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Is bad debt affecting Wyoming Critical Access Hospitals’ financial sustainability and putting them at risk for closure?In August 2018, The United States Government Accountability Office (GAO) reported on the number and characteristics of rural hospital closures. According to the GAO, the top three reasons a rural hospital closes are demographics and geography, ownership, and revenue sustainability. Centers for Medicare and Medicaid Services (CMS) designates hospitals as a critical access hospital (CAH) if they are 35 miles from the next closest hospital, have 25 beds or less, and have a 24-hour emergency room. Wyoming's 16 CAHs are located in rural and frontier counties. They include non-profit, government-owned, and private healthcare facilities. right484251000Typically, Wyoming’s CAHs generate revenue through reimbursement from a variety of payers including commercial insurance, Medicaid, Medicare, and other payers. Bad debt is lost revenue due to lack of payment for care. The purpose of this paper is to explain the possible risk to CAH closure as a result of the bad debt not covered by the payer mix. left1779138Demographics and Geography: Rural hospitals serve areas with a higher population of elderly residents, residents with limitations caused by chronic disease, lower median incomes, higher rates of uninsured populations, and decreasing populations. Almost 70% of Wyoming’s 577,737 people live in rural areas, with 11% of the rural population living in poverty (United States Department of Agriculture Economic Research Service, 2018). The Rural Health Information Hub states 7.7% of Wyoming's rural people under the age of 18 and 17% of rural people between 18 and 64 are without health insurance (Map: Uninsured, 18-64 - Wyoming Nonmetropolitan 2017). The percentage of people living in rural Wyoming without health insurance directly impacts CAH's bad debt. CAH financial sustainability is dependent on the mitigation of this bad debt as a result of a large uninsured population. Ownership: The GAO reports that for-profit hospitals are at higher risk for financial distress relative to government-owned and non-profit hospitals. Nine of Wyoming's CAHs are managed by healthcare management companies, one CAH is part of an accountable care organization, and six hospitals are within a hospital district or are non-profit. Finally, the GAO reports rural hospitals in states that increase Medicaid eligibility and enrollment experience fewer closures. In Wyoming, small rural hospital are at risk for financial distress without Medicaid expansion. leftbottomRevenue Sustainability: The amount of bad debt incurred by CAHs is a concern for financial sustainability. As of January 2019 ten Wyoming CAHs voluntarily report financial productivity benchmarking data in Quality Health Indicators (QHi) – a data reporting tool. Included in the measures are gross patient revenue, net patient revenue, and payer mixes. Gross patient revenue is everything a hospital charges for a patient encounters. Net patient revenue is what hospitals expect to collect in cash after contractual adjustments (Chart 1 and Chart 2). An example of a contractual adjustment is if the gross patient bill is $10,000 and the contractual agreement with Medicare, Medicaid, or a commercial insurer is 40% then the net patient bill is $6,000. According to one hospital Chief Financial Officer (CFO), costs are approximately 45-56% of the gross patient charges. CAHs receive 101% of reasonable costs (not all operating costs are allowed) from Medicare, however with sequestration implemented that is cut by 2%. That means hospitals are losing 1% of costs on every Medicare patient. left498868700left2711043The primary payers of patient care are Medicare, Medicaid, Commercial, Self-Pay, and Other Government. Other Government includes Worker’s Compensation, Veterans Affairs, TriCare, and may include other states’ Medicaid. Commercial insurance in Wyoming typically pays a percentage of charges or an amount that equates to 75-97% of charges. A special contract is required for a Wyoming CAH to receive another state Medicaid payment and requires a lot of time and paperwork to accomplish. Most of the time the CAH ends up writing off the costs of an out-of-state patient as bad debt. Medicaid also pays less than cost, and Wyoming hospitals have to participate in uncompensated care reporting to get the federal matching dollars resulting in reimbursement at less than cost. Then there are the uninsured and self-pay patients, who historically pay 13% of charges. The difference is written off as bad debt or charity. Costs are approximately 45-56% of charges so hospitals lose money on self-pay patients. It is difficult for hospitals to recoup the losses on Medicare, Medicaid, and self-pay patients.The results of one uninsured patient is explained by a CFO at one of Wyoming’s CAHs, “A non-Medicare diabetic adult male patient was admitted to the hospital for diabetes. As a result of his advanced diabetes, he was unable to work but did not qualify for Medicaid. The bill for the toe amputation and additional surgeries cost $170,000 a financial loss for the hospital.” Conclusion: Wyoming’s small rural hospital’s financial stability is directly impacted by the number of uninsured people in the state. Healthcare remains one of the biggest employers in most of Wyoming’s counties. A hospital closures is one of the largest detriments to Wyoming’s small rural communities is a hospital closure. Medicaid Expansion in Wyoming will relieve provide a solid foundation of reimbursement to rural hospital financial sustainability. ResourcesQuality Health Indicators. Benchmarking for rural hospitals and clinics. Health Information Hub. Rural Data Explorer: Data Visualizations. Wyoming, uninsured 18 to 64. States Department of Agriculture Economic Research Service, 2018. Rural America at a Glance: 2018 Edition. States Government Accountability Office. Report to Congressional Request. Rural Hospital Closures: Number and Characteristics of Affected Hospitals and Contributing Factors, August 2018. ................
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