Seven small West Virginia rural hospitals face new requirements that could force them to repay millions of dollars in federal Medicaid money paid to them over the last several years — a move the hospitals say could spell collapse.
The seven hospitals — Boone Memorial Hospital, Minnie Hamilton Health System, Roane General Hospital, Grafton City Hospital, Jackson General Hospital, Pocahontas Memorial Hospital and Sistersville General Hospital — are all defined as critical-access hospitals by the Centers for Medicare and Medicaid Services (CMS). Critical-access hospitals have 25 or fewer inpatient acute-care beds, and are usually at least 35 miles from another hospital.
According to Doug Bentz, CEO of Roane General, part of the problem is that the seven hospitals each operate at least one rural health clinic. The hospitals have collected money from the federal government based on how many indigent patients they treat. But new requirements from CMS would not only disallow these payments — known as disproportionate share, or DSH, payments — but require the hospitals to pay back millions collected on behalf of the clinics dating back to 2011.
“We and other hospitals always claimed our uncompensated costs in rural health clinics on the DSH worksheet, and the state always paid us that money, from 2001 all the way through 2015,” Bentz said, “and then in 2015, we received notice from the state that rural health clinics weren’t eligible to be part of that calculation.
“When they notified us in January of 2015, not only did they cut reimbursement from that point forward, but they went all the way back to July of 2010 and made it retroactive.”
According to Kyle Pierson, chief financial officer for Minnie Hamilton in Grantsville, the hospitals were never told that they weren’t supposed to bill for the clinic payments through the hospitals. Most of the rural clinics are so closely intertwined with their parent hospitals that requesting the payments that way made sense, he said.
For several years, West Virginia required the hospitals to sign letters stating that their rural health clinics were operated as outpatient departments of the hospitals — which signaled to the hospitals that they were billing the right way, Pierson said.
“We’ve sought clarity from both the state and feds in any avenue we could, because it had been paid since the early 2000s, so we continued to include it while requesting the state give further clarification,” Pierson said. “We were never given any solid clarification either way from the state or the feds, and I would argue the contrary — we were led to believe by the state that the costs would be included in the DSH formula.”
The hospitals have asked CMS and state officials to reconsider the issue. CMS has indicated the problem could be resolved temporarily by having West Virginia health officials file for a state Medicaid plan amendment, according to Phil Shimer, former acting commissioner for the state’s Bureau for Medical Services.
Shimer and hospital officials said turnover at the state Department of Health and Human Resources probably means no one knew how the payments had been structured for the critical-access hospitals. When an independent auditor evaluated the program, as required under the Affordable Care Act, and found nothing in state code that supported the payments, it reported its findings to CMS.
“Previous secretaries for DHHR will tell you that it was always the intention that the rural health clinics that were situated within the critical access hospitals were outpatient clinics of the hospitals,” Shimer said. “That is probably in the genesis of why they were paid that way to begin with, but that memory is no longer in the department.”
Last year’s decision to make the hospital pay back the Medicaid money went unchallenged by the state, but a letter from state Health and Human Resources Secretary Karen Bowling dated April 5 said “it is important to place into context the serious financial situation of small rural hospitals in West Virginia and the tremendous hardship that will be faced by rural West Virginians if those hospitals close. Several rural hospitals face financial instability and DSH resettlement exacerbates the situation.”
For the seven hospitals, repaying the Medicaid money from 2011 to 2015 would cost a total of almost $8 million, although the impact to each hospital varies — Pocahontas Memorial would lose roughly $28,000, while Roane General would be forced to repay $1.8 million.
Like other rural hospitals, all of the critical-access hospitals see a high number of patients who are uninsured or underinsured, and their razor-thin margins coupled with a slew of new federal requirements have put the health systems under an unprecedented amount of pressure, Bentz said.
“I’ve been the CEO at Roane General for 17 years and this is, bar none, the most difficult time,” Bentz said. “I’m not saying this from a financial standpoint; I’m saying this from a management standpoint. All of the requirements we are pushed to do through the ACA and other bureaucracies are daunting. We don’t have depth and breadth of management expertise that larger institutions have to do this.
“… I think everything is well-intentioned.” he said, “… But it makes it that much more challenging.”
Rural hospitals in West Virginia see a large number of patients who are uninsured or covered by a government program, leaving them without the more lucrative private insurance patients that help balance other hospitals’ budgets. For example, Boone Memorial Hospital sees 67 percent of its patients pay through Medicare or Medicaid, another 31 percent through other insurers like the state Public Employees Insurance Agency, and only 2 percent through private insurance.
Angela Frame, interim president and CEO of Jackson General Hospital, said the collapse of any one of the rural critical-access hospitals in West Virginia would create a ripple effect in a state already lacking in health providers, and could put added strain on larger hospital systems.
“If any of us were to fail, you’ve got large hospitals like CAMC that are already being overtaxed and already have issues with not having enough beds, their ERs are already overfilled, and if any of us go down, it’ll only make things worse for them,” Frame said.
In at least two cases, federal courts have granted preliminary injunctions that stop CMS and state Medicaid programs involved from collecting overpayments retroactively. Texas Children’s Hospital and Seattle Children’s Hospital are the complainants in one of the cases, and the New Hampshire Hospital Association filed the other.
The West Virginia hospitals are also looking at being forced to reimburse even more Medicaid money; in 2012, all of the state’s critical-access hospitals were told they could not continue to receive Medicaid reimbursement meant to offset the costs of a provider tax they had been paying. The issue is as yet unresolved, but like the DSH repayments, it would be retroactive, stretching back to 2009 and potentially costing each hospital hundreds of thousands of dollars.
Another possible problem lies in unsettled Medicaid cost reports from between 2003 and 2008. Finalizing the reports could mean either gains or losses for hospitals, depending on whether the state determines if they were underpaid or overpaid for services, but for now, it adds another layer of uncertainty to the problem.
Boone Memorial Hospital officials say when they decided several years ago to build a new hospital, they counted on the federal income they were already receiving.
“We decided we needed a new hospital, we looked into it, worked on some ideas for many years, and when we were ready to pull the trigger, we hired a firm to come in to do a feasibility study — this was prior to the audit — and they looked at all our sources of revenue, including DSH payments,” said Randy Foxx, chief financial officer for Boone Memorial. “With all that in place it looked fine. In about two weeks we’re going to move into a new facility, and now we’re wondering if we’re going to be able to make the payments, not because of our patient flow, but because of things like this.”
According to iAdvantage Health Analytics, there are 25 hospitals in West Virginia that are considered rural, and nearly half are identified as “vulnerable.” The analytics firm estimates that if the state’s 12 vulnerable rural hospitals were to close, it would mean not only a loss of services equal to nearly 230,000 patient visits, but more than 2,300 healthcare jobs and an associated economic “spin-off” loss of more than 3,100 jobs that could result in a 10-year loss of as much as $6.4 billion in gross domestic product.
“No other industry is living in the past like we are, and in an industry that’s so crucial to the viability and the economics of this state — without healthy people, you don’t have a state,” Pierson said. “It’s putting the whole state in jeopardy.”
Reach Lydia Nuzum at email@example.com, 304-348-5189 or follow @lydianuzum on Twitter.