Despite a reduction in Medicare payments, Mercy feels equipped to deal with changes as the Affordable Care Act rolls out

The rollout of the Affordable Care Act has already set off significant change and uproar around individual insurance plans. As the ACA settles into place in 2014, more change is coming to small rural hospitals. Under the ACA, small rural hospitals like Mercy Medical Center Mt. Shasta will see reductions in traditional Medicare payments, and some will see new payment requirements for patient care. Rural hospitals rely on Medicare payments – which primarily cover older people – for almost 45 percent of their annual income. Approximately 43 percent of Mercy Mt. Shasta’s patient revenue is from Medicare, and those patients account for approximately 38 percent of payments, said Scott Foster, Mercy’s Director of Hospital Finance. The changes in how Medicare money reaches rural hospitals – and all hospitals around the country – are an attempt by federal lawmakers to improve health care and reduce costs. Among the goals is to measure and reward quality of care and reduce expensive uninsured visits to hospital emergency rooms. By having more people covered by insurance, the theory goes, there will be higher numbers of paying patients and less unpaid debt. Some hospital administrators around the country say they will have to change services and staffing to become more efficient and put more resources into primary care to reduce unnecessary hospital admissions. Mercy Medical Center Mt. Shasta doesn’t envision any specific changes with the enactment of the ACA, said hospital president Ken Platou. Primary care “has been our principal focus all along,” Platou said. “We are actually excited that this process further affirms our mission and our ability to serve our community.” Under the Affordable Care Act, there will be a $196 billion reduction in annual increases in Medicare payments to hospitals, skilled nursing facilities and ambulatory surgical centers over 10 years. Rural hospitals work under different payment schemes. Some receive a flat Medicare payment for patient care. Others are paid per service. Some rural hospitals paid per service will see additional cuts in special payments that help support hospitals with high numbers of Medicare patients. As a Critical Access Hospital, Mercy Mt. Shasta is paid based on allowable cost, which is based on the number of Medicare patients seen, Foster said. The intent of the Critical Access Hospital is “to insure local access to hospital services,” explained Platou. “There are many requirements but the most simple distinction is the hospital can be no larger than 25 beds. Medicare then provides reimbursement on a cost based method as distinguished from a prospective basis at larger hospitals.” Measuring quality A major thrust of the Affordable Care Act is to improve the quality of health care and raise the overall health of Americans. So the ACA will tie millions in federal funds to quality of care, basing payments on positive outcomes. Hospitals traditionally have received Medicare payments based on the number of procedures they perform. The industry calls this volume-based purchasing. Starting this year under the ACA and expanding in fiscal years 2014 and 2015, Medicare payments will be based on the quality of treatment patients receive. A payment system based on quality of care is known as value-based purchasing. In order to reward quality, there will have to be measures of quality. Hospitals will gain or lose one percent of Medicare funding depending on 20 factors that gauge quality of care. Quality of care will be measured via checklists on specific actions hospitals are expected to take and data collected from patient surveys. The Centers for Medicaid and Medicare, the federal agency that administers Medicare, has established benchmarks for a variety of quality measures. For example, the benchmark is 89 percent for providing adequate discharge information for an individual hospital. Another measure of quality is the number of Medicare patients readmitted to a hospital shortly after receiving care. Readmissions are expensive and the new law aims to reduce them. In 2010, the Centers for Medicaid and Medicare found 19 percent of Medicare patients were readmitted to the hospital within 30 days of discharge, at a cost of $1.7 billion. CMS began penalizing hospitals with reduced payments for excessive numbers of readmissions starting in 2012. Penalties will be a maximum of three percent of hospitals’ billing in fiscal year 2015. Readmissions are measured among Medicare patients treated for heart failure, heart attack and pneumonia. To protect their Medicare payments, some hospitals are starting new programs to meet the new requirements and quality benchmarks. Mercy Mt. Shasta reports quality and value based measures to the CMS, said Foster. “Currently Mercy Mt. Shasta has very strong measures and payments are not impacted negatively,” Foster added. In addition, Mercy Mt. Shasta has been working with the medical staff to monitor and reduce causes for patient readmissions, said Foster. “Mercy Mt. Shasta works with our medical staff, including primary care physicians, to identify causes and plan appropriate treatments to reduce readmissions,” he said. Another goal is to reduce medical errors. Avoidable medical errors added $19.5 billion to the nation's health care bill in 2008, according to a claims-based study conducted by Milliman Inc. on behalf of the Society of Actuaries. The Centers for Medicaid and Medicare will track whether hospitals perform certain best practices to help reduce errors. Hospitals will not be penalized for the errors themselves. Larger hospitals can afford to implement a variety of new programs to help reduce medical errors and improve patient outcomes. Smaller rural hospitals often cannot. Mercy Mt. Shasta has 25 beds, and last fiscal year, the hospital had 2,820 patient days (not counting nursery days for newborns), said Foster, which definitely qualifies it as a small rural hospital. In an effort to overcome that challenge of scale, some rural hospitals are banding together to develop practices and programs to improve health care quality. “Mercy Mt. Shasta continues to work with its parent corporation Dignity Health and local physicians to best take care of the local population’s medical needs,” Foster said. “Mercy Mt. Shasta does not have any plans at this time to change how it works with the local physicians by creating or joining an Affordable Care Organization.” Program cuts With or without additional money from Medicaid expansion, rural hospitals will still have to find a number of ways to adjust to the Affordable Care Act's reductions in Medicare payments. In many cases, that will mean changes in services and staffing. Platou said Mercy Mt. Shasta does not envision any specific changes to its staffing or programs tied to the ACA. “We will always be looking to make sure our services comply with market demands and requirements,” Platou said. In December 2012, Dignity Health hospitals in the north state, including Mercy Mt. Shasta, St. Elizabeth Community Hospital in Red Bluff and Mercy Redding announced they’d be making a two percent reduction in its workforce. At that time, there were 2,586 employees at the three hospitals, and the reduction included a hiring freeze on certain open positions. The cuts were necessary, according to a statement released at the time, “due to impacts of the economic recession and subsequent increases in uninsured patients coupled with cuts to government insurance programs.” For small rural hospitals part of the problem is scale, not enough patients to pay for some of the more expensive services. Under-used programs and facilities may have to close. Some services may need to be contracted out to regional providers. In March of 2012, Mercy Mt. Shasta announced the closure of its Care Center, citing the economic downturn, lower than expected patient volumes and decreased reimbursement from insurance companies. Moving forward Experts believe some rural hospitals will not be able to make the adjustments and will be forced to close their doors. In other hospitals, there will be program cuts, likely in long-term care units, in-patient mental health units and obstetrics departments, which are expensive to maintain in small towns. As a result, residents will have to seek care in more distant regional health centers. “Health care in general is in a period of tremendous transition in this country,” said Platou. “The ACA is truthfully only one piece of a major evolutionary change that we will be experiencing for many years to come. “We do see this emphasis on primary care and keeping people healthy as absolutely consistent with our mission and the services we provide,” Platou continued. “We look forward to this recognition from the overall system and the manner in which the Federal government manages health care. This is an exciting time at Mercy and we intend to stick to our mission and continue to provide the exemplary services our customers have grown to expect and demand.” • Cristina Janney is managing editor of the McPherson Sentinel in McPherson, Kan. She spent four weeks researching and writing about the Affordable Care Act's effect on rural hospitals as part of the Pinnacle project reporting program for GateHouse Media Inc. Reporter Skye Kinkade contributed to this report.