Rural Hospitals:Headed Over the Fiscal Cliff?

The Next Step is a Doozy!

Given the U.S.’ $10 trillion debt, future federal budget austerity and the (2010) enactment (and recent Supreme Court decision about the tax provision of the Affordable Care Act (ACA),) talk in Washington and around the country continues to focus on how to implement policy measures that avoid sending the U.S. over a “fiscal cliff“.

Clearly, in order to correct our current fiscal path, major policy changes will be needed to beneficial programs important to many Americans, including those living in rural areas. Among the top concerns are continuing and improving healthcare in rural areas where hospitals rely heavily on Medicare reimbursement rates. Medicare rates that cannot continue at current levels.

Impacting Our Seniors

Rural hospitals are dependent on Medicare mainly because of the high percentage of beneficiaries that are among the 51 million (USDA-ERS) U.S. citizens living in (non-metro) rural areas. In addition, rural residents on average tend to be older, lower income, and suffer from higher rates of chronic illness than those living in urban areas.

Medicare is not sustainable

Medicare is primarily financed through payroll taxes; employees and employers each pay 1.45% of earnings (self-employed individuals pay 2.9 %). Revenues generated by this payroll tax is held in the Hospital Insurance Trust Fund and is used to pay Part A benefits that cover inpatient hospital stays, skilled nursing facility stays, home health visits, and hospice care. In 2011 Part A benefits accounted for 31% of spending. Part A benefits are subject to a deductible of $1,156 (2012) and coinsurance.

While the Part A Trust Fund is estimated to be solvent through 2024, Medicare faces numerous challenges and none of them are greater than providing quality care to an aging U.S. population while the number in the workforce is declining. To maximize the potential for success in keeping the program financially secure for future generations, federal policymakers are already engaged in major policy discussions about how to reduce federal debt and Medicare costs.

According to the Henry J Kaiser Family Foundation Medicare spending is projected to grow from $563 billion in 2011 to $970 billion in 2021. The aggregate annual growth in Medicare spending is influenced by the growing number of beneficiaries and factors that affect health spending generally, including both increasing volume of services and rising prices. Between 2010 and 2019, Medicare spending per capita is projected to grow at 3.5 percent annually, nearly 2 percentage points slower than private health insurance on a per person basis, and at about the same rate as the economy.

The ACA, a policy enacted by Congress in 2010, is intended to constrain the growth in Medicare spending over time. The ACA included numerous provisions that impact Medicare including but not limited to:

  • spending reductions affecting plans and providers,
  • improved benefits including prevention.
  • phase out the Part D coverage gap,
  • delivery system reforms,
  • premium increases for higher‐income beneficiaries, and
  • an increased payroll tax on individuals earning higher income.

Going Forward

Healthcare services will continue to be needed in non-metro areas across the U.S. in the future. According to the U.S. Department of Agriculture’s Economic Research Service (ERS) non-metro areas experienced a 4.5 percent increase in population over the past decade 2001-2011. Last year alone, population growth in over 350 non-metro counties was higher than the national rate of 0.7 percent.

Moreover, the two most dangerous occupations in the U.S. are farming and mining, both of which are prevalent industries in rural areas. Thus, rural residents have higher rates of occupational injury.

According to the Centers for Disease Control and Prevention (CDC), in 2009, approximately 1,783,000 full-time workers were employed in the agriculture industry in the U.S. During the same year, 440 farmers and farm workers died from work-related injuries, resulting in a fatality rate of 24.7 deaths per 100,000 workers. Each DAY, approximately 243 agricultural workers suffer lost-time injuries, with 5% of these resulting in permanent impairments, according to the Bureau of Labor Statistics.

A Potential Solution?

Future federal and state healthcare policies must have a long-term focus and help rural areas transition into 21st century healthcare providers. Large scale infrastructure and technological upgrades will be needed.

Such upgrades are far beyond the reach of current governmental low-interest loan and grant programs. To achieve the needed advancements in rural healthcare future policies must:

  • promote regional strategies that achieves an appropriate balance of:
    • providing the multiple disciplined healthcare needs in rural areas, and
    • creating efficiencies that meet economic realities
  • promote more business-acclimated and competitive healthcare system,
  • incentivize private investment.

Cansler Consulting Promoting Policy Ideas

Cansler Consulting is working with our client to impact the policy debate on how to develop long-term solutions to successfully inject the needed capital into the ailing rural healthcare infrastructure and obtain 21st century medical technology. Clearly there is a need for public-private cooperation but to date, no incentives have been provided for private investment into the system.

The Rural Medical Facilities Investment and Improvement Act (RMFIIA) is draft legislation that, if enacted, will provide the needed incentives for private investors to offer adequate capital and enter into public-private agreements to improve rural healthcare. The RMFIIA is modeled after the Small Business Investment Company (SBIC) program, part of the U.S. Small Business Administration (SBA) that was created in 1958 to fill the gap between the availability of venture capital and the needs of small businesses in start-up and growth situations.

The RMFIIA allows:

  • hospital administrators and non-profits to continue administering quality healthcare programs,
  • portfolio management and investment decisions to remain with qualified private fund managers, and
  • certified hospital construction crews to build 21st century healthcare facilities where proven feasible.

Cansler Consulting is an experienced lobbying firm in Food and Drug safety, budgeting, agriculture, rural healthcare, and energy policies and through our Congressional relationships we can help you influence the policy makers on Capitol Hill. You can contact us at info@canslerconsulting.com or at (202) 220-3150.

Tim Cansler
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