic areas with less than seven people

per square mile. Applicants that meet this requirement will be assessed separately on the

need and project plan requirements. This policy

is an acknowledgment that given the low patient

volume and other demographic challenges of

providing care in frontier areas, it may be difficult for an applicant to meet the same staffing

and service mix as standard grantees. As an

alternative, the frontier applicants are allowed to

propose alternative methods of providing necessary support for isolated providers through

networking with other provider groups. In

addition, the frontier applicants may request a

waiver from the governing board requirements if

they can clearly demonstrate why any or all of the

governing board requirements cannot be met.

FQHCs and Medicare

Health centers provide care for nearly one million

Medicare beneficiaries. In many cases, health

centers may be the only source of primary and

preventive services to which these underserved

beneficiaries have access. Because of this, Congress established the FQHC provider designation

and the scope of Medicare-covered FQHC services,28 and provided reasonable cost reimbursement for these providers in Medicare. Again, in

requiring health centers to be reimbursed for their

costs, Congress provided health centers with

payments sufficient to cover the cost of Medicare

services, thereby protecting access to care for the

uninsured.

While Federal statute entitles FQHCs to receive

their reasonable costs for providing services,

CMS applies a payment cap to Medicare payments for FQHCs. Some rural advocates believe

this cap undermines the mission of FQHCs

because in most cases it reduces FQHCsí payment rates below their cost of providing care.

Given the patient-payer mix at FQHCs, some

FQHC providers argue that they are forced to

subsidize capped Medicare payments with

Federal, Congressionally appropriated grant

dollars intended to provide care for the uninsured.

Committee Recommendations:

ï The Secretary should work with

Congress to eliminate any financial

challenges to FQHCsí providing care to the

uninsured by eliminating the Medicare pervisit payment cap.

ï The Secretary should work with

Congress to increase access to capital and to
24

expand eligible uses of grant funds to

include construction, renovation, and

modernization of health center facilities.

ï The Secretary should encourage the

development of criteria that will increase the

number of FQHC sites in rural and frontier

areas.

Rural Health Clinics

Rural Health Clinics (RHCs) were authorized in

1977 and designed to improve access to care for

Medicare and Medicaid beneficiaries. The

clinics, which receive reasonable cost reimbursement under Medicare, can be either providerbased or free-standing and must be located in a

rural area that is either a HPSA or a MUA. There

are currently 3,448 RHCs. Approximately 70

percent of the RHC patient population is insured

through Medicaid or Medicare.29

Uncompensated Care in RHCs

RHCs are not required to operate on a sliding fee

scale, although some do. The clinics have done

this despite some unintended consequences of

the payment mechanism that act as a disincentive

for RHCs to see uninsured patients. The problem

stems from the so-called ìdenominator factor.î

The per-visit payment rate for RHCs is determined by dividing their annual aggregate cost by

the number of patients seen. However, the

numerator consists primarily of fixed costs

(overhead, salaries, etc.); the denominator is, of

course, variable. Consequently, as the number of

patients seen by the RHC rises, the RHCís average

cost (and therefore its per-visit payment rate) falls.

Worse, many of these patients cannot afford to pay

for services and are not insuredómeaning the RHC

gets little or no payment at the same time as their

reimbursement rate goes down.

RHC Reimbursement Levels

Under current law, RHCs receive an all-inclusive

payment rate capped at approximately $63 per

visit. This cap does not cover the cost of services

for more than 50 percent of rural health clinics.30

The RHC payment methodology was developed

before the introduction of the physician fee

schedule and was based on the old customary

and reasonable methodology.

Committee Recommendations:

ï The Secretary should work with

Congress to increase the RHC payment limit

under section 1833 (f) of the Act to more

closely correspond with the increase in

payments for primary care services resulting

from the full transition to the physician fee

schedule.

ï The Secretary should amend the

reimbursement methodology for RHC

payment so that RHCs that 1) are non-profit,

2) see all patients regardless of ability to pay,

and 3) elect to use a sliding fee scale do not

have to count uninsured patients in

determining the aggregate number of

patients seen for calculation of the per-visit

payment rate.
25

A Shared Challenge: Medicaid PPS

While the FQHCs and the RHCs face some different challenges in serving a safety net role, they are

both affected by the advent of a new prospective

payment for Medicaid reimbursement.

RHCs and FQHCs both rely heavily on Medicaid

as a source of revenue. Indeed, Medicaid accounts

for, on average, one-quarter to one-third of their

funds. As such, Medicaid reimbursement policies

have great impact on the ability of RHCs and

FQHCs to provide safety net care. Unfortunately,

recent changes to those policies may penalize some

clinics and centers.

The Balanced Budget Act of 1997 allowed States

to begin phasing out cost-based Medicaid reimbursement for FQHCs and RHCs with the full

phase-out expected to be completed by FY 2003.

The Benefits Improvement and Protection Act of

2000 (BIPA) eliminated the cost-reimbursement

system by which FQHCs and RHCs formerly

received payment from Medicaid, replacing it with a

Source: HCFA Online Survey and Certification Reporting System (OSCAR), April 2001.

Produced by: North Carolina Rural Health Research and Policy Analysis Center, Cecil G. Sheps Center for Health Services

Research, University of North Carolina at Chapel Hill.

Legend

( ) = N

Nonmetropolitan County

Metropolitan County

Location of Rural Health Clinics, 2001

Alaska and Hawaii not Rural Health Clinic (3,327)

to scale
26

Prospective Payment System (PPS) effective

January 1, 2001. Under PPS, the first yearís

payment is set at an FQHCís or RHCís reasonable

average cost per visit for 1999 and 2000 as defined

by each State. Future yearís payments are to be

adjusted annually for inflation and, if necessary, for

changes in the scope of services provided.31

According to the General Accounting Office

(GAO), the new PPS ìis likely to constrain

future paymentsî because in many cases the

State-defined reasonable average cost per-visit

may be lower than what an FQHC or RHC

received in 2000. On top of that, the 2001 PPS

rate will not be updated for inflation from 1999

through 2001. Finally, the subsequent annual

adjustments will be made using an inflation

index independent of individual FQHCsí and

RHCsí costs, and increases are likely to be lower

than what had been historically provided.32

As a result, GAO concluded ìan FQHCís and

RHCís ability to manage under the new PPS will

depend on its initial rate and its ability to keep its

cost growth at or below the inflation adjustment.

FQHCs or RHCs that, for example, had high pervisit costs when the rates were established, may

be able to manage by increasing service volume

or find other efficiencies to lower their per-visit

costs. FQHCs or RHCs with low initial per-visit

costs, however, may be less able to reduce their

cost growth.î33

Committee Recommendations:

ï The Secretary should work with

Congress to conduct strong, ongoing

oversight of the implementation of the

Medicaid PPS to ensure that States comply

with requirements in the Federal PPS

statute and that access to FQHC and RHC

services are protected.

ï The Secretary should work with

Congress to evaluate the Medicaid PPS to

ensure that FQHCs and RHCs are being

adequately reimbursed to protect access to

care, including access to care for the

uninsured. This includes examining

whether the Medicare Economic Index (the

current measure of inflation used in PPS) is

sufficient to protect Medicaid

reimbursement for these critical safety net

providers.

Community Access Program (CAP)

The CAP is a relatively new safety net initiative

under the purview of the Secretary. This program

seeks to help health care providers coordinate

these ìsafety netî services for uninsured and

underinsured Americans. The program builds on

the success of some community-based models

that looked at ways to reorganize their health

care delivery systems to provide better coordinated, more efficient care for uninsured residents. CAP grants are designed to increase

access to health care by eliminating fragmented

service delivery, improving efficiencies among

safety net providers and by encouraging greater

private sector involvement. One of the great

benefits of the CAP is that it requires applicants

to work with their local health departments,

thereby formalizing the critical role they play in

the rural safety net.

The CAP grantees are not broken down by urban

or rural status, but the grantees are allowed to

indicate if they believe they are serving rural

areas. In FY 2001, the CAP program funded 137

projects, 36 of which served rural or tribal populations and another 45 of which claimed to serve both

rural and urban populations.
27

Committee Recommendations:

ï The Secretary should work with

Congress to formally authorize the CAP

program to support efforts by local providers

to develop integrated care systems for

uninsured and underserved populations and

to fully permit and encourage rural

communities to participate.

Charity Care

Some health care providers have complained that

Federal regulations may act as a disincentive for

providers who want to provide charity care.

Medicare rules allow health care providers to

offer income-related sliding fee scales as a way

of helping low-income patients afford care.

Providers may offer them as long as the sliding

fee scale is offered to all patients under the same

conditions and there is public notice of its availability.

Unfortunately, this scenario may not work for

providers. Some providers may mistakenly

believe that Medicare rules preclude them from

discounting fees for low-income patients. They

believe that offering reduced fees would violate

Medicareís anti-kickback statute and would

amount to fraud. Others would say that what is

really needed is the authority to waive fees on a

case-by-case basis. The challenge with allowing

that kind of behavior is the potential for discrimination against some patients.

Committee Recommendations:

ï The Secretary should issue an advisory

letter that spells out the legality and specific

requirements of income-related sliding fee

scales and disseminate it widely.

The 340B Discount Drug Program

One of the glaring holes in the safety net, both urban

and rural, is any program that would improve access

to care for prescription drugs. Medicare does not

include a true prescription drug benefit. Medicaid,

however, does cover some prescription drugs. The

only other program that addresses the issue of

prescription drugs is authorized under section 340B

of the Public Health Service Act. The program helps

cover the costs of drugs for the uninsured. It requires drug manufacturers to sell outpatient prescription drugs to Federally Qualified Health Centers, Medicaid DSH hospitals and several other

specified Federally supported health care safety net

providers at a discount, which is currently approximately 15.1 percent below the Average Manufacturers Price.34 If manufacturers do not agree with

HHS to provide the discounts, they face significant

penalties. According to some reports, the program

has resulted in approximately $1 billion in savings.

The program has proven especially valuable to

FQHCs, given the high costs of pharmaceuticals

and the low-income demographics of these clinicsí

patient base.35

Committee Recommendations:

ï The Secretary should continue to

support and enhance the 340B Discount

Drug Program and support Medicare

reforms that include access to prescription

drugs.
28

Maintaining an Adequate

Workforce

The safety net depends upon the availability of an

adequate health care workforce. Two programs

within the Secretaryís purview focus primarily on

building and strengthening the workforce that serves

the rural poor and uninsured.

ï National Health Service Corps

ï J1 Visa Waiver Program

ï Medicare Incentive Payments

National Health Service Corps

The National Health Service Corps was created in

1970 to place health care professionals in areas that

lacked access to health careóprimarily distressed

urban and rural areas. Almost 60 percent of the

2,400 providers in the Corps in 2001 serve in rural

areas.36 About half of the Corps providers are

primary care physicians. Therefore, the NHSC can

be considered an integral part of the rural safety net.

Under this program, medical personnel agree to

serve in these areas for a minimum of two years

in return for scholarships or school loan repayment. The role of the NHSC in the rural health

care safety net is particularly important because

these providers work in underserved areas and

are required to see all patients during their

placements. Since its inception as a program that

primarily supported physicians, the NHSC now

supports a range of non-physician providers

(such as advanced practice nurses and physician

assistants) in primary, oral, and mental health. As

mentioned previously, there are few Federal programs that directly address either mental or oral

health needs.

The NHSC has been and remains a key rural safety

net program. However, the program has also been

chronically underfunded at a time when it must also

meet an increasingly diverse set of needs.

For fiscal year 2003, President Bush has proposed

an additional 32 percent increase in the budget for

the NHSC for a total of $192 million, up from

$145.5 million this year. The additional resources

will result in awards to about 1,800 physicians,

dentists and other clinicians who practice in

underserved areas.

Committee Recommendations:

ï The Secretary should propose an

increase in funding for the National Health

Service Corps at levels sufficient to support

the multi-year plan to expand health centers

and to meet the pressing needs of other

rural areas for health professionals.

J-1 Visa Waiver Program

International medical graduates (IMGs) are proportionately more likely than U.S. medical graduates

(USMGs) to practice in rural underserved areas and

are a valuable addition to the rural safety net,

shoring up health care systems in areas that have

traditionally had trouble attracting physicians. Many

of these more than 2,000 IMGs are here under the

J1Visa waiver program.

The J-1 Visa allows foreign medical school graduates to pursue postgraduate training in the United

States. When training is complete, the graduates

must return to their home countries for a period of at

least two years. A 1994 amendment to the Immigration and Nationality Act, however, created the

J-1 Visa waiver. With a waiver, an IMG may forego

the mandatory return to his or her home country and
29

Medicare Incentive Payments

Physicians, especially primary care physicians, are

stay in the United States to practice medicine in

a health professional shortage area or medically

underserved area. They must serve in such an

area for at least three years. At the end of that

time, foreign-born physicians may apply for

permanent residency status. Interested Federal

agencies may also request waivers. HHS requests waivers for research but not service.

Early in 2002, the U.S. Department of Agriculture (USDA), which has been a prime sponsor

of J-1Visa Waivers for primary care providers,

announced that it would no longer issue J-1Visa

Waivers. This decision, if it becomes final, will

reduce the number of foreign doctors available

to serve in rural communities.

Committee Recommendations:

ï The Secretary should create a focal

point within the Department to

coordinate the J-1 Visa Waivers issued by

all Federal agencies and the

communities in which they are placed to

ensure that the visa waivers are used to

meet patient care needs.

ï The Secretary should consider

allowing HHS to issue J-1 Visa Waivers

for primary care physicians if the USDA

declines to continue issuing those

waivers. If USDA continues to offer J-1-

Visa Waivers, the Secretary should work

with the Congress to re-authorize and

expand the scope of the Conrad State 20

program to more adequately meet the

primary care needs of rural communities.

the backbone of the rural safety net. The Medicare

Incentive Payments (MIP) offer one of the more

direct ways the Federal government encourages

physicians to practice in underserved areas and

ensure access to care for Medicare beneficiaries.

The program, which was created in 1989, offers a

10 percent ìbonusî on reimbursements for physicians who provide services to Medicare beneficiaries in rural HPSAs who are covered under Medicare Part B. The programís effectiveness, however,

is not without critics. Some say the 10 percent

payments are too small to entice physicians to

HPSAs.37 Others feel that the program is quite

underused.38 One rural Medicare expert estimates

that the 1998 bonus payments for care provided to

rural, whole county HPSA beneficiaries may have

been made on only about one-third of the eligible

billings. Translated to dollars, doctors collected only

$22 million of an estimated $67 million. The reasons

for this include physiciansí fear of being audited by

CMS if they claim the bonus, a lack of help from the

Conrad State 20 program

The Conrad State 20 Visa Waiver Program gives

States the option of supporting waivers for

physicians willing to practice in underserved

areas. Under this program, IMGs in participating

States can apply to the State health department

for a waiver. Participating States can support a

maximum of up to 20 waivers a year. All State

waiver requests must then be submitted to USIA

for review and final approval is issued by the INS

Commissioner.
30

insurance companies who process the bills for

Medicare in collecting the bonus, and the fact that

some physicians simply are not aware of being

eligible.39 One of the other issues with the MIP is its

relevance to specialist care. The GAO in 1999 and

the Physician Payment Review Commission (PPRC)

in 1994 have both questioned the value of allowing

urban specialists to qualify for the HPSA bonus

payment. The HPSA designation is a measure of

primary care in underserved areas and has little

relevance for determining access to specialty care.

Another complaint about the program is that payments may be inappropriately targeted. First, nurse

practitioners and physician assistants, who provide

significant amounts of primary care in rural areas, are

not eligible for bonus payments.40 Others have noted

that another problem with the program is its reliance

on a HPSA designation that is considered unstable.

They note that the addition of even one physician

can remove an areaís designation, and because a

physicianís willingness to remain in the area can

hinge on receiving the bonus payment, the uncertainty of HPSA designation may work against

keeping doctors in underserved areas.41

Committee Recommendations:

ï The Secretary should work with the

Congress to increase the amount of the

Medicare Incentive Payment to 20 percent.

ï The Secretary should work with the

Congress to allow nurse practitioners and

physician assistants to qualify for the

Medicare Incentive Payments.

ï The Secretary should work with the

Congress to eliminate Medicare Incentive

Payments to urban specialists.

ï The Secretary should change the

current auditing procedures used by the

Medicare Contractors to ensure that

providers who claim the Medicare Incentive

Payment will not have any greater

likelihood of being audited than providers

who do not claim the extra payment.
31

Although the examination and Committee recommendations contained in this report have by necessity dealt with discreet, individual issues related to

existing Federal statutory authorities, none of them

exists in isolation. The rural safety net is after all a

netóintertwined, interwoven, interdependent.

Because of this interdependence, deterioration in

one part of the system adds stress to other parts and

ultimately contributes to their deterioration. Without

an adequate workforce, it is difficult to maintain

access to primary care or to stabilize rural hospitals.

Absent hospitals, it is difficult to attract and retain an

adequate health care workforce.

The reverse, however, is also true. Mending one

part of the net will in all likelihood strengthen

other parts of the net. For example, strengthening

the workforce will help improve access to

primary care. Stabilizing rural hospitals will

improve access to primary care and help retain

an adequate workforce as well as to the benefit

of the community. The payoff, therefore, to any

one fix will multiply. As a result, though the

issues raised in this report are in one sense

discreet and require focused attention, they

cannot be considered in a vacuum.

Likewise, while this report has taken a targeted

look at existing authorities under the purview of

the HHS Secretary and made recommendations

to mend those authorities where necessary, the

Committee urges in the strongest possible terms

that efforts to improve the rural safety net not be

restricted to simply mending. That is not enough.

The net must also be extended.

This report has discussed the strands of the net

which help ensure access to hospital services,

ensure access to primary care, and maintain an

adequate workforce. However, the Committee

believes there are a range of ancillary issues that are

also critical not only to the safety net but the broad

health care delivery system. These support strands

would

ï ensure access to mental and oral health

services;

ï improve and expand the services of local

public health departments;

ï recognize and account for the uncompensated care provided by hospitals, free clinics

and physicians;

ï provide the capital necessary to build and

maintain facilities;

ï extend care to isolated and underserved

areas;

ï increase health insurance coverage; and

ï provide affordable access to prescription

drugs

ï increase access to transportation

ï improve reimbursement mechanisms to

compensate for lifestyle and behavior change

to improve health status

Extending the net will cost money. In many

cases, the cost will be borne by the Federal

government because extending the safety net

offers little if any profit incentive. That does not,

however, mean that money spent on extending

(or mending) the rural safety net should be

viewed as subsidy.

While the equitable treatment of rural citizens by the

Mending the Net, Extending the Net
32

Federal government is certainly a worthy endeavor,

such spending represents more than an attempt to

provide equity. It represents an investment on

several levels. It is an investment in a healthy,

productive workforce. It is an investment in local

economies, in which the health care sector is generally one of the largest employers and which cannot

attract and retain other economic activities absent

adequate health care. Finally, it is an investment in

prevention against the enormous costsómonetary

as well as socialóof both untreated illness and the

isolation and decline of rural communities that lack

adequate health care services.

Extending the net will require the efforts of many

Federal agencies, Congress, State and local governments and the private sector; HHS cannot extend

the net on its own. As a result, coordination will be

critical. Therefore, as a final recommendation, the

Committee recommends that the Secretary of HHS,

as part of his rural initiative, convene an intergovernmental, interagency group to examine ways to mend,

modify and extend the rural safety net. In so doing,

the Committee urges that the rural safety net not be

viewed merely as a last ditch effort to catch those

who have fallen, but rather as what it truly is: a

support structure undergirding the health of rural

Americans and of rural America.
33

1

 Institute of Medicine, Americaís Health Care

Safety Net: Intact but Endangered, National

Academy Press, 2000; Ormond, B., S. Wallin, and S.

Goldenson. Supporting the Rural Health Care

Safety Net. Occasional Paper Number 36. Assessing

the New Federalism. The Urban Institute. March

2000; Kaiser Family Foundation, Access to Health

Care: Promises and Prospects for Low-Income

Americans ̧ Kaiser, August 1999.

2

 From definitions by the Institute of Medicine and

Ricketts et al.

3

 Ricketts, T., R. Slifkin, and P. Silberman, ìThe

Changing Market, Managed Care and the Future

Viability of Safety Net ProvidersóSpecial Issues for

Rural Providers,î Background Paper for Institute

of Medicine, Cecil G. Sheps Center for Health

Services Research, The University of North Carolina

at Chapel Hill, November 1998.

4

 ibid

5

 Medicare Reform: A Rural Perspective. A Report

to the Secretary, U.S. Department of Health and

Human Services. The National Advisory Committee

on Rural Health. May, 2001.

6

 Medicare Payment Advisory Commission, Report

to the Congress: Medicare in Rural America, June

2001, p. 9.

7

 Ricketts et al, p.2.

8

 National Association of County and City Health

Officials, Local Public Health Agency

Infrastructure: A Chartbook. October, 2001, p. 18.

9

 Medicare Payment Advisory Commission, Report

to the Congress: Medicare in Rural America, June

2001, p. 20.

10 Ormond, B., S. Wallin, and S. Goldenson,

ìSupporting the Rural Health Care Safety Net.î

Occasional Paper Number 36, Assessing the New

Federalism, The Urban Institute, March 2000, p. 1.

11 Health Care Financing Review, Medicare and

Medicaid Statistical Supplement, 1999.

12 The Committee is considering a proposal to investigate and report on the rural health care workforce.

13 The Medicare Payment Advisory Commission,

Rethinking Medicareís Payment Policies for GME

and Teaching Hospitals. August, 1999, p. 5-7.

14 1996 Medicare Cost Reports provided via the Rural

Health Research Center at the Cecil G. Sheps Center

for Health Services Research. University of North

Carolina at Chapel Hill.

15 Gregg, W.; Knott, A., Moscovice, I. ìRural Hospital Access to Capital: Issues and Recommendations.î

Rural Health Research Center. University of Minnesota. September, 2001 (in progress).

16 Wagenfeld, M. Murray, J., Mohatt, D., DeBruyn, J.

ìMental Health and Rural America, 1980-1993.î

Office of Rural Health Policy, Health Resources and

Services Administration; Office of Rural Mental

Health Research, National Institute of Mental Health,

National Institutes of Health; U.S. Department of

Health and Human Services, Public Health Service.

17 Ormond, B., S. Wallin, and S. Goldenson, ìSupporting the Rural Health Care Safety Netî, Assessing the

New Federalism, Occasional Paper Number 36,

The Urban Institute, March 2000, p. 21.

18 National Advisory Committee on Rural Health,

Medicare Reform: A Rural Perspective, May 2001.

19 HR 2157, ìThe Rural Health Care Improvement

Act of 2001î.

20 MedPAC, p. 80.

21 Sec. 112 of the Balanced Budget Refinement Act

of 1999.

22 Guyer, J., Schneider A., Spivey, M. Health Policy

Group. Untangling DSH: A Guide for Community

Groups to Using the Medicaid DSH Program to

Promote Access to Care.

Endnotes
34

23 ibid

24 Section 1923 (D) of the Social Security Act.

25 Section 1905(l)(2))B) of the Social Security Act as

noted in http://bphc.hrsa.gov/CHC/CHCInitiatives/

fqhc_lookalike.asp.

26 Ricketts et al., pp. 5 and 8.

27 Analysis by the Rural Health Research Center at

the Sheps Center for Health Services Research at

the University of North Carolina, 2001.

28 See 42 USC ß 1395(x)(aa). These services

include ñ ì(A) physiciansí services and such services

as are covered under section 1861(s)(2)(A) if

furnished as an incident to a physicianís professional

service and items and services described in section

1861(s)(10); (B) such services furnished by a

physician assistant or a nurse practitioner (as defined

in paragraph (5)), by a clinical psychologist (as

defined by the Secretary) or by a clinical social

worker (as defined in subsection (hh)(1)), and such

services and supplies furnished as an incident to his

services as would otherwise be covered by a physicians or as an incident to a physicianís service; and

(C) in the case of a rural health clinic located in an

area in which there exists a shortage of home health

agencies, part-time or intermittent nursing care and

related medical supplies (other than drugs and

biologicals) furnished by a registered professional

nurse or licensed practical nurse to a homebound

individual under a written plan or treatment (i)

established and periodically reviewed by a physician

described in paragraph (2)(B), or (ii) established by a

nurse practitioner or physician assistant and periodically reviewed and approved by a physician described in paragraph (2)(B)î.

29 Ricketts et al., pp. 5 and 8.

30 HR 2157.

31 General Accounting Office, ì Health Centers and

Rural Clinics: Payments Likely to Be Constrained

Under Medicaidís New Systemî. GAO-01-577,

Washington, DC, June 2001.

32 GAO

33 GAO, p. 3.

34 Public Law 102-585, the Veterans Health Care

Act of 1992.

35 Health Resources and Services Administrationís

Office of Pharmacy Affairs web site. http://

www.hrsa.gov/odpp.

36 NHSC Data Collection.

37 MedPAC, p. 35.

38 RAND study

39 Rural Health News, Summer 2001.

40 MedPAC, p. 35.

41 ibid