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Health reform brings both challenges and opportunities for small and rural hospitals. On the positive side, the expansion of coverage will improve access to care for millions of Americans in regions fraught with uninsured and underinsured communities. The law includes various Medicare payment protections that enhance reimbursements to certain hospitals. And it seeks to curb the rural workforce shortage through incentive programs and changes to graduate medical education resident placement.

Yet some of the factors that make rural care unique—remoteness, low population density, limited financial resources and workforce shortages—give rural hospital executives a reason to pause as they think about health care reform. "We don't know enough about how health care reform will affect rural providers," says Brock Slabach, senior vice president for member services of the National Rural Health Association. "There are lots of positives, but also a lot of uncertainty."

Most of the questions revolve around delivery system changes, particularly the formation of accountable care organizations. The Centers for Medicare & Medicaid Services has said that hospitals that elect to form ACOs must serve a minimum of 5,000 Medicare beneficiaries. "It's too early to tell, but conventional wisdom suggests it will be difficult for small and rural organizations to participate in ACOs because of the population requirements," says Tom Bell, president and CEO of the Kansas Hospital Association. However, he adds, "In some ways, they may be better suited because their patient populations are more homogeneous."

Increased access to coverage also presents a challenge to small and rural organizations. Actual reimbursement rates have not been set and a large proportion of these formerly uninsured now will be covered under Medicaid, which pays hospitals considerably below the cost of providing care. These organizations likely will see an increase in volume and must ensure that resources are in place to care for the influx of new patients. To accomplish this, organizations may need to expand and upgrade their facilities and bolster their workforce. Each of these tasks remains difficult in light of the current economy and the ongoing workforce shortage.

Whether the workforce provisions in the health reform law will be enough to increase the pool of employees for small and rural health care organizations remains to be seen. The American Academy of Family Physicians estimates a nationwide shortage of 44,000 adult care generalist physicians by 2025. Delivery system changes under health care reform will increase the need for primary care physicians nationwide, notes Marty Fattig, CEO of Nemaha County Hospital, a 20-bed critical access hospital in Auburn, Neb. "There's going to be a huge amount of competition for these providers," he says. "It's already more difficult for small and rural organizations to recruit them and it will likely be more so once health care reform is up and running."

Then there's the need for robust, reliable information technology. "The future of health care is linked to better IT systems," Bell says. But rural hospitals tend to be further behind in IT adoption, notes Chantal Worzala, the American Hospital Association's director of health information technology. The incentive program under meaningful use is retrospective, making it more difficult for small and rural organizations that have less capital, she says. "Hospitals appreciate the importance of this," Worzala says, adding, "Small and rural hospitals are committed to using electronic health records to support clinical care and address population and community needs."

This gatefold examines the impact of health reform for small hospitals—those with fewer than 200 beds—and rural hospitals, and explores some of the ways these organizations are preparing for the forthcoming changes under health reform.


Although health reform provides a number of provisions to assist small and rural hospitals, it also presents numerous challenges. Here's a look at these challenges and their implications.

Primary Care Physician Shortage

The availability of primary care providers remains a major concern for many small and rural organizations. About a quarter of Americans live in rural areas, but only 10 percent of physicians practice there. The expansion of coverage under health care reform will further challenge access to primary care in rural areas.

Primary care remains a critical need for rural communities. Low compensation, limited time off and scarcity of jobs for spouses often lure primary care providers away from rural settings.

Staffing IT Departments

As with primary care providers, small and rural organizations face challenges in recruiting information technology professionals. A projected nationwide shortage of IT professionals does not bode well. The issue is of critical importance under the health care reform law, which promotes increased use of electronic medical records and health information exchanges.

DATA: National HIT workforce shortage projections

Meaningful Use Penalties

Information technology will play a critical role in meeting reform objectives for small and rural hospitals. However, due to limited resources, these organizations are less likely to have implemented electronic health records or are in the early stages of doing so. As a result, some hospitals expect to incur a financial penalty for failing to achieve meaningful use by 2014.

DATA: Percent of hospitals that expect to incur financial penalty for failing to demonstrate meaningful use by 2015

Access for Uninsured

Rural Americans are more likely to be uninsured than their urban counterparts. As more Americans gain insurance under health care reform, rural facilities must ensure they have the resources necessary to care for an influx of new patients.

DATA: Uninsured rates in urban and rural areas


Health reform includes a number of provisions directed at small and rural hospitals. The following address Medicare payment, as well as workforce and graduate medical education opportunities.

Rural Physician Payments

Medicare Bonus: Medicare will provide a 10 percent bonus payment to primary care practitioners. The bonus will apply for five years and began Jan. 1. Qualifying practitioners providing care in a health professional shortage area will receive a 10 percent bonus on hospital visit codes that are typical of primary medicine. General surgeons providing care in shortage areas also will receive a 10 percent bonus on major procedures over the same period.

Protections for Rural Hospitals

Low-volume Hospitals: The law allots $300 million over 10 years in payment adjustments for low-volume hospitals. A low-volume hospital is defined as one that is more than 15 road miles from another comparable hospital and has up to 1,600 Medicare discharges for FY 2011 and FY 2012. An add-on payment will be determined by the Health & Human Services secretary using a continuous linear scale ranging from 25 percent for low-volume hospitals with Medicare discharges below 200 to no adjustments for hospitals with more than 1,600 Medicare discharges.

Low-cost Counties

The law allots $200 million over two years for hospitals located in counties that rank in the lowest quartile of Medicare beneficiary spending adjusted by age, sex and race. For FY 2011 and FY 2012, each hospital will receive funding in an amount that is proportional to the Medicare inpatient hospital payments made to the individual hospital as a percentage of the Medicare inpatient hospital payments made to all hospitals receiving the funding.

Critical Access Hospital Payments

The law requires that CAHs are paid 101 percent of costs for all outpatient services they provide, regardless of the billing method elected and for providing qualifying ambulance services.

Home Health Payments

The law reinstates a 3 percent add-on payment for home health providers serving rural areas for episodes ending on April 1, 2010 and before January 1, 2016.

Laboratory Service Payments

The law reinstates the reasonable cost payment for clinical diagnostic laboratory services for qualifying rural hospitals with 50 beds or fewer in certain states with low-density rural areas for cost reporting periods beginning July 1, 2010, to June 30, 2011.

Workforce Initiatives

The law creates a National Health Workforce Commission to analyze the supply, distribution, diversity and skill needs of the workforce of the future.

Allopathic and Osteopathic Medicine

The law establishes a grant program through the Health Resources and Services Administration providing $4 million for each of FYs 2010-2013 to assist schools of allopathic or osteopathic medicine in: recruiting students most likely to practice medicine in underserved rural communities; providing rural-focused training and experience; and increasing the number of recent medical school graduates who practice in underserved rural communities.

Unused Residency Positions

Unused residency training positions will be redistributed to encourage increased training of primary care physicians and general surgeons. For cost-reporting periods beginning on or after July 1, 2011, hospitals will lose 65 percent of their unused or unfilled residency positions (based on the three most recent cost-reporting periods ending March 23, 2010) and qualifying hospitals will be able to request up to 75 new positions. Certain hospitals, including rural teaching hospitals with fewer than 250 beds, will be exempt from redistribution of any of their unused positions. Priority for the new positions will be distributed. Seventy percent of positions will be allocated to hospitals in states with resident-to-population ratios in the lowest quartile and 30 percent of positions will be allocated to hospitals located in rural areas and hospitals located in the top 10 states in terms of population living in a health professions shortage area relative to the general population.

Case Studies

North Texas Medical Center, Gainesville

North Texas Medical Center, a 60-bed hospital about 60 miles north of Dallas, is thinking big picture when it comes to health reform. "Health reform forces us to run a much better organization, keeping costs down and quality up," says Kelly Hayes, chief financial officer. The organization is examining how coverage expansion and delivery system changes will impact its operations. "It's pretty obvious that quality has to be the No. 1 priority," says CEO Randy Bacus. Technology will play a central role. The organization is adopting an electronic health record to improve safety and efficiency and enable information exchange with other providers in the community. Although not part of the reform law, meeting meaningful-use objectives is of critical importance. "The law could change," says Hayes. "Our goal is to meet meaningful-use objectives as early as possible to take advantage of the incentives." The hospital also has invested heavily in clinical technology to help keep patients in the community for their care.

Tulare (Calif.) Regional Medical Center

One of the biggest concerns for Shawn Bolouki, CEO of Tulare Regional Medical Center, is providing care to newly insured members of his community. An assessment conducted prior to passage of health reform identified the need for 16 primary care physicians. The 112-bed hospital is in the midst of an expansion project. Coupled with delivery system changes under health reform, the number of needed primary care physicians likely will increase. California restricts hospital employment of physicians, making it difficult to align hospital and physician incentives. "We need to completely rethink our system, the way we provide care to the community," Bolouki says. IT will play a big role in coordinating care in the community, he adds. The organization is exploring the ACO concept, but too many questions remain. "There are many details not resolved," Bolouki says. "It makes it difficult to plan systematically."

Nemaha County Hospital, Auburn, Neb.

A 20-bed critical access hospital in southeastern Nebraska, Nemaha County Hospital is feeling optimistic about health care reform. "They kind of left critical access hospitals alone," says CEO Marty Fattig. "I think that's a good thing." Fattig's optimism is due, in part, to his organization's early adoption of an electronic health record. "We already have what we need to achieve meaningful use," he says. Many CAH hospitals don't have that advantage, he acknowledges, adding, "The gap between the haves and have-nots is getting larger and that scares me." Fattig does express concern about the unknowns surrounding health reform. "There is so much in the health care reform bill that still has to be decided," he says. And he's not sure how the ACO concept will benefit small and rural organizations. If an organization is able to meet the 5,000 minimum Medicare beneficiary, it still may not be enough to mitigate the risk. "An organization has no control of where its patients go," he says. "It will be difficult to control costs and behaviors."