Modernizing payment to critical access hospitals: A proposal for the next iteration of the Flex Program.

Abstract

The landmark Medicare Rural Hospital Flexibility Program (Flex) was enacted in 1997 as a public-policy answer to the untenability of the prospective payment system (PPS) applied to low-volume and/or rural hospitals. Fundamentally, the Flex originated the critical access hospital (CAH) designation that would receive cost-based reimbursement (CBR) for Medicare services. The Flex Program did more, however, including supporting rural emergency medical services, developing a rural-hospital quality measure set (the Medicare Beneficiary Quality Improvement Project—MBQIP), and providing technical assistance to rural hospitals and ambulance agencies. Today, the Flex Program helps “Critical Access Hospitals (CAHs), emergency medical service (EMS), clinics, and health professionals work together.”1 The Flex Program supports 1,360 CAHs across the United States2 (approximately 1 quarter of all acute care hospitals), each providing access to indispensable rural hospitals and other health care services for rural Americans and the communities in which they live. The Flex Program, through technical assistance to its nationwide network of rural hospitals and other services, also has provided testing grounds for low-volume performance measures, care delivery innovations, and alternative payment systems. Despite this historic opportunity, CBR, a form of fee-for-service, remains the overwhelmingly predominant payment system for CAHs. The purpose of this commentary is to discuss how CBR has become problematic for CAHs and present an alternative CAH payment system that addresses key Centers for Medicare & Medicaid Services (CMS) priorities and stabilizes CAH financial situations. CBR, as its name suggests, nominally results in zero profit. However, even nonprofit and public organizations, such as most CAHs,3 need at least some profit to remain fiscally viable. In reality, due to sequestration4 and nonallowable expenses,5 CBR actually results in CAH operating losses on Medicare services. Commercial insurers will be increasingly unwilling to cover CAH financial losses secondary to inadequate Medicare (and in some states, Medicaid) CBR payments.6 Thus, especially as COVID-relief funds cease, the financial status of many CAHs is becoming precarious.7 CBR is no longer the rural hospital financial lifeline it had been previously. For reasons other than inadequate CBR for CAHs, CMS and its Center for Medicare & Medicaid Innovation (CMMI) are implementing models and programs that shift payment from fee-for-service (eg, CBR and PPS) to value-based payment (VBP). VBP, or alternative payment systems, rewards value-based care; that is, 1 or more components of CMS’ 3-part aim—better care for individuals, better health for populations, and lower cost.8 VBP is often described by what it is not; it is not open-ended fee-for-service.9 Integral to value-based care are the CMMI mandates for increased health care organization accountability (through performance reporting and payment systems)10 and health equity.11 Equitable health care services is the foundation for the 4 pillars of the RUPRI Health Panel's High-Performing Rural Health System—access, affordability, community health, and quality.12 With the exception that the Flex Program (through its CAHs) improved rural health care access to hospital and related services, CBR does not support current CMMI aims nor RUPRI Health Panel pillars. For example, low volumes make current quality metrics challenging; CAHs are penalized for community investments that are nonallowable costs; and there are no linkages between CBR and the provision of equitable health care. Therefore, CBR predominance thwarts payment innovation that would advance the interconnected pillars of a High-Performing Rural Health System. New alternatives to CBR are needed to address new CMS priorities (eg, accountability and equity) and low rural volumes. Exclusively fee-for-service hospital payment systems (eg, CBR and PPS) penalize low-volume hospitals where high standby costs (ie, the cost of services necessary for readiness but used infrequently, such as high-quality emergency care for strokes and heart attacks) and rural diseconomies of scale can preclude CAH fiscal success. The Flex Program, and its comprehensive service offerings to CAHs and other rural health care organizations, must nonetheless continue. Furthermore, the importance of the Flex Program will increase as CAHs transition from volume-based payments (fee-for-service) to alternative payment systems that reward value-based care. A fixed-cost payment that covers standby costs;13 A performance-based payment that rewards high-quality services typically provided in rural hospitals and that is risk-adjusted to reflect rural and local population disparities; and A fee-for-service payment that recognizes the costs of health care service production. In preparation for the tripartite CAH payment system, current models that blend fee-for-service and value-based payment must be made increasingly available in rural (eg, new Medicare Shared Savings Program regulations in the updated Physician Fee Schedule).14 To support the transition, expanded Flex Program technical assistance will be critical because significant care and payment transitions require financial and human capital resources often underdeveloped in rural. The tripartite CAH payment system's details are yet to be determined and would be beyond the scope of this commentary. However, to fine-tune the payment system, new CMMI models, designed with dedicated rural hospital input and low risk for negative fiscal CAH impact, can be evaluated in many of the nation's CAHs. The new tripartite CAH payment system should be implemented gradually, but determinedly. The respective weight of each of the 3 payments should be adjusted over time as new performance measures are developed, standby cost accounting becomes more sophisticated, and risk-adjustment methodologies become more accurate. Gradual on-ramps to the new tripartite CAH payment system, but with preestablished implementation timelines, should be applied to avoid potential health care access interruptions caused by payment transitions. The Flex Program established a lifeline for rural hospitals financially struggling under PPS. CBR is a fundamental component of current Medicare payment to CAHs, but new and admirable public priorities (accountability and equity) make CBR outdated if not detrimental to CAH future success. A new tripartite CAH payment system will help ensure accountability and advance equity while maintaining rural access to critical health care services. The authors report no conflict of interest. This commentary was supported by Leona M. and Harry B. Helmsley Charitable Trust.