The Heavy Load of Health Care Reform for Critical Access Hospitals

On March 31, 2010, Dick Clarke, president and CEO of Healthcare Financial Management Association (HFMA) held a Webinar in which he discussed the impact of health care reform. When I received a copy of the slides from the presentation, the slide that caught my eye was a graphic consisting of a building depicting the infrastructure of our reformed system. The foundation consisted of the electronic health records (EHR). On top of the foundation, were the pillars holding up the roof. These pillars reflected various tactics to accomplish reform, such as value-based purchasing, bundled payments, accountable care organizations (ACOs), etc. The roof represented the pinnacle of reform, and consisted of increased health care value, illustrated by improved quality and reduced costs.

As I reflected on the graphic, I thought it was a very good example of the intent of reform, and the process that has been laid out to get there. As I looked at the foundation of EHR and the pillars illustrating the tactics, it occurred to me that providers are going to have to make significant capital investment in order to accomplish true reform. This capital investment will come in the form of expenditures for EHR technology, investments made through redesign of processes and procedures, and investments to fund ACOs. In addition, as part of the transformation to a reformed system, we will see (and have already seen) a surge in acquisitions that are intended to assist with improving coordination of care and other issues. These acquisitions will also require investments of capital in order to integrate departments, modify physical structures to accommodate patient flow, and consolidate administrative space. The list could go on and on.

Since a large portion of the clients I work with are rural providers, many of which are critical access hospitals (CAHs), I began to think about the implications these capital demands could have on rural providers. A vast majority of CAHs rely on non-operating sources of revenues, such as local tax support, to offset losses coming from operations. In a large majority of communities, CAHs already represent miniature integrated systems, because they provide the acute care services, often times employ the physicians, provide long-term care, and in some instances, even offer home health and hospice services. Across the nation these rural providers already face significant challenges of old and outdated buildings, with replacement costs sometimes reaching two to four times their annual revenue base. Finding access to capital for investments of this magnitude is extremely difficult, if not impossible for these rural providers. Now, as we transform our health care delivery system, they will be faced with even larger capital investment demands.

The challenge is real, and can be illustrated in the difficult conversation I had recently with the CEOs of two rural CAHs. The CEOs discussed the total investment necessary to upgrade their IT infrastructure in order to implement an EHR. In both cases, the costs estimates ranged from $1 million to $3 million, and were viewed as prohibitive by both. They openly discussed the service areas where they provided services, and both had populations of less than 10,000. Each questioned if investments of this magnitude were really a wise use of resources, and if made, would they really be living up to the stewardship of resource utilization expected of them. They questioned whether their hospitals should consider closing to avoid making an investment each had a hard time justifying.

Over the years I have found the type of thinking expressed by these CEOs is typical of rural providers. They take stewardship over resources very seriously and often find creative ways to meet the needs of their communities in cost effective ways, while maintaining very high quality levels. These CEOs recognize they are often one of the top three employers in the community, and with that position comes significant leadership responsibility. They embrace the almost insurmountable challenges of balancing the leadership expectations, the health needs of their communities, and the expectations for quality, all on a very, very limited resource base.

Wouldn’t it be ironic if the unintended consequence of the new reform law—that was intended to improve quality and reduce cost—ultimately causes some of the very providers currently achieving these goals to go out of business because they are unable to make the necessary capital investments?

Ironic and sad.