Hospital Systems Drive Rural Health Care Crisis, Worsening Access Problems

Published September 25, 2013

Rural health care is in a crisis caused by physician shortages and the growth of large hospital systems, according to a report from the Health and Human Services Office of the Inspector General.

HHS Inspector General Daniel Levinson said in an August 14 report, “Nearly two-thirds of rural Critical Access Hospitals (CAH) would not meet the location requirements if required to re-enroll.”

CAH are reimbursed at 101 percent of their Medicare-related expenses, not at the usual lower Medicare reimbursement rates. Prior to 2006, states could designate hospitals as “necessary provider” CAH. CMS lacks the authority to decertify “necessary provider” hospitals. The IG recommended legislation to allow CMS to remove the designation.

Expanded Hospital Systems Faulted

According to Ed Haislmaier, a senior research fellow at The Heritage Foundation, the real problem is a shift toward large hospital systems, which can afford to bear the burden of increased regulation and bureaucratic requirements.

“The issue in rural health care is primarily a matter of physician shortages, and it’s a product of the way the world has changed. There weren’t a lot of country doctors in the old days, and there are even fewer now. It’s a problem in a number of states,” Haislmaier said. “I think there are some genuine issues in rural health, but they’re primarily physician-related. The hospitals are generally poor-mouthing, and don’t need more money.”

In many small communities, the hospital and the local high school are the largest employers, and this can create an unsustainable situation in these markets, Haislmaier notes.

“The problem becomes, both in medicine and education, the hospital and the high school exist more to be a jobs program and community status symbol than they are to be providers of patient care or education to children,” said Haislmaier.

Big Hospitals Consolidate Power

Dr. Keith Smith of the Surgery Center of Oklahoma says it’s the ever-expanding major hospital systems which are exacerbating the challenges for rural health.

“The big corporate hospitals are the culprit with rural health, by and large. They go into small towns and buy the physician practices and then insist that they divert everything that’s going to generate any revenue to the mother ship in the big city, and that devastates the small-town hospitals and makes the practice environment very unstable in these small towns,” Smith said.

“Typically, then, they either run that hospital out of business and close it or they come in and buy it in a hostile takeover. And that’s been going on for years, now,” Smith said.

Shifting Physicians Away

Large hospital systems steal physicians away from smaller communities with offers that can’t be matched, Smith notes.

“They’ll go to a town that has 15,000 or 20,000 people or less,” Smith said, “and that has a small county hospital, and they’ll offer the physicians who are working there an offer they can’t refuse, because the federal government and the insurers, the third parties, they pay the hospitals for physician services more than they pay the physicians for physician services. And that rate can be anywhere from 40 to 100 percent more than the physicians would be paid on their own. So they have a lot of room to offer physicians big money that they wouldn’t normally be able to make on their own.

“And I think the federal government is complicit in this whole thing,” Smith added. They’re trying to enable a system in which physicians are employees of hospitals rather than independent practitioners that can work just for the benefit of their patient.”

Chasing Out Self-Employed Physicians

The percentage of physicians who are self-employed has plummeted in recent years, according to Dr. Smith, in the wake of increased burdens from government.

“I think in some ways it’s hard to come to any conclusion other than that it’s a deliberate plan to get rid of the self-employed, private practice physician,” he said.

A key factor leading physicians to sell their practices is the complicated nature of Medicare billing. Not only does it take an inordinate amount of time to file paperwork, but errors on the forms are presumed to result from fraud.

“That’s why there aren’t a lot of doctors going to small towns where 80 percent of the practice is Medicare. Because risk/benefit-wise, it’s just untenable. There’s a lot of risk, and there’s just not very much benefit,” Smith said.

This burden incentivizes doctors to head to big hospital systems, and shutter or sell their small rural practices, Smith noted.

“If a big hospital gets caught in Medicare fraud, they pay a fine. If a physician gets caught, they go to prison. The deck is just so stacked. If a physician works for a hospital, and the bill that goes out based on the physician’s charges is fraudulent, fines are paid, but no one goes to jail. The federal government has got blood all over its hands,” Smith said, for forcing physicians into group and hospital practice.


Internet Resources:

Department of Health and Human Services, Office of Inspector General: “Most Critical Access Hospitals Would Not Meet the Location Requirements if Required to Re-Enroll in Medicare,” by Daniel R. Levinson.