In a presentation to the House Health Care & Wellness Committee this week, Washington Health Care Authority (HCA) Director Sue Birch outlined the agencies plan to reform Washington’s rural health care payment model.

As COVID-19 spread, so too did the financial strain already bearing down on Critical Access Hospitals and other rural health systems before the pandemic.

This strain has accelerated the need to transform health care in rural Washington, said Birch.

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The time is now. We’ve got to move forward with some of our own proactive solutions. Access to care has become more strained. Certainly we’ve seen our state respond and work regionally, but we know we can do more.

The state of rural health care in Washington

There are 39 Critical Access Hospitals (CAHs), which are administered by the Office of Rural Health Policy under the Rural Hospital Flexibility program.

Many CAHs have a capacity of under 25 beds in rural areas and are required to provide 24-hour emergency care. In some cases, these hospitals end up providing primary care and long-term care services for the elderly.

Typically, primary care is delivered by Rural Health Clinics (RHCs). There are 118 RHCs in the state, owned and operated by approximately 55 organizations, including some CAHS.

The lion’s share of CAHs are operated by public hospital districts, though some are traditional hospitals or Sole Community Hospitals. Thirty-two of Washington’s 39 CAHs provide long-term care services, such as adult family homes, swing beds, and nursing facilities.

The way care is delivered in rural Washington reflects the layered structure of health systems in these areas.

Aging services out in the rural areas, hospitals and rural health systems are really linked. It’s very important for us to keep that in mind,” said Birch,

Washington’s rural payment landscape

The rural payment landscape is dominated by Medicare and Medicaid.

We pay through a variety different ways: fee-for-service, cost-based payments, we do quite a bit of prospective payment system work. It’s important to understand that this mix of the way we pay has to be changed,” said Birch. “The other thing that is important to understand is the health plan, payer mix – it’s really dominated by the government insured programs, Medicare and Medicaid. In most of our really rural frontier areas, it can be upwards of 75-80% of their payment mix,” said Birch.

While most rural providers remain anchored in cost-based reimbursement and prospective payment models, many participate in shared savings arrangements with Medicare. These arrangements measure provider performance against quality and spending reduction targets. If providers meet these targets, they become eligible to share with the payer, in this case Medicare, any savings realized as a result of their performance.

Based on HCA’s analysis of Medicaid, most rural residents are seeking care outside of their community, a trend commonly known as “leakage.” These patients typically require in-patient and specialty care not available in their communities.

Medicaid Manage Care Organization (MCO) members display lower utilization rates in rural areas than in urban areas, but they have higher overall costs due to unit price differences.

On the subject of controlling costs, Birch listed Capitated Payments as an avenue to creating more stable, predictable payments as COVID continues to foment uncertainty and revenue shifts.

With capitation, a fixed amount of money per patient per unit of time, whether or not the patient seeks care, is paid in advance to providers for the delivery of services. The payment amount is calculated based on the average expected health care utilization of the patient.

One of HCA’s “favorite topics,” Birch remarked sarcastically, Capitated Payments are thought by some to increase the financial risk on providers for treating patients with more significant medical issues.

An alternative payment model for rural hospitals

For the past two years, HCA has been working on an alternative model to transform rural health care payment in Washington. In that time period, HCA consulted with the Center for Medicare and Medicaid Innovation (CMMI) on a rural grant opportunity known as the CHART Model.

Through the CHART model, the Centers for Medicare and Medicaid Services (CMS) stated that it “aims to continue addressing disparities by providing a way for rural communities to transform their health care delivery systems by leveraging innovative financial arrangements as well as operational and regulatory flexibilities.”

The grant would provide $5 million in federal funds.

There are two tracks available within the CHART model: Community Transformation and Accountable Care Organization Transformation.

Birch said that Washington is exploring the Community Transformation track, which would deliver upfront funding to defined communities through a capitated payment model with Medicare. Communities also develop a health care system redesign plan and voluntary participation would be extended to hospitals.

For this track, CMS will select up to 15 Lead Organizations – a single entity that represents a rural Community, comprised of either (a) a single county or census tract or (b) a set of contiguous or non-contiguous counties or census tracts.

According to Birch, several hospitals have already indicated their interest in the Community Transformation track.

Rep. Joe Schmick of Colfax, the Committee’s Ranking Member, said smaller hospitals in his district are uncertain about CHART.

They just don’t see a lot of money there. The $5 million that you suggested, they just don’t see a pathway forward. Without more information, they are reluctant to go down that pathway,” said Schmick.

Birch assured Schmick that HCA would meet with hospital leaders as models emerge with specific financing components and “try to show them that in the states that have come before us – Maryland, Pennsylvania, Vermont – the global capitated type budgets have really secured and stabilized their rural environments.”

The solution to many issues plaguing rural health care is to not keep throwing more money at vulnerable communities, said Birch, but to allow the dollars to be spent with a greater focus on prevention and primary care.

The second track available within CHART, the Accountable Care Organization Transformation track, builds on the existing Medicare shared savings program where providers apply directly to Medicare to participate. State Medicaid programs and other health plans cannot participate.

Birch made clear that the Community Transformation Track is similar to the rural transformation model HCA has been working on for the past two years.

The hope is that we will align Medicare, Medicaid, and commercial plan participation. As I’ve said before, we can be the lead organization for this application, and we are well-positioned to lead this transformation given our experience with other federal transformation grants and the previous rural work that we’ve done.”

Like almost all federal grants, the application for CHART requires partnership with participating communities and hospitals. Outreach to potentially interested hospitals has already begun, said Birch.

Applications to become a Lead Organization are to be submitted between September and October, 2020. Subsequently, applications will be built out with partners before final submission to CMS in February, 2021.

As $5 million is likely not an amount befitting of a “transformation” effort, Birch said HCA would continue to explore other public and private funding opportunities.

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