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Rural Arkansas hospitals could get more funding for reducing inpatient services under proposed law

Masks hang from an IV pole at a hospital.
Jenny Kane
Masks hang from an IV pole at a hospital.

An Arkansas Senate committee on Wednesday approved a proposal that could bolster federal funding for rural hospitals as an incentive to specialize in emergency and outpatient care.

The federal Centers for Medicare and Medicaid Services (CMS) subsidizes critical access hospitals — located no less than 35 miles from other hospitals and maintaining no more than 25 beds — for inpatient treatment of Medicare recipients. Arkansas has 28 critical access hospitals, and they do not receive CMS reimbursements for outpatient care.

House Bill 1127 would create a “rural emergency hospital” designation that would attract more federal funds to rural Arkansas hospitals if they reduce or eliminate inpatient services and focus on emergency and outpatient treatment.

Arkansas’ Medicaid program would reimburse rural emergency hospitals “at the same or greater rate in which critical access hospitals are reimbursed,” according to the bill.

Hospitals would not be required to opt in to the rural emergency designation but would be able to do so “if it makes sense for their business model,” said Rep. Lee Johnson (R-Greenwood), the bill’s sponsor and the chair of the House Public Health, Welfare and Labor Committee.

The equivalent Senate committee approved the bill with no audible dissent Wednesday, sending it to the full Senate.

The advancement of medicine over time has allowed for increasingly specialized care, but that care is only available in areas with larger populations and better-equipped medical facilities, said Johnson, who has been a physician since the 1990s.

“Our rural hospitals have shifted how they treat people because they’re having to transfer more people to an urban setting,” Johnson said. “They’re treating less and less people inpatient and more and more people in an outpatient setting through their emergency departments and observation [care].”

Sen. Missy Irvin (R-Mountain View), the committee chair and the bill’s Senate sponsor, said her rural district has shown her the importance of emergency rooms in rural areas that can quickly transfer a patient to a larger hospital to receive life-saving care.

“We don’t want to see these very important health care facilities go away because they’re also cornerstones of their local economies,” Irvin said.

Rural hospitals struggled financially during the COVID-19 pandemic, said Jodiane Tritt, executive vice president of the Arkansas Hospital Association. Several Arkansas hospitals received advance payments in 2020 from the federal Centers for Medicare and Medicaid Services to stay afloat during the pandemic, and rural hospitals with limited resources have since needed help returning those payments to the federal government.

Additionally, Tritt said Medicaid reimbursements remained stagnant while supply and staffing costs increased over the past few years.

“Hospitals have to do not only a fiscal analysis of whether they can afford to give up their inpatient beds to have a more robust outpatient reimbursement mechanism for Medicare, [but] they also have to decide whether losing those inpatient beds causes a health care problem for their community,” Tritt said in an interview.

Designation requirements

The bill stipulates several criteria that rural hospitals would have to meet in order to receive a rural emergency license, including:

  • Keeping emergency departments staffed 24 hours per day and seven days per week with a physician, nurse practitioner, clinical nurse specialist, or physician assistant.
  • Providing services that do not require patients to stay at the facility for more than 24 hours.
  • Maintaining a transfer agreement with a Level I or Level II trauma center in Arkansas, Missouri or Tennessee.
  • Paying an annual licensing fee of $500 to the Arkansas Department of Health.

Rural emergency hospitals with 25 beds or less will retain their critical access hospital designation, the bill states. Additionally, the bill allows hospitals with a maximum of 50 beds to receive rural emergency designation and the resulting funds.

This would benefit Arkansas’ rural prospective payment system (PPS) hospitals, which receive Medicare reimbursements based on predetermined amounts and tend to have between 25 and 50 beds, said Mellie Bridewell, CEO of the Arkansas Rural Health Partnership.

Some PPS facilities have considered reducing their inpatient beds to 25 to be designated critical access hospitals but would not be required to do so under HB 1127, Bridewell said.

Rural hospitals’ typical patient volumes can be as low as one or two patients at a time, and this doesn’t justify the cost of keeping the facilities fully staffed at all times, Bridewell said. Obtaining rural emergency designation could relieve some of that staffing cost, she said.

“If they go into this model, they could restructure or redo these hospitals to maybe provide behavioral health services or other outpatient services that could potentially make more money instead of having a bunch of empty beds,” Bridewell said in an interview.

However, private insurance payers would base their payments to rural emergency hospitals on how much Medicaid reimbursement the state would choose to give them if the bill becomes law, Bridewell said. As a result, several rural hospitals would not opt into rural emergency status immediately and would instead wait until they can be confident they will benefit financially, she said.

“It’s not a perfect model, but it’s definitely something that we need to consider,” Bridewell said.

The bill requires eligible hospitals to have received critical access status or maintained no more than 50 beds in a rural area by Dec. 27, 2020, at the latest.

This was the only reason Rep. Justin Gonzales (R-Okolona) voted against the bill on the House floor on Feb. 2, he said in an interview Wednesday. The bill passed the House with 95 yes votes and only one vote against it.

“We’ve had a lot of rural hospitals shut down over a lack of funding, and I saw this as an opportunity for someone to come in and reopen those hospitals if they could apply for this designation,” Gonzales said.

Bridewell said the deadline is a safeguard in case any health care organizations from outside Arkansas have set up new emergency departments within the federally mandated 35-mile radius of a rural community hospital since Dec. 27, 2020.

Other federal funding delayed

HB 1127 could partially make up for the delay in Arkansas’ distribution of American Rescue Plan Act (ARPA) funds, Bridewell said.

Gov. Sarah Huckabee Sanders issued an executive order Jan. 24 that dissolved the state’s ARPA steering committee. The 15-member committee was made up of state legislators and department secretaries and was responsible for reviewing ARPA funding requests and sending approved projects to legislators for consideration.

The order caused confusion about what action, if any, legislators could take on ARPA-related items.

Some rural hospitals don’t have time to wait for the state to come up with a new system for distributing necessary relief funds, Bridewell said, but she added that ARPA funds are a short-term solution while the reimbursements from rural emergency designation could develop into long-term financial benefits.

Legislators agreed at several meetings last year that healthcare funding should be a priority for the state but expressed frustration that there was no clear plan for prioritizing ARPA funding requests.

The day after Sanders’ executive order, lawmakers withdrew 14 ARPA funding requests that the steering committee had sent to the Arkansas Legislative Council Performance Evaluation and Expenditure Review subcommittee for approval. Many of those requests had been held since September 2022.

In August, the steering committee approved $60 million in ARPA funds to help rural hospitals that were struggling to pay back CMS advance payments from 2020, and the Arkansas Legislative Council allocated $6 million to Ouachita County Medical Center in September.

The PEER subcommittee green-lit $6.25 million from a different subset of ARPA funds to help the Sevier County Medical Center reopen in December. At the same meeting, the subcommittee voted down an attempt to take up the 14 funding requests that were later dismissed in January.

Tess Vrbin is a reporter with the nonprofit, nonpartisan news organization Arkansas Advocate. It is part of the States Newsroom which is supported by grants and a coalition of readers and donors.