Hospitals, Payers

Transforming rural healthcare will require a funding overhaul. Here’s one way to do it.

The answer to rural healthcare’s financial issues could lie in a payment model that pools funds from public and private insurers alike to pay for agreed-upon core services, allowing rural hospitals to provide the care most needed by the communities they serve.

The financial problems facing rural healthcare are undeniably complex and as such require out-of-the-box solutions. One solution being tested today is a new funding system in which public and private insurers pool funds to pay for a defined set of services to a specific community.

Put forth in the final recommendations released by the American Hospital Association’s Future of Rural Health Care Task Force in May, the solution would give participating hospitals access to funds from the pool, which they would use to provide agreed-upon core services, like primary care, emergency departments and maternal care.

By and large, rural health experts who spoke to MedCity News agree that this type of model would be viable. Versions of it are already being piloted in Pennsylvania and Maryland, and initial results appear to be favorable. But implementing the model is not without its challenges, which include stakeholder alignment and a lack of expertise among rural hospitals new to managing risk.

The private-public funding for core services model
It is clear that the traditional fee-for-service model is not working for rural hospitals. Rural populations are decreasing and, as a result, margins are not what they used to be for hospitals in these areas, said Timothy Moore, president and CEO of the Mississippi Hospital Association and a member of the AHA’s task force, in a phone interview.

With declining margins come widespread hospital closures. From January 2013 through February 2020, 101 rural hospitals have closed, according to the Government Accountability Office.

“If [patient] volume is not great enough to substantiate and make [core] services feasible going forward, then there has to be some way to offset those costs,” Moore said. “That’s where this [model] comes into play.”

The model involves payers and providers identifying and agreeing upon core, essential services and quality measures for beneficiaries’ care. Payers provide funds to a pool that will cover these services on a population, rather than a fee-for-service, basis.

Though 2020 left rural hospital finances in tatters, payers saw strong returns, Moore said. So, there is a clear opportunity for payers to partner with each other and providers to ensure a dependable line of funding for key services.

Hospitals participating in the model will be required to hire a care coordinator or navigator to ensure that patients have access to the services while preventing overuse. The hospitals will also be accountable for meeting negotiated quality measures related to the core services. If those are not met, payers can reduce future allocations to the pool.

For the model to work, payers must commit to three years of participation. Any payers who opt to leave within that time period must pay a pre-determined penalty to the fund.

With its focus on population health, rather than patient volume, the model can help rural hospitals not only keep traditional services alive but also allow them to address social determinants of health, said Brock Slabach, vice president of member services at the National Rural Health Association, in a phone interview.

Transportation, for example, was identified by the AHA task force as one of the most essential services in rural areas. Rural hospitals usually do not have enough money to provide transportation even though it is one of the biggest barriers to care in these regions, Slabach said. This is where the model could help as it institutes a funding system allowing hospitals to prioritize the services most needed by the communities they serve.

Real-world examples of the model at work
Versions of the pooled funding model for core services are already being piloted.

One is the Pennsylvania Rural Health Model, which aims to transition rural hospitals from fee-for-service to global budget payments. Run by the PA Rural Health Redesign Center Authority, the model was implemented in January 2019 in partnership with the Center for Medicare and Medicaid Innovation.

Per the model, the Centers for Medicare & Medicaid Services and other participating payers, including state Medicaid agencies and commercial insurers, pay participating rural hospitals for all inpatient and hospital-based outpatient services through a global budget that is set in advance.

CMMI aims to have 90% of net patient revenue for a participating hospital covered by the global budget, said Gary Zegiestowsky, executive director of the PA Rural Health Redesign Center Authority, in a phone interview. The remaining care is still reimbursed on a fee-for-service basis.

“The benefit [of the model] is it gives hospitals a fixed budget to operate on,” Zegiestowsky said. “So, for rural hospitals that are struggling to survive…it gives them financial stability to operate and focus on what they can do to transform and align their services to best meet the needs of their community.”

The payers and providers participating in the model together establish the budget, along with the help of the Rural Health Redesign Center Authority.

There are provisions to adjust the budget if needed. For example, there is a “potentially avoidable utilization factor,” which accounts for care that shouldn’t be delivered at a hospital but is, Zegiestowsky said. Savings are built into the budget to pay for that avoidable utilization.

The model is in the third year of a six-year demonstration schedule, and the feedback from participants has been positive so far.

“We did a recent provider survey, and 92% of all hospital executives in the program believe that the global budget model is helping them be more stable financially as well as providing a solid path to be able to transform their organizations,” Zegiestowsky said.

Further, the model appears to help reduce costs. An independent evaluation of Maryland’s version of an all-payer global budget program, conducted by CMMI in 2017, suggests that it curbed total hospital expenditures for Medicare beneficiaries.

As a result, other states have been inspired to consider global budgeting as a potential financial solution for their rural facilities.

Dr. William Ferniany, CEO of the University of Alabama Birmingham Health System and member of AHA’s rural health task force, has been trying to implement a similar flexible funding model in his state for years.

Currently, Ferniany is working with a consortium that includes leaders from Blue Cross Blue Shield of Alabama and the Alabama Hospital Association as well as the state commissioner of Medicaid and the head of Alabama public health to identify such a model, he said in a phone interview. And CMS’ Community Health Access and Rural Transformation, or CHART, payment model has piqued their interest.

Released last August, CHART involves two tracks: the Community Transformation Track and the Accountable Care Organization Transformation Track. In the first, CMS will select 15 organizations, including state Medicaid agencies, local public health departments and independent practice associations, to work with participating hospitals to implement new care models with federal funding. The second will involve CMS selecting 20 rural-focused ACOs to receive advanced payments as part of joining the Medicare Shared Savings Program.

UAB Health System has applied for the model and is waiting for CMS to announce the participants in the fall of this year.

“Global budgeting like in Pennsylvania or Maryland, or the CHART model, [are] much better ways for rural hospitals [to get paid than fee-for-service],” he said.

Hurdles standing in the way of implementation
Though these payment models hint at an innovative future in rural healthcare, it is important to remember that they come with their own challenges.

From a payer perspective, though a funding pool or global budget could help rural hospitals survive, one major hurdle is the accountability factor, said Von Nguyen, senior vice president and chief medical officer at Durham-based Blue Cross and Blue Shield of North Carolina, in a phone interview.

A member that buys a Blue Cross plan is entitled to a particular set of services, which may be different from what a competitor is offering. It’s up to each payer to be accountable for the care they have promised their members when they collectively decide the core services that will be funded through the pool, he said.

“You [may] lose that accountability when you truly pool the funds together,” he added.

Aside from the issue of member accountability, Nguyen believes that not every hospital is ready for certain value-based models, including ones that involve capitated payments like the pooled funding system.

“It takes quite a bit of capability to manage a patient in a capitated model because you get [a certain amount of money on the front end] and if you need to provide services and it costs more than you are getting in the capitated payment, the hospital is on the hook for that — so it’s pretty risky,” Nguyen said.

Managing risk is a capability that hospitals need to develop, and rural facilities can have a difficult time with that. This is where companies like Kansas City, Missouri-based Caravan Health come in.

The private-public funding pool model is a great idea in theory, but rural providers struggle with taking advantage of innovative new strategies, said Tim Gronniger, president and CEO of Caravan Health.

Caravan supports rural facilities and those disproportionately serving a low-income population to implement and operate value-based care models.

“We bring them technology, we bring them expertise and coaching, and we become partners with them and share in the risk of these contracts,” Gronniger said, in a phone interview.

Another source of struggle for both providers and payers in this model is alignment, National Rural Health Association’s Slabach said.

Bringing different stakeholders with varied interests and finding common ground can be challenging, especially when financing is involved. It can take an unprecedented level of collaboration to get everyone in the room to agree to the same terms with regard to cost and quality measures, he said.

But if executed as intended, the model and its different versions could transform the way rural healthcare functions and is funded.

For UAB Health System’s Ferniany, the pooled funding model keeps the ultimate goal of the healthcare industry front and center — caring for the general public.

“I used to see healthcare as a right,” he said. “Now I see it as a public good. It has to be available to everybody, just like clean water is a public good…And if we start to think about [healthcare] as a public good, [we] will pay for it in a way that benefits the public.”

Photo: claudenakagawa, Getty Images