Rural Primary Care Hospitals: Experience Offers Suggestions for Medicare's Expanded Program
Released: 1998-02-23T00:00:00

Letter

Background

The Omnibus Budget Reconciliation Act of 1989 (P.L. 101-239, Dec. 19, 1989) authorized Medicare payment to RPCHs for inpatient and outpatient services. Program participation was limited to seven states and HCFA selected California, Colorado, Kansas, New York, North Carolina, South Dakota, and West Virginia. California has no certified RPCHs.

RPCHs had to be located in rural counties and were limited to six inpatient acute care beds. Initially, RPCH inpatient stays were limited to a 72-hour maximum, but section 102 of the Social Security Act Amendments of 1994 (P.L. 103-432, Oct. 31, 1994) changed the requirement to an average of 72 hours during a cost-reporting year for periods beginning on or after October 1, 1995. RPCHs employ midlevel practitioners—physician assistants and nurse practitioners—working under the supervision of a physician, who is not required to be located at the RPCH. RPCHs are not allowed to provide surgery requiring general anesthesia but may perform surgeries normally done under local anesthesia on an outpatient basis at a hospital or ambulatory surgical center. We found few surgical procedures being performed at RPCHs during 1993-96.

In September 1993, the first RPCH, located in South Dakota, was certified to participate in Medicare. As shown in table 1, there were 38 certified RPCHs as of August 1997.

In addition to RPCHs, the Congress authorized a demonstration program for the operation of limited-service hospitals that was implemented by Montana. Under this program, Medicare was authorized to pay for basic emergency care, outpatient services, and limited inpatient care (maximum stay of 96 hours) provided at these limited-service hospitals, known as medical assistance facilities (MAF).

In our October 1995 report, we found that the MAFs were important sources of emergency and primary care for their communities. MAFs primarily served patients with urgent but uncomplicated conditions and stabilized patients with more complicated needs before transferring them to full-service hospitals. Moreover, Medicare’s costs for inpatient care at MAFs were lower than if the care had been furnished in rural hospitals.

While full-service hospitals normally are paid under Medicare’s PPS, both RPCHs and MAFs are paid on a cost reimbursement basis, as are CAHs, the replacement program for them. Like MAFs, CAHs are limited to 96-hour inpatient stays but can have 15 beds rather than the 6 for RPCHs. Both types of limited-service hospitals are scheduled to make the transition into CAHs by October 1, 1998.

RPCHs Treat Patients With Less Complex Illnesses or Stabilize Them for Transfer

As envisioned when the program was authorized, most RPCH inpatients have less complex illnesses that do not require intensive or high-technology care. Patients with more extensive health needs who go to RPCHs are generally stabilized and transferred to larger acute care hospitals, another important service to the community. In addition, RPCHs often serve as the source of primary care for residents in their areas.

The average stay for the 1,708 inpatients treated by RPCHs between September 1993 and May 1996 was 2.85 days. They were assigned to 137 different DRGs—9 surgical DRGs covering 11 cases and 128 medical DRGs covering 1,697 cases. Ten of the eleven surgical cases were from one RPCH located in South Dakota. A state official confirmed that this RPCH performs surgeries like those performed in ambulatory surgery centers that do not require general anesthesia. As we found when we reviewed services provided by MAFs in Montana, the three medical conditions most commonly treated by the RPCHs were pneumonia (247 cases), heart failure and shock (141 cases), and inflammation of the digestive canal (99 cases). Together these three conditions accounted for 29 percent of the 1,708 cases, which is similar to the 28 percent they represented in MAFs. Conditions classified as respiratory, circulatory, and digestive disorders accounted for 1,107 cases (65 percent) and 48 of the DRGs (35 percent) treated at RPCHs. (See app. II for a summary of inpatient DRGs treated at RPCHs.)

During the period covered by our review, 163 of the 1,708 inpatients (9.5 percent) were transferred from an RPCH to an acute-care hospital. The average RPCH stay for these patients was 1.9 days. During calendar years 1993 through 1996, about 5.6 percent of Medicare inpatients at other rural hospitals in Kansas, North Carolina, South Dakota, and West Virginia were transferred to another hospital. The percentage of RPCH patients transferred is 4 percentage points higher because one function of an RPCH is to stabilize patients and prepare them for transfer to a facility if the treatment they need is beyond the scope of RPCH services.

In addition to providing inpatient care, RPCHs provide local primary care for many Medicare beneficiaries. The 13 RPCHs treated more than 6,700 different Medicare beneficiaries during their latest available cost-reporting period and submitted more than 28,000 outpatient claims for services for these patients (see table 2). Outpatient services included visits with physicians and physician assistants, laboratory tests, influenza shots, colonoscopies, electrocardiograms, diagnostic radiology services, and emergency care. Medicare paid about $4.9 million for these outpatient services (see app. III for a summary of Medicare outpatient costs by RPCH by cost-reporting year).

Comparison of RPCH Payments With Current PPS Rates

Medicare payments for the 1,545 beneficiaries who received all their inpatient care from an RPCH totaled about $4.6 million, a little over $1,000 per day (see app. III). The average length of stay for these beneficiaries was 2.95 days. As we found when we made a similar comparison for MAF inpatient costs, these costs compared favorably with the amount Medicare would have paid if those patients had been treated at rural PPS hospitals.

Table 3 shows by RPCH and cost-reporting year the difference in payments to RPCHs comparing the payments that would have been made to rural and urban PPS hospitals. Overall costs at the 12 RPCHs covering 17 cost-reporting periods were about $404,000 more than the amount Medicare would have paid rural PPS hospitals. However, payments for treatment at the 12 RPCHs were about $207,000 less than the amount Medicare would have paid for treating the same conditions at urban hospitals. (See app. IV for individual RPCH cost comparisons to PPS payments.)

Although RPCH costs are slightly higher (8.8 percent) than PPS payments to rural hospitals, RPCH costs would have been lower if claims included in our review had complied with the 72-hour maximum length-of-stay requirement in effect when these admissions occurred. About 21 percent of the 1,545 stays exceeded the 72-hour limit and had 630 inpatient days incurred after the third day. These days cost the Medicare program an estimated $612,000. Because of the way cost reimbursement works, not all the cost of these days would be saved by eliminating them. The fixed costs allocated to the days would be reallocated to the remaining days of care and paid by Medicare. However, variable costs should be reduced if hospitals complied with the 72-hour limit and should result in lower overall Medicare costs. We believe the effect of this would result in RPCH inpatient costs being less than similar inpatient costs in rural PPS hospitals.

Under a 96-hour limit, which CAHs have under BBA, the costs associated with longer stays would still have been significant. About 8 percent of 1,545 inpatient stays included in our analysis would have exceeded the 96-hour limit. These stays had a total of 304 covered inpatient days after the fourth day. Payments for those days totaled an estimated $295,000.

Turning to the cost to Medicare for patients who are transferred from RPCHs, regardless of what kind of hospital makes the transfer, all transfers result in higher cost to Medicare because two facilities receive payment for the same patient. Under PPS, the transferring hospital receives a per diem payment determined by dividing the PPS payment by the geometric mean length of stay associated with the patient’s DRG. The hospital from which the patient is finally discharged receives the full PPS payment for the patient’s DRG. When patients are transferred from RPCHs, the RPCH receives cost-based reimbursement for the patient, and the hospital from which the patient is finally discharged receives the full PPS payment. Medicare RPCH payments for the 163 beneficiaries who were initially treated at an RPCH and transferred to a full-service PPS hospital totaled about $322,000 (see app. III). These RPCH stays averaged 1.9 days. We estimate that these costs were about $148,000 (about $910 per case) greater than the amount Medicare would have paid an acute-care hospital in per diem payments if the patient had first gone to an acute-care PPS hospital for the same length of time. Appendix V lists the hospitals where patients were transferred.

Potential Problems With Expanded Program

As of August 1997, 51 limited-service hospitals (38 RPCHs and 13 MAFs) were authorized to treat Medicare patients. Effective October 1, 1997, these limited-service hospitals were to start making a transition into a new nationwide program—the Medicare Rural Hospital Flexibility Program—and to be renamed CAHs. As the number of CAHs increase, it will become more important for HCFA to monitor the inpatient stay and physician certification requirements established by the Congress.

Inpatient Stay Limitation Requires Monitoring

HCFA had no established way of ensuring that RPCHs complied with the 72-hour length of stay limitation when it was in effect or to assess whether cases outside the limit met one of the allowable exceptions. As a result, HCFA did not know whether RPCHs complied with this requirement. As our work illustrates, when lengths of stay exceeded the limit, Medicare costs tended to be higher than if patients had gone to a rural PPS hospital.

BBA’s successor program, CAHs, provides that the Medicare peer review organization (PRO) covering a CAH’s area can waive the 96-hour limit case by case after a request to review a case. The statute does not define the conditions that would warrant waiving the limit. We believe that the PRO review could serve as the mechanism for ensuring compliance with the length-of-stay limit. If intermediaries were instructed to limit payment on CAH cases to no more than 4 days, unless the claim were accompanied by a PRO waiver, CAHs would have an incentive to ensure that they stay within the limit unless circumstances warranted an exception. HCFA would need to define what these circumstances are for both CAHs and PROs.

Physician Certification

Medicare regulations state that the program pays for inpatient RPCH services only if a physician certifies that the individual may reasonably be expected to be discharged or transferred to a hospital within 72 hours (96 hours, effective October 1, 1997). The physician’s certification is maintained in the patient’s medical record. However, HCFA had not yet initiated a method to ensure compliance with this requirement.

HCFA officials told us that the agency planned to have state facility survey personnel review compliance with the physician certification requirement when RPCHs were recertified for continued participation in the Medicare program. The officials said HCFA also plans to use this process for CAHs. The physician certification requirement is one way to help ensure that only the appropriate kinds of patients are admitted to CAHs and that the 96-hour limit is likely to be adhered to. HCFA needs to formally establish a mechanism for checking compliance with the physician certification provision.

Conclusions

RPCHs were an important access point for inpatient and outpatient services for Medicare beneficiaries in rural areas. Medicare payments to RPCHs for inpatient stays were, however, somewhat higher than payments would have been to rural PPS hospitals to treat the same patients. A primary reason for this was that about 21 percent of the inpatient cases had lengths of stay that exceeded the 72-hour maximum in effect at the time, and 8 percent would have exceeded the 96-hour limit for CAHs. HCFA has not established a way to enforce the length-of-stay limit, and we believe one is needed to give CAHs an incentive to adhere to the limit. HCFA also needs to define for CAHs and PROs, which are authorized to grant waivers to the 96-hour limit, the conditions and circumstances under which it would be appropriate to waive the requirement.

HCFA also has not established a way of checking compliance with the requirement that a physician certify that patients admitted to RPCHs, now CAHs, are expected to be discharged within the maximum allowed length-of-stay limit. Such a mechanism should reinforce the importance of the certification and its intent to ensure that only the appropriate kinds of patients are admitted.

Recommendations

The Secretary of Health and Human Services (HHS) should direct the Administrator of HCFA to establish a mechanism for ensuring that CAHs do not receive payment for inpatient cases that exceed the 96-hour length-of-stay maximum unless the responsible PRO waives that limit and defines the conditions and circumstances under which it would be appropriate for PROs to waive the 96-hour limit. HCFA should also establish a method to ascertain compliance with the requirement that physicians certify that patients are expected to be discharged within 96 hours of admission.

Agency Comments

We provided HCFA an opportunity to comment on a draft of this report, but the agency was unable to provide us written comments in the time required. We did, however, discuss a draft with agency officials involved with the RPCH program and incorporated their comments as appropriate.

This report was prepared under the direction of Thomas Dowdal, Senior Assistant Director. Please contact him or me at (202) 512-7114 if you have any questions. Others who made major contributions to his report include Robert Sayers, Jerry Baugher, Robert DeRoy, and Joan Vogel.

Copies of this report are also being sent to appropriate House and Senate committees, the Director of the Office of Management and Budget, the Secretary of HHS, the Inspector General of HHS, and the Administrator of the Health Care Financing Administration.

Objectives, Scope, and Methodology

Our objectives were to develop information on the cases treated and inpatient and outpatient services performed at RPCHs, the relative cost of providing inpatient health care services to Medicare beneficiaries at RPCHs and acute-care hospitals, and compliance with the physician certification and 72-hour inpatient stay requirement.

We visited three RPCHs—two in North Carolina and one in South Dakota—and also contacted a fourth RPCH in South Dakota. From these RPCHs, we obtained information on the types of patients they treated, how they complied with the inpatient stay limitation and the physician certification requirements, and why stays at their RPCHs exceeded the 72-hour inpatient limitation. We also met with state rural health officials and state facility surveying personnel in North Carolina and South Dakota to obtain information on the RPCH program.

We obtained automated cost and claim data for 15 RPCHs in Kansas, North Carolina, South Dakota, and West Virginia. Cost data were extracted from HCFA’s Health Care Provider Cost Report Information System (HCRIS), which includes selected data from hospital cost reports. Paid claims were provided by the four intermediaries—Kansas Blue Cross (Kansas), North Carolina Blue Cross (North Carolina), IASD Health Services Corporation (South Dakota), and Blue Cross of Virginia (West Virginia)—serving the RPCHs. We obtained inpatient and outpatient claims for each RPCH from the date certified through May 1996. Twelve of the 13 RPCHs submitted inpatient claims. All 13 RPCHs submitted outpatient claims.

From the inpatient claims, we extracted data on the diagnoses and length of stay associated with Medicare patients admitted to RPCHs. In addition, we extracted the same data from HCFA’s Medicare Provider Analysis and Review (MEDPAR) file for Medicare patients admitted to RPCHs but whose claim was paid under the RPCH’s old hospital provider number. We also used MEDPAR to obtain data on Medicare patients transferred from an RPCH to an acute care hospital. For patients transferred to full-service hospitals, we obtained the name of the hospital they were transferred to and the diagnoses and length of stay.

Using the cost report data, we estimated the costs for each RPCH Medicare inpatient stay. We then compared those costs with the amount Medicare would have paid an acute-care hospital under PPS for the same DRG at hospitals in the rural areas of the applicable states and the urban hospitals nearest to the RPCHs. We also computed the amount Medicare paid a PPS hospital and an RPCH when it transferred patients to an acute-care hospital.

From the outpatient claims, we extracted data on the types of services provided to Medicare beneficiaries. For each RPCH cost year, we calculated the number of outpatient claims submitted and the number of Medicare beneficiaries treated by the RPCH.

Estimating RPCH Inpatient Costs

Because the 13 RPCHs in our analysis were certified at different times between September 8, 1993, and August 23, 1995, and had varying cost-reporting years, the cost report information we obtained covers different time periods for each facility, as identified in table I.1.

We calculated the average inpatient operating costs per patient day for each RPCH’s cost-reporting period, excluding capital costs, by dividing operating costs (which includes routine and ancillary costs) by the number of Medicare days. We estimated the cost of treating each RPCH patient by multiplying the facility’s average daily Medicare cost by the number of days each patient was an inpatient.

Estimating PPS Rates

We calculated the PPS rates for the 1,708 RPCH inpatients in our analysis for hospitals in rural Kansas, North Carolina, South Dakota, and West Virginia and appropriate urban areas. We identified each patient’s DRG from the paid claim file and estimated the amount Medicare would have paid for each of these RPCH discharges in a rural and urban PPS hospital, using PPS payment rates in effect when the patient was discharged. Our estimate of PPS payments does not include payments for capital costs or any additional amounts that hospitals with teaching programs or a disproportionate share of low-income patients receive from Medicare.

Inpatients Who Transferred From RPCHs to PPS Hospitals

A total of 163 inpatients were treated at an RPCH and then transferred to a PPS hospital. We estimated Medicare’s cost of treating those patients at the RPCH in the same way we did for all patients—that is, by multiplying the RPCH’s daily Medicare cost by the number of days the patient was at the RPCH before being transferred.

When an RPCH transfers a patient to a PPS hospital, the receiving hospital is paid the full DRG rate and the RPCH is paid its costs. PPS hospitals are reimbursed for the care provided to a patient who transfers to another hospital according to a per diem rate. This rate is obtained by dividing the PPS payment by the geometric mean length of stay expected for the patient’s DRG (this number is published annually with the DRG relative weights).

We calculated the per diem PPS rate for each of the 163 transfer cases and multiplied that amount by the number of days each patient stayed at the RPCH before being transferred. The result of this calculation was the estimated payment that PPS hospitals would have received had the patient been treated at a PPS hospital for the same number of days that the patient was at the RPCH prior to being transferred.

For each patient transferred, we compared the RPCH cost to what a rural PPS hospital would have been paid if it had transferred the patient. The result showed whether the treatment at the RPCH was more or less costly than treatment would have been for a transfer case at a rural PPS hospital.

RPCH Outpatient Data

The cost report information obtained for the 13 RPCHs covers the cost-reporting periods identified in table I.1. All 13 RPCHs reported Medicare outpatient costs and submitted outpatient claims. We obtained the Medicare outpatient operating costs from HCRIS data for each RPCH, for each cost-reporting period.

From the paid claims file we determined, for each RPCH cost-reporting period, the number of outpatient claims submitted and the number of different Medicare beneficiaries treated. We also identified the types of outpatient services being provided to Medicare beneficiaries.

RPCH Compliance With Length-of-Stay Limitation and Physician Certification

We did not evaluate the RPCHs’ compliance with the annual average 72-hour length-of-stay requirement that became effective for cost-reporting periods starting October 1, 1995. The RPCH cost reports available for our review covered RPCH cost-reporting periods beginning prior to October 1, 1995, when a maximum inpatient hospital stay requirement of 72 hours existed. Moreover, HCFA officials told us that they had not reviewed RPCHs’ compliance with either of the two (maximum or average) 72-hour requirements.

We did not verify RPCHs’ compliance with the requirement that physicians certify that a Medicare patient can reasonably be expected to be discharged within 72 hours (changed by BBA to 96 hours) because this certification is entered on patient records maintained by RPCHs and it was not practical for us to review these records. Although HCFA has not reviewed RPCHs’ compliance with this requirement, HCFA officials told us the agency plans to require state facility survey personnel to determine physician compliance when they visit RPCHs as part of Medicare’s recertification process for continued participation in the program.

Inpatient RPCH Cases Reviewed by DRG Category

Total Medicare Inpatient and Outpatient Costs by RPCH Cost-Reporting Years

This facility had no Medicare inpatient admissions.

Difference Between Individual RPCH Costs and PPS Payments

The data in the tables in this appendix are for urban and rural areas for 1,545 nontransferred inpatients who received all their care at RPCHs.

RPCH costs higher (lower) compared with PPS payments for hospitals In (37,351) (41,607) (63,154) (67,969) (10,553)

RPCH costs higher (lower) compared with PPS payments for RPCH costs higher (lower) compared with PPS payments for hospitals in surroounding areas Sioux Falls, South Dakota ($10,826) (92,743) (87,905) (49,443) (58,250) (43,748) (43,507) (28,665) (31,707) $446,206 (lower) compared with ($332,978) ($264,380) (341,544) (258,597) ($655,864) ($496,584)

Hospitals Receiving Transferred RPCH Patients

Transferred from RPCHs in Kansas Asbury-Salina Regional Medical Center, Salina, Kans.

Central Kansas Medical Center, Great Bend, Kans.

Duke University Medical Center, Durham, N.C.

Halstead Hospital, Halstead, Kans.

Hays Medical Center, Hays, Kans.

Phillips Episcopal Memorial Medical Center, Bartlesville, Okla.

St. Catherine Hospital, Garden City, Kans.

St. Francis Regional Medical Center, Wichita, Kans.

St. Joseph Medical Center, Wichita, Kans.

St. Luke’s Hospital, Kansas City, Mo.

Wesley Medical Center, Wichita, Kans.

Western Plains Hospital, Dodge City, Kans.

William Newton Memorial Hospital, Winfield, Kans.

Transferred from RPCHs in North Carolina Pill County Memorial Hospital, Greenville, N.C.

Roanoke Chowan Hospital, Ahoskie, N.C.

Transferred from RPCHs in South Dakota McKennan Hospital, Sioux Falls, S.D.

Queen of Peace Hospital, Mitchell, S.D.

St. Luke Midland Regional Medical Center, Aberdeen, S.D.

St. Mary’s Hospital, Pierre, S.D.

St. Mary’s Hospital, Rochester, Minn.

Sioux Valley Hospital, Sioux Falls, S.D.

University of Minnesota Hospital and Clinic, Minneapolis, Minn.

Transferred from RPCHs in West Virginia Aultman Hospital, Canton, Ohio Davis Memorial Hospital, Elkins, W.V.

Fairmount General Hospital, Fairmount, W.V.

Grafton City Hospital, Grafton, W.V.

Monongalia General Hospital, Morgantown, W.V.

Summersville Memorial Hospital, Summersville, W.V.

United Hospital Center, Clarksburg, W.V. (continued)

West Virginia University Hospital, Morgantown, W.V.

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