Opportunities in the Rural Hospital Flexibility Program

1
Opportunities in the Rural Hospital Flexibility
Program

• John Packham, PhD
• Director, Nevada FLEX Program
• University of Nevada School of Medicine
• John Sheehan, CPA
• Partner, BKD Health Care Group, LLP
• Third Annual Western Region Flex Conference
• June 8, 2005 Phoenix Arizona

2
Opportunities in the Rural Hospital Flexibility
Program

• The Medicare Flex Program
• State Flex Programs and Nevadas Use of Flex
  Dollars
• Legislation and Regulatory Change Affecting
  Critical Access Hospitals and the Flex Program
• Current CAH Reimbursement
• The Costs and Benefits of CAH Designation
• The Future of Flex

3
The Medicare Rural Hospital Flexibility Program
or FLEX Program
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Medicare Rural Hospital Flexibility Program

• Medicare Rural Hospital Flexibility Program
  product of the Balanced Budget Act of 1997
• Prescribes strong State role in program planning
  and administration, i.e., State Offices of Rural
  Health and Rural Health Associations
• CAH and CAH-eligible facilities have improved
  access to state and national technical assistance

5
Medicare Rural Hospital Flexibility Program
(cont.)

• Creates Critical Access Hospital (CAH)
  designation for small rural facilities, which
  allows rural hospitals (CAHs) to receive cost
  reimbursement
• CAH designation also permits greater flexibility
  from federal regulations governing Medicare
  certified acute care hospitals (not all states
  permit this flexibility)

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A Brief History of the Medicare Rural Hospital
Flexibility Program

• Medicare Rural Hospital Flexibility Program
  product of the Balanced Budget Act of 1997 and a
  successor to similar demonstration programs
• Program has evolved considerably since 1997, in
  part, through advocacy efforts of SORHs, state
  and national hospital associations, NRHA
• Despite strong nation-wide support and
  well-documented benefits to rural hospitals and
  health systems, long-term federal support is
  uncertain

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A Brief History (continued)

• Balanced Budget Refinement Act of 1999 (BBRA)
• Medicare, Medicaid, and S-CHIP Benefits
  Improvement Act of 2000 (BIPA)
• Medicare Prescription Drug, Improvement and
  Modernization Act of 2003 (MMA)

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Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (MMA)

• Reimbursement increased to 101 of cost
• On-call ER mid-level cost is allowable
• Authorizes Periodic Interim Payments (PIP)
• Increases acute care bed limit to 25 (from 15)
• Authorizes inpatient psychiatric and
  rehabilitation Distinct Part Units (DPUs) up to
  10 beds each

9
Medicare Prescription Drug Improvement and
Modernization Act of 2003 (MMA) (cont.)

• Requires greater state hospital association and
  CAH role in determining the use of grant funds
• Limits the use of grant funds for administrative
  purposes to 15
• Eliminates state authority to designate necessary
  provider status after January 1, 2006
• Authorizes an additional 4-year period of funding
  (35 million/year) through FY 2008

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State Flex Programs and the Use of Flex Dollars
in Nevada
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State Flex Programs

• Authorizes 35 Million per year in grants since
  1999 with reauthorization through FY 2008
• Currently, 45 states are participating in the
  program and over 1,000 facilities have been
  certified as CAHs by CMS since 1997
• The Nevada Rural Hospital Flexibility Program is
  my states version of the national program

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Components of State Flex Program Activity (or
FLEX is more than CAH)

• CAH Designation, Surveys, and Re-Surveys
• Rural Hospital and Health Planning and
  Development
• Community Development
• Network Development
• EMS Integration
• Quality Improvement
• Performance Improvement
• Workforce Issues
• State Flex Program Evaluation

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Nevada Flex Program Goals and Objectives

• (1) Provide essential technical assistance and
  support to CAHs and prospective CAHs
• (2) Develop and implement performance monitoring
  and improvement activities in CAHs and
  prospective CAHs
• (3) Support rural hospital quality improvement
  activities in all rural hospitals
• (4) Support rural hospital network development,
  including health information technology capacity

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Nevada Flex Program Goals and Objectives
(continued)

• (5) EMS integration and improvements
• (6) Preparation and dissemination of
  rural-relevant health services research
• (7) Systematic evaluation of Flex program
  activities

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Composition of the Nevada Flex Program

• Nevada Office of Rural Health
• Nevada Rural Hospital Partners
• Nevada Hospital Association
• Nevada Bureau of Licensure and Certification
• Nevada Medicaid
• Health Insight (Nevadas QIO)
• Nevadas CAHs and CAH-eligible hospitals

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Blending Short-Term and Long-Term Program Goals
The Example of Nevada Performance Improvement
Activities

• Improve financial and operational performance of
  participating facilities
• Development of in-house program capacity to
  assist hospitals with PI and strategic planning
• Development of in-house facility capacity to
  measure and monitor performance (esp., develop
  and use scorecards)

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Resources Available to CAHs and CAH-Eligible
Hospitals in Nevada

• Operational and financial technical assistance
  (TA)
• Assistance with CAH and state licensure survey
  preparation and compliance
• Strategic hospital planning, board education, and
  performance improvement
• TA and information via compressed video
• Quality improvement/assurance TA and network
  development

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Resources Available to CAHs and CAH-Eligible
Hospitals in Nevada

• Health service financial feasibility assessments
• Telecommunications and Information Technology TA
  and planning
• EMS TA and planning
• Grantwriting assistance and training
• Public policy development
• Community health surveys and health planning

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Flex Program Impacts Financial Performance and
Economic Viability

• Net operating income for FY ending June 20, 2004
  increased by 4.5 million over the previous year
• Net income increased by 2.5 million
• Decrease in deductions from revenue of less than
  2
• Average growth in gross patient revenue over 10
• Increase in scope of services, new capital
  expenditures and construction (combined
  7.5million since 2000), and increased retention
  of clinical and non-clinical staff

20
Flex Program Impacts Rural Health System
Improvements

• Quality improvement activities and network
  development in a dozen hospitals
• Expansion of telecommunications and health
  information technology capacity in over 50 sites
  EMS improvements in 35 communities and support
  for the statewide EMS conference
• Initiated performance improvement, strategic
  planning and Balanced Scorecard development and
  implementation in 3 facilities

21
Flex Program Impacts Research to Support Rural
Health Planning

• Ongoing development of the Nevada Rural Health
  Plan
• Health needs assessments and health service
  feasibility assessments in 8 communities
• Improved rural health data collection and
  information dissemination, including the
  bi-annual production of the Nevada Rural and
  Frontier Health Data Book

22
Current CAH Statutory Requirements and
Reimbursement
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CAH Statutory Requirements

• Must be located in a rural area and 35 miles from
  any other hospital (except under certain
  conditions)
• Must minimally provide 24-hour/7-day emergency,
  laboratory, and x-ray services
• Limit inpatient acute care beds to no more than
  25, including swing beds
• Agree to 96 hour inpatient care average
• Plan for coverage of EMTALA regulations
• Protocols for non-physician practitioners or
  mid-level providers

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CAH Statutory Requirements (cont.)

• Emergency services may be provided by a PA or NP
  supervised by a MD who may be off-site
• Must be a member of a rural health network Must
  have patient transfer and referral agreement(s)
  with a full-service hospital
• Agreement for credentialing and quality assurance
  with another network hospital or entity (e.g.,
  QIO)
• Plan for the delivery of emergency medical
  services and communication with local EMS

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CAH Statutory Requirements (cont.)

• May be certified for swing beds
• May have additional beds in SNF/long-term care
  units
• May have distinct part units (psych or rehab)
• Other conditions of participation apply

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Current CAH Reimbursement

• CAHs are generally paid 101 of full cost
  reimbursement for inpatient, outpatient, and
  swing-bed services
• These limits apply
• Physical, speech, and occupational therapy costs
  subject to the AHSEA limits
• Prudent buyer and reasonable and necessary rules
  apply

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Current CAH Reimbursement (cont.)

• Following rules do not apply
• DRGs, APCs, lab and therapy fee schedules
• Lesser of cost or charges
• TEFRA limits (ceilings)
• Physician RCE limits
• Payment window provisions
• Reductions of operating and capital costs
• Blending of outpatient costs and fee schedules

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Current CAH Reimbursement (cont.)

• May receive CRNA pass-through if all other
  criteria are met 412.113 (c)
• Non-patient (reference) lab paid on fee schedule
• Non-patient is any patient not on-site at the CAH
  (and other criteria apply)

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Special CAH Reimbursement Provisions

• Optional outpatient reimbursement method called
  method 2
• May elect to bill FI for certain outpatient
  physician services and receive 115 of fee
  schedule
• Services of non-physician practitioners paid at
  85 of 115
• May elect optional method and retain CRNA
  pass-through
• Swing-bed services are reimbursed at 101 of cost
  and are exempt from SNF PPS

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Special CAH Reimbursement Provisions (continued)

• ER physician or midlevel practitioner on-call
  cost is an allowable cost (specific criteria
  apply)
• Ambulance reimbursement
• Same as other hospital-based cost is subject to
  limits blended with fee schedules
• Exception cost reimbursed if no other ambulance
  within 35 miles

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Assessing the Costs, Benefits, and Feasibility of
CAH Designation
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Potential Benefits of CAH Designation and FLEX
Program Participation

• Higher Medicare inpatient and outpatient
  reimbursement
• Potential for Medicaid in-patient and outpatient
  cost-based reimbursement (CBR)
• Cost reductions and efficiencies
• Greater flexibility in staffing and services
• Enhanced revenue and HUD 242 eligibility
  encourages capital improvements

33
Potential Benefits of CAH Designation and FLEX
Program Participation (cont.)

• Potential for improved recruitment and retention
  of health care professionals
• Opportunity to match unique community health
  needs with the facilitys services
• Stronger network affiliations and collaboration
  with FLEX program partners
• Greater access to resources and technical
  assistance

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Factors to Consider in Converting to CAH

• Projected financial impact of CAH designation
  versus current reimbursement under PPS
• Current financial status of the facility
• Services currently provided by hospital
• Health and health care needs of the local
  community
• Current and projected economic and demographic
  profile of the hospital service area

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Factors to Consider in Converting to CAH (cont.)

• Current and projected utilization patterns and
  payer mix
• Facility and community understanding and
  acceptance of CAH designation
• Resources available to the hospital and community
  to accurately assess and successfully implement
  compliance activities and conversion

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The Future of FLEX and Critical Access Hospitals
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Federal Flex Program Vision Statement

• The Flex Program is an ideal vehicle for
  sustaining access to appropriate healthcare
  services of high quality in rural America. It
  will facilitate the development and support of
  community-based collaborative rural delivery
  systems in all grantee states through conversion
  of hospitals to critical access status, rural
  healthcare network development and EMS
  integration. The Program shall maintain its
  adaptability to varying conditions in each
  State. (emphasis added)

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Federal FLEX Program Mission Statement

• Consistent with the vision statement, Flex will
  help sustain the rural healthcare infrastructure
  by strengthening CAHs and eligible facilities and
  helping them operate as the hub of a
  collaborative delivery system in those
  communities where they exist. By applying the
  components of Flex State Rural Health Plan
  (SRHP), CAHs, networks, Quality Improvement and
  EMS integration initiatives the Program can
  foster the growth of rural collaborative
  healthcare systems across the continuum of care
  at the community level with appropriate external
  relationships for referral and support.

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The Uncertain Political Future of Flex and Other
Rural Health Programs

• Despite strong support and well-documented
  benefits to rural hospitals and health systems,
  long-term federal support is uncertain (Flex is
  not alone in this regard)
• Immediate issues include proposed rule changes
  for necessary providers and rumblings from the
  Medicare Payment Advisory Commission (MedPAC)

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For Additional Information on CAH or FLEX

• John Packham PhD
• Director, Nevada FLEX Program
• 775-784-1235 / jfp_at_unr.edu
• John Sheehan, CPA
• Partner, BKD Health Group, LLP
• 314 231 5544 / jsheehand_at_bkd.com