There are many challenges that are either unique to rural healthcare providers or more difficult to address because of the sparser population in small rural communities. The next Governor of Minnesota has a unique opportunity to address the state’s complicated healthcare system to make it work better for rural Minnesota.

By Steve Perkins, Perkins Consulting

Eight years ago I was asked to write a letter to the then next Minnesota Governor. With that election, Mark Dayton became Minnesota’s fortieth governor. I do not know if Governor Dayton ever read my letter, “Minnesota’s Rural Health Care: There is no 911 to call!,” or those of seven other authors published in the Center for Rural Policy and Development’s 2010 Rural Minnesota Journal. I assume so, and I know many others did by the comments and follow-up I received.

Unfortunately, many of the concerns I raised in that article eight years ago still remain today. The facts are basically the same: there is still no 911 to call for the many emergencies faced by Minnesota’s rural health care system. Thus, I would recommend a “re-read” of that article, which in summary, demonstrates the importance that healthcare plays in rural Minnesota.

According to the Minnesota State Demographer, some 8% of Minnesotans, 434,000 people, live in truly rural areas, outside any municipality or in a city of less than 2,500 residents. Another 389,600, or 7%, live in cities between 2,500 and 10,000 population. Thus, more than one in seven Minnesotans reside in what might be considered fairly “deep rural” areas, all outside any of Minnesota’s five metropolitan statistical areas. Another 11%, 608,750, citizens reside in rural “big cities” (to us agrarian folks) with populations of between 10,000 and 50,000.

Governor, all of these areas have stressed healthcare systems; the more rural and sparsely populated, the more significant the problem. Again, there still is no 911 for these essential systems to call.

Let me remind you that in these communities, as I noted eight years ago, healthcare is much more than just an essential service. In most areas it is a big part of the lifeblood of the community. Health care is the largest employer in many communities, where some of the highest incomes are made and the first stop when the community looks for all the volunteers needed to make a community livable—the volunteer fire department, the volunteer ambulance and first responders, the church lay workers, the local elected leaders, the community groups, PTAs, 4-H, Scouts, and on and on. Shut done the hospital and/or nursing home, move the doctor’s clinic, and most of these services become “chronically ill” with no treatment known. The housing market and local stores, banks, and services suffer a huge economic loss; many die as if they had a terminal cancer, again with no treatment available.

This is totally different from metropolitan areas, where a closing is mourned like a distant friend, soon forgotten, as we drive to a different location not too far away for healthcare services. But no neighbors leave their homes and move many miles away. No businesses close or churches shutter their doors. The fire department and EMS still have plenty of professional workers. Life goes on with just a few minor changes. This, gravely, is not the case in rural areas.

Is this just a natural event and these rural areas must just face the facts and live with it? I think not. Needless to say, these areas are some of Minnesota’s most cherished natural assets, a virtual playground for the metro residents, naturalists, its anglers, hunters, and anyone who desires to see the “real world” outside of and away from the city’s tall buildings and hustle and bustle. Also keep in mind that one of our state’s largest economic drivers are the farming, livestock, mining, and timber industries that are essential for our state’s lifeblood.

What has happened in the last eight years?

While the importance of healthcare to life and lifestyle in rural Minnesota has not changed, we are seeing a continual change in how healthcare services are delivered.

Eight years ago, Minnesota had 134 hospitals; today we have 131, according to Minnesota Department of Health (MDH) data. Two new hospitals opened in the MSP metro area, Maple Grove and Brooklyn Park. Notably two “larger” rural hospitals closed, Albany Area Hospital and Lakeside Medical Center in Pine City. Perhaps not too bad you might say, of course, unless you live in Albany or Pine City.

In addition, there is a movement toward affiliation with large systems like Mayo, Sanford, Avera, Centra, and Essentia, which now own or manage most of rural Minnesota’s hospitals and clinics. Again MDH data show that between 1996 and 2015, almost half of Minnesota’s free-standing hospitals (43 out of 88) became affiliated with large systems. For example, today Essentia has 16 hospitals and 72 clinics, while Centra’s website shows five hospitals and 25 clinics. In fact, it is a bit hard to find a non-affiliated hospital or clinic in rural areas of our state.

This data should certainly not be interpreted as bad. But indeed, it shows that with all the federal and state changes in the laws, rules, and regulations, and given the local economies of scale in rural Minnesota, many formerly free-standing, locally owned health care facilities are simply “throwing in the towel” and signing on with one of the large systems, hoping to maintain the best and strongest healthcare for the local citizens and visitors.

I well know those considerations, having been chair of the Luverne Community Hospital Board, as nearly 20 years ago we explored options and ended up selling our hospital to what is now Sanford Health (formerly Sioux Valley) of Sioux Falls, S.D. The local doctor’s clinic had previously sold to Sanford, so our choices were a bit limited. In essence, the hospital board and city council felt that with all the changes in health care on the horizon (and we never dreamed there would be so many), it would be impossible for our free-standing locally owned and run hospital to stay viable and provide quality healthcare. Rather than lease our old hospital and clinic to Sanford or have them manage it, we felt why not just sell it to them? Then they would have real financial roots in our community. The sale closed in 2000. It was Sanford’s first hospital purchase, and thus we both were charting new waters.

Was it a good choice? I think most people in Luverne would say, “Yes, it was a good move.” In 2005, a new hospital and clinic were completed that became the envy of many other communities. The old hospital building was then bought back by the city and now houses City Hall, but in a three-way partnership (City of Luverne, Sanford, and Minnesota West Community and Technical College), most of the old hospital is now the Luverne Educational Center for Health Careers. The old operating rooms and other service assets made great training facilities for new courses like Surgery Technology, all helping alleviate the big shortages that exist in healthcare training and employees. All in all, Luverne still has a very viable hospital and clinic and also added Minnesota West to its economic and community base.

But certainly not all of these affiliations are perfect or universally loved. Control, regardless of how it was stated in the negotiations, ultimately passes to the owners, and even the managers. So if you reside in Albert Lea, for example, you might question why Mayo decided that obstetrics would no longer be performed locally but available in nearby Austin. Grand Marais, Adrian, Albany, and many other rural communities might similarly question what is happening.

Is this a trend that will continue? In all candor, I think it will.  Why? Because almost all of these decisions are based upon economics and the ability to deliver quality care. Many times, combining, centralizing, and adopting new technology make it impossible to keep doing things “the way it has always been done.”

That does not mean everything has to change.  With creative thinking and knowing what you can and cannot do, strange things can work. For example, a few years ago free-standing, locally owned and operated Blue Earth Hospital (United Hospital District) opened a clinic in Fairmont, a city three times Blue Earth’s population, and Blue Earth hospital delivers babies. Just because you are small does not mean that you can’t be big, but you also have to be smart. On the bright side, for Albert Lea, Mayo has consolidated mental health and addiction services in Albert Lea.

Medicare Critical Access Hospital “life line?”

Up until about ten years ago, small rural hospitals were routinely going broke and closing. What stemmed that tide of closures? Most informed observers would say it is mainly attributable to Medicare’s Critical Access Hospital (CAH) program. Since it was first offered, 79 Minnesota hospitals have signed up, the third highest state in the nation, and only one hospital has closed.

As I said eight years ago, “It was a ‘no-brainer’ decision”; for us in Luverne, we approved becoming a CAH in just one board meeting. The program basically guarantees that a hospital will receive 101% of its costs incurred in the treatment of all Medicare patients, which is 50% to 60% (or more) of most CAH’s patient load and gross income. In return, the hospital agrees to limit its service to a maximum 25 beds, and more critical patients must ultimately be transferred to larger hospitals.

Sounds like a great deal. Or is it? Not exactly. First, not all costs are allowed or considered for the 101%. Then, Congress has sequestered 2%, so it is really a 99% reimbursement of about 90% to 95% of a hospital’s total costs. It does include most depreciation, however, allowing many hospitals to make improvements and recover needed construction costs over the depreciable years of the new asset.

All in all, it’s a much better deal than the previous days when Medicare simply paid a low fixed fee (which it still does for non-CAH hospitals). Back then, if a season of good health came upon a CAH hospital reducing its patient load, fixed payments, and therefore revenues, would plummet. Now, with CAH, regardless of the number of hospital stays or procedures or tests done, the CAH is guaranteed to recover it costs in the same proportion that its Medicare case load is to the total case load (less 2%).

This arrangement works quite well for a larger system’s affiliated CAHs, where the local hospital and clinic can provide quality service, inpatient, outpatient, clinic, and emergency department, with the more complicated cases being referred or transferred to the main facility with its many specialties.

Yes, Critical Access was a lifeline for many rural hospitals, but it is not the silver bullet, and its “lifeline” is starting to fray.

The Affordable Care Act and high-deductible insurance

The big change in the last eight years has been the introduction of the Affordable Care Act. Many in rural healthcare felt the Affordable Care Act would assist their bottom line and their ability to continue to provide quality care. The results are not quite as favorable as hoped. Certainly, it is true that Minnesota now has fewer uninsured patients—from about 10% pre-ACA to now about 5%. Unfortunately, their new insurance is not quite like the coverage of “the old days.”

First, and foremost, many of the private conventional insurance payers now offer high-deductible plans where the patient pays the first $2,500 to $5,000 (or more) of claims. This resulted both from group employer-provided plans trying to control their costs while meeting the required minimum “bronze level” and individuals also wanting to stem premium increases for ACA individual coverage. Sometimes we learn in things that a required “minimum” ultimately results in a new “maximum,” or close to it.

Many of the hospital CEOs and CFOs, as well as Minnesota Hospital Association (MHA) representatives that I have talked to report that their uninsured/charity and bad debt write-offs increased from what they were prior to ACA. In fact, MHA data shows that for the latest year available, 2016, bad debt increased by 3% and charity care, 19% for all Minnesota hospitals.

How does this differ in rural hospitals? Many small rural hospitals do not have a large case mix of higher inpatient critical care billings to third-party payers like a larger specialist hospital would. Thus, a much larger part of a small rural hospital’s aggregate income comes from smaller out-patient billings, which must be paid directly by the patient given their plan’s high deductible. Many patients simply do not have the cash resources to pay. This results in a charity care write-off or an extended payment plan, and both take more staff time. Health Savings Accounts (HSAs) help, but many times, even if the patient has one, it is not sufficient to pay the higher deductibles.

In the same vein, Minnesota has increased the number of patients who have Medicaid or Minnesota Care. Hospitals and providers welcomed this option since many of these patients previously went uncovered or under-covered. However, the reimbursement payment rates (even though improved over prior levels) are still less than Medicare pays, which, as already demonstrated, is less than actual costs.

While current qualified uninsured patients can register retroactively for Medicaid and Minnesota Care and are advised and assisted by many providers to do so, it is more than an isolated case where patients basically refuse to complete the application paper work. With no other ability to pay the provider, the patient’s case becomes a charity care write-off. I was unable to verify the actual percentage of net revenue that these write-offs represent, but for many rural providers already operating in the red or just barely profitable, any loss of income is material.

If the Minnesota Legislature further expands both Medicaid and Minnesota Care to help reduce health care premiums for moderate-income citizens, the shift from current conventional insurance to these government programs will simply lead to more care reimbursed at below-cost rates. MHA shows that in 2015 16 CAHs were operating at losses and 37 others had very slim positive margins of 3% or less. Any additional stress and loss of income will simply lead to more closures and “big” challenges to continue quality rural health care.

So what do we do?

I almost hesitate to make any recommendation, even suggestions, in our present politically charged environment. Can our political leaders agree on anything anymore? Clearly, Governor, your leadership (and every bit you can muster) will be needed to bridge the ever-widening divergence we see in today’s politics. All of the rhetoric and “solutions” offered will not solve our complex problems that are real and affect so many people. Many “solutions” seemed to be based solely on political theory and philosophy with hidden special interests disguising their ultimate goals. The name calling and stereotyping, the demands, must yield to the common good and needs of all.

I also want to point out that rural health care providers are a vital part of the solution. We are in changing times. In the United States (and Minnesota) we spend far more on healthcare than many of our developed-world friends. Thus, we must find new and better, more efficient ways to deliver quality total health care. We must not continue to ignore the high costs that obesity, lack of physical fitness, poor diets, drug and alcohol abuse, smoking, etc., cause. Socially and individually all Americans must change to much more healthy lifestyles. We can help people change and adopt healthy lifestyles, but in the end, each individual must bear the responsibility for his or her own conduct.

So what should we do, and can we do to maintain quality rural health care?

Increase reimbursement rates

First and foremost, the reimbursement rates for Medicaid and Minnesota Care must be increased, absolutely if these programs are expanded. At a minimum, the Legislature should give serious consideration (with your strong support, Governor) to establishing a Minnesota Critical Access program that assists needed rural health care delivery. Just how far would you be willing to ride in an ambulance with a life-threatening condition? What is a reasonable time to travel, remembering our long winters, to see a doctor or mid-level professional? Minnesota’s rural population continues to age, and current health care needs will only increase.

Worker shortages are widespread.

Every rural healthcare leader has told me that it is a huge problem to recruit workers. Gone are the days when just finding a replacement for a retiring doctor was the problem. True, many rural areas, even with the advent of mid-level physician assistants and nurse practitioners, are literally in a crisis when a family practice doc vacancy occurs. However, now the shortage of workers is a difficult problem for all positions, even the basic support staff, dietary, housekeeping, etc.

For many hospitals, already close to half of all staff never really touch a patient. They are involved in regulatory paper work, billing, coding, insurance claims, privacy, training, etc. This trend continues to increase, and for many managers it seems to have no end in sight. Remember, these are small communities, with a much higher percentage of elderly, who not only are now not able to work, but actually require more workers to survive.

One rural hospital CEO told me he was convinced that actual paid charges could be decreased if we could rescind needless regulations. I was not able to document this feeling, but the September 2018 Consumer Reports article “Sick of Confusing Medical Bills?” points to a recent study in the Journal of the American Medical Association done by Duke University Medical School and Harvard Business School. It concluded that at the one hospital they extensively researched, today’s required billing procedures for a single primary care doctor visit cost $20 in labor and overhead, or more than $99,000 per physician annually. David Cutler, a Harvard economics and healthcare policy expert, was quoted in this article as saying, “Administrative expenses, which are largely billing-related, account for 20% to 25% of U.S. healthcare expenditures.” In Minnesota we add even more with our difficult health care records requirements, which are described later.

Any additional rules, regulations, or requirements that you, Governor, your commissioners and departments, or the Legislature place on rural healthcare will compound the problem and cost more. Even with employers willing to train and pay for training, there simply are not enough qualified people to hire to do these jobs.

Instead of mandated nurse staffing ratios, Minnesota should look at ways to train more nurses and nurses’ aides. Why has Minnesota not joined the nursing compact so that nurses, licensed in our other states, could easily and quickly be licensed in Minnesota? The alternative—as it has and will continue—is to simply refer or transport the patient to a facility in a border state that does have licensed professional staff.

Why does it take so long for an experienced doctor licensed in two, three, four or more other states to get licensed in Minnesota? There are a number of cases where scheduled starts for new resident doctors (e.g. a general surgeon) or consulting or visiting specialists (e.g. cardiologists, orthopods, etc.) have had to be delayed months because Minnesota had not issued a license. Really, Governor, is this necessary? Other states seem to do it, but all we do is discourage these services from being offered in Minnesota facilities while they are offered in adjoining states where the specialist often resides and practices.

Compounding this problem is the new “Tax Cuts and Jobs Act,” which limits the deductibility of state and local taxes to $10,000. This change means that the state income taxes that many of these resident and non-resident specialists pay will only be partially deductible on their federal return. Will specialists from South Dakota, for example, which does not collect state income tax, be willing to provide services in Minnesota if they are not able to even deduct the Minnesota income tax they incur from working here? Many of our rural hospitals rely on these visiting specialists for these services and to make their bottom line—these services are among the more profitable for a rural hospital. The same applies to recruiting hard-to-find family docs and specialists. 

Child care is an often-mentioned problem in rural areas. It seems that many of Minnesota’s child care regulations really do not work very well for small-town daycare. Every state has regulations and they are needed, but I was told the “problem” is not nearly as difficult in Iowa and both Dakotas. If daycare is not available, a tight labor market becomes a local disaster.

If changes are not made to help with the workforce shortage, hospitals and providers could soon face the problem of deciding which positions to fill: direct care or required administrative jobs? It really is this serious and getting worse.

Mental health in a crisis.

While Minnesota has taken significant action to provide more and better mental health for our citizens, more needs to be done. I have heard reports where some patients needing inpatient care had to be transported 200 to 300 miles to an available bed. This should never happen. Telemedicine and treatment must be further authorized and supported for rural areas to even hope to meet this critical need. It is a complicated problem, but rural areas, given their sparse population and low case mix, will need special attention and consideration. A coordinated system of care and partnerships among all those involved—hospitals, clinics, social service agencies, law enforcement, education and community-based organizations—must be developed so that needed access is available and convenient. The Legislature will need to provide new funding to finally address this growing and urgent problem.

Health care records.

I also recommend that Minnesota’s complicated health care records laws should be changed and aligned with national HIPAA privacy laws. The ability to utilize electronic medical records by all treating medical professionals is needlessly complicated by Minnesota’s laws, and it affects most rural healthcare. Most patients, particularly in a rural setting, presume their records are available to all members of their care team, and many times these are across a number of provider organizations and systems. Unfortunately, this is not the case in Minnesota, which is one of just two states (the other is New York) that require cumbersome “every-time” disclosure permissions. This requirement impedes the continuum of care required for modern quality medical care.

Further, it compounds the problem of our worker shortage since it needlessly requires more people to administer the essential transfer of patient records. Again, we are requiring more people to do things that never touch the patient. Mental health and even the opioid crisis are even more difficult to treat. The ACA promised that electronic medical records (EMRs) would reduce our costs and increase quality care. While there are still many problems associated with providers utilizing a patient’s entire cross-system EMR, clearly the problem is made much more difficult in Minnesota with its highly restrictive Health Records Act.

Innovative, nimble management required.

There are many other challenges that are either unique to rural healthcare providers or more difficult to address because of the sparser population in small rural communities. Suffice it to say, one of the essential requirements will be for rural health care provider managers and governance leaders to be innovative and very nimble.

Clearly times are changing, and tomorrow will certainly be different from today. Just as many rural areas learned to cope without railroads to meet transportation needs, so we must learn that not every current hospital will survive. As Admiral James Stockdale, America’s highest ranking Vietnam POW, said, surviving as a POW was only done by “facing the hard cold facts each and every day.” Our leaders must face the “hard cold facts.” Politician ideology or simple campaign fixes will provide little assistance. Wishing that things were different and hoping that they will stay the same or improve on their own is no solution.

Just as in the past, those communities that could not or would not find nimble, innovative leaders suffered and dwindled, and some even died. Time and time again, though, those that did find these special leaders more than just survived, they found a new vitality and existence in a changing future they helped shape.

Governor, you can provide a very valuable leadership service to our state by reminding everyone that change is going to occur. Our best survival option is to face it head on and do everything we can to shape it to meet selfless goals. The last thing we need is political rhetoric, bickering, special interests, and an unbending ideology so often found in today’s governance. Whatever you do, Governor, please abide by the creed of the great ancient physician Hippocrates: “Do no harm.”

Steve Perkins is a health care governance consultant with over 30 years’ experience, including chairing his local hospital board, Minnesota Hospital Board, and Chair of the American Hospital Association Committee on Governance. 

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