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Testimony on The Potential Crisis Facing Rural Hospitals and the Impact on Rural Communities by Claude Earl Fox, M.D.
Administrator, Health Resources and Services Administration
U.S. Department of Health and Human Services
July 14, 1999
Senator Cochran, Senator Kohl, members of the Subcommittee - thank you for inviting me
to testify today about the current plight of rural hospitals and the impact this might
have on our rural economies. This is a topic that is close to my heart. I was born in a
rural hospital, grew up in a small rural town and have worked in and with rural
communities most of my life. During my time as the State Health Officer in Alabama, I
chaired the Alabama Task Force on Rural Hospitals and was part of an important effort
there to help champion the critical role these facilities play in their communities.
Rural hospitals are the anchors in our small towns and communities. First, these
facilities are the primary source of health care in the community and can help attract the
physicians and other health care providers that are often so difficult to find in rural
areas. These facilities are often surviving on very thin operating margins and have had to
diversify their services to survive. We know that:
- 100 percent of rural hospitals provide outpatient services
- 59 percent of rural hospitals operate home health agencies
- 72 percent of rural hospitals have either a home health agency or a skilled nursing
facility or both
- 21 percent of rural hospitals operate an outpatient center, a skilled nursing facility
and a home health agency.
This diversification has helped rural hospitals to continue providing needed care to
their communities. Unfortunately, given their low volume of patient visits and stays,
these facilities are very dependent on each of these services to make ends meet.
But rural hospitals play a much larger role in their local communities than simply
providing health care services. They are often among the largest local employers and a
bellwether of the economic health of a small town. Research shows that the health sector
provides 10 to 15 percent of the jobs in many rural counties, and that if the secondary
benefits of those jobs are included, the health care sector accounts for 15 to 20 percent
of all jobs. On an individual employer basis, hospitals are often second only to school
systems as the largest employer in rural counties. Studies on industrial and business
location also conclude that schools and health services are the most important
quality-of-life variables in these decisions. A strong rural hospital can be a solid
foundation for a strong small town with a diversified local economy and can serve as a
magnet for other economic development. Conversely, a struggling rural hospital or the
closure of a small rural hospital can often have the opposite impact on a small town
through lost jobs and disincentives for businesses to locate and grow.
When you look at all of these factors together, it=s
clear to see the importance of maintaining the economic health of our nation=s rural hospitals. This is a growing concern in light
of the many changes brought about by the Balanced Budget Act of 1997. Consider the
- A greater percentage of rural residents are Medicare beneficiaries, compared to urban
residents (18 percent vs 15 percent);
- Medicare payments account for 39 percent of rural hospital inpatient revenue and it can
reach as high as 80 percent of inpatient revenues for small rural hospitals;
- 50 percent of all patient days in rural hospitals are from Medicare beneficiaries,
compared to 37 percent in urban hospitals;
- And finally, total Medicare payment per beneficiary is nearly $1,000 less for rural
beneficiaries than for urban beneficiaries.
As you can see, changes in Medicare payments from the Balanced Budget Act could have a
significant impact on the health care infrastructure of rural towns all across America. My
colleague from the Health Care Financing Administration (HCFA) will describe some of these
reforms in more detail, but I can assure you, however, that the Department is closely
monitoring the impact of these changes. Further, there are a wide range of Federal
programs that directly address the unique health care needs of rural hospitals and rural
communities. For example:
- Starting this year, the Health Resources and Services Administration (HRSA)C through the Office of Rural Health PolicyCwill administer the new $25 million Rural Hospital
Flexibility program. These grants, which will be given to the individual state offices of
rural health, will provide states with up to $800,000 to support network development and
stabilize their small rural hospitals by helping them consider, plan for, and obtain
designation as a ACritical Access Hospital.@ These CAHs can strengthen their outpatient, primary
care and emergency services while maintaining a limited inpatient capacity. To help them
financially, the Federal government will pay on a cost basis for care delivered to
Medicare patients. It is our hope that these new CAHs can become the hub of a revitalized
rural health system.
- The Office of Rural Health Policy is located in HRSA but has a Department-wide
responsibility for advising the Secretary on the impact of Department=s policies and regulations on rural communities. This
office is working with HCFA and the rest of the Department to seek solutions to health
care problems in rural communities by working with other Federal agencies, the states,
national associations, foundations and the private sector. They are part of key regulation
teams that are implementing the many provisions of the Balanced Budget Act of 1997 and
their research centers provide valuable policy relevant rural research. In short, they are
rural health advocates inside the beltway. The office also funds several grant programs
that can help rural hospitals and other providers.
- HRSA also funds Rural Outreach and Network Development programs that help rural
communities find innovative ways to stretch and coordinate their scarce health care
dollars. There are also a number of other programs that are important supplements to rural
hospitals. These programs, such as the Community Health Centers and the National Health
Service Corps, help bring services and health care personnel to underserved rural areas.
In addition, there also are now more than 3500 Rural Health Clinics that currently receive
cost-based reimbursement from Medicare. Many of these clinics are affiliated with rural
- HRSA also has been involved in the development of telehealth services for rural areas.
This technology has been a real boon for rural hospitals. Through our rural telemedicine
network grant program, we have funded the development of telehealth networks that have
linked more than 100 rural hospitals with tertiary care centers to bring a wide range of
specialized clinical care services to their communities while also increasing the range of
education and professional interaction for their providers through distance learning. Last
year, we created the Office for the Advancement of Telehealth to continue and expand these
- The Children=s Health Insurance Program is
another source of help in addressing health care needs for rural communities. This
initiative, enacted in the BBA, is helping the states provide coverage to many of the 10
million children in families that work, but are still too poor to afford health insurance.
It=s our hope that by getting more children
covered by health insurance, we can help reduce the amount of charity care that rural
hospitals are now providing. That helps improve the bottom line for these hospitals while
also getting kids the health care services they need.
- Beyond our agency, the Department also has a number of targeted reimbursement programs
under Medicare and Medicaid to help rural hospitals. In fact, Medicare already provides
special payment support to more than half of all rural hospitals through such designations
as the Medicare dependent hospital or sole community hospital designations.
In closing, I think it=s important that we
continue to monitor the status of rural hospitals as we work our way through the BBA and
the other many changes taking place in the health care system. I believe the Department,
through its policies and its grant programs, can work to mitigate many of the problems
faced by rural hospitals and ensure their long-term viability. I want to thank you,
Senator Cochran and Senator Kohl, for the opportunity to be here today, and I will be
pleased to answer your questions you may have.
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