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Closing the Meaningful Use Gap forSnnall/Rural HospitalsBy Lauren Phillips

Small and rural hospitals have the advantage of being

nimble and having to corral fewer people to consensus than

iarge hospitals, but finding IT skills and funds is often a

constant struggle. The non-traditional financing approaches

highlighted in this article may help shrink the IT disparity

between small/rural and large/urban hospitals. - • ->

INSIDE THIS ISSUE

Reform at Half-Time: ACA

Versus the Economy 5

Two CAHs Team Up to Achieve

Meaningful Use 6

Hospital Consolidation Leads

to Price Increases 7

Did Hospital Value Improve

v/ith the Economy? 8

Pinpointing Your Hospital's Specific

ICD-10 Reimbursement Risks 12

Happy Endings Are Possible for Small

Hospitals in Today's Credit Markets 14

Nonelderly Insured and Uninsured

Are Skipping or Delaying Care 15

How Unwritten Rules Can

Sabotage Budgeting/Forecasting 16

MORE ONLINE

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at www.hfma.org/sfp.

Closing the Meaningful Use Gap for Small/Rural Hospitals continued from page j

Given the high cost and complexity of elec-tronic health record (EHR) implementa-tion, it is not surprising that small andrural hospitals continue to lag behind: Onlyi3.9 percent of small hospitals and 12.9percent of rural hospitals were in a positionto qualify for Stage 1 meaningful use incen-tives at the end of ?oii, according to a May?oi3 Health Affairs study.̂ In comparison,^9-7 percent of large hospitals and 20.3percent of urban hospitals qualified.

In fact, this EHR gap grew from 2010 to2011; Small and rural hospitals that hadsome form of EHR jumped about 10 per-cent in that time, compared with 17.3 per-cent and 12.1 percent growth for large andurban hospitals, respectively.

Yet, says Tracey Mayberry, partner, CSCHealthcare Group, most organizationsunderstand that, even if they can't movefast enough to meet the deadlines for

a. DesRoches, CM, et al, "Small, Nonteaching, and RuralHospitals Continue to Be Slow in Adopting ElectronicHealth Record Systems," Health Affairs, April 2012,vol.31, no. 7.

meaningful use incentive payments, theymust act in time to avoid the penalties fornoncompliance that go into effect in 2015.To do otherwise "is really almost anadmission that you're done as a hospital."

The problem, of course, is resources—orrather, the lack of them. "Hospitals in therural market find it difficult to make thesignificant investment in EHRs due toconstraints in available financing, com-peting priorities for limited capital dol-lars, and thin operating margins," saysHFMA's Todd Nelson, technical directorfor senior financial executives/accounting.

Whue bank loans and other traditionalfinancing options may be an option forsome well-positioned small/rural facili-ties, others may find better luck with phi-lanthropy and nontraditional financingapproaches, such as the ones highlightedin this article.

Government Funding Opportunities

Small and rural hospitals have a numberof government-sponsored funding

Government IT Assistance: Looking for Guidance?

A good place to turn is the 70+ Regional Extension Centers, funded by the Office of the National

Coordinator, which offer technical assistance, guidance, and information on best practices to sup-

port and accelerate providers' efforts to achieve meaningful use. This includes on-site technical

assistance to "priority primary care providers ' that have not yet adopted an electronic health

record (EHR) or that have certified EHR technology but need help meeting meaningful use criteria.

Find the extension center that serves your region at wv/v/.regionalextensioncenters.com.

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©2012 HFMA.

Volume 7, Number 4

options to explore, says Aaron Fischbach,

public health analyst. Federal Office of

Rural Health Policy.

Community Facility Direct and Guaranteed

Loan Program. Under the auspices of theU.S. Department of Agriculture's (USDA's)Rural Development offices, the CommunityFacility program covers health IT and isintended to foster compliance with mean-ingful use in not-for-profit and publichospitals and clinics in communities ofless than 10,000 people.

The Community Facility program has littlegrant money, says Fischbach. However,hospitals can use anticipated meaningfuluse incentive funds as collateral to borrowfunds from the Community Facility pro-gram .̂ The terms on these loans givehospitals enough time to implement anEHR, attest to meaningful use, and thenuse the incentive paym.ents to repay atleast a major portion of the loan.

Clinics need to take a more circuitousroute. Unlike hospitals, clinics do notqualify for direct EHR incentive pay-ments; instead, the Centers for Medicareand Medicaid Services (CMS) programpays their clinicians, who typically reas-sign the payments to the clinic under theiremployment agreements.

USD A and Small Business Administration

loans. To the extent that for-profithospitals can prove that job retentionand/or creation is involved, they can applyfor loans or loan guarantees to cover ITimprovements from the USDA RuralDevelopment's Business & IndustiyProgram or from the Small BusinessAdministration's capital loan programs.

USDA Rural Development also sponsorsthree other programs where hospitals canlook for funding assistance with telecom-munications software, hardware, andconnectivity:

2 Fall 2012 Strategic Financial Planning

> The Rural Utilities Service

Telecommunications Infrastructure

Loan Program

> The RUS Broadband Initiatives Program

> The Distance Learning and

Telemedicine Loan and Grant Program

HUD block grants. Hospitals in counties orcities that are Entitlement Communitiesand, thus, eligible for monies under TheU.S. Department of Housing and UrbanDevelopment (HUD) CommunityDevelopment Block Grant Program, mayqualify for funds for equipment designedto provide improved community facilitiesand services—including hardware toimprove health services.

CAH-specific programs. Critical accesshospitals (CAHs) and other hospitals withfewer than 4,9 beds can apply to tbeirstates for funds to help with activitiesrelated to qualify improvement and theeffective use of IT, which are availablefrom the Health Resources andAdministration's Small HospitalImprovement Program (SHIP) andMedicare Rural Hospital Flexibüify Grant(Flex) Program. Fischbacb explains thattbese programs grant money to the statesfor assistance to hospitals to provide, forexample, tecbnical or traininghelp—rather than funds to purchasehardware or software.

Rural Health Care Program. One program

that Fischbach says is "very under-subscribed" is the Rural Health CareProgram, run by tbe Universal ServiceAdministrative Company under tbeoversight ofthe FCC. "Every monthly billfor pbone service includes a universalservice fee. Those fees are used to subsi-dize tbe costs of telecommunications forpublic and not-for-profit bealthcareproviders in rural areas, wbicb may payfour or five times as much as tbeir nearbymetro counterparts for tbe same services.Tbe subsidies can be significant—and

Meaningful Use 101: Medicare Versus Medicaid

Medicare

Federal government will Implemenf (will be anoption nationally).

Fee schedule reductions begin in 2015 forproviders that are not "meaningful users" by2015.

Must be a "meaningful user" in year one.

Maximunn incentive is $44,000 for eligibleproviders.

Meaningful use definition will be common forMedicare.

Medicare Advantage eligible providers havespecial eligibility accommodations.

Last year an eligible provider may initiateprogram is 2014.

Last payment year in program is 2016; paymentadjustments begin in 2015.

Only physicians, subsection (d) acute carehospitals, and critical access hospitals areeligible.

Medicaid

Voluntary for states to implement (may not be an

option in every state).

No Medicaid fee schedule reductions.

There is an adopt/implement/upgrade option forfirst participation year.

Maximum incentive is $63,750 for eligibleproviders.

States can adopt a more rigorous definition(based on common definition).

Medicare Advantage Care providers must meetregular eligibility requirements.

Last year an eligible provider may initiateprogram is 2015.

Last payment year in program is 2021.

Five types of eligible providers and two types ofhospitals are eligible.

Source: Mil<e Alien, Winona Health Services, tailored this exhibit based on information pulled together by Cerner.

there is a lot of money tbat isn't beingspent rigbt now. '

Networking Opens Other Doors

One way small bospitals can obtain ITresources is by joining networks and con-sortia tbat take advantage of discountedpricing and economies of scale. Maybenybas seen a number of commimify bospitalsleverage strategic partnersbips—either byaffiliating or by joining large, mature inde-pendent deliveiy networks—to gain accessto solutions, products, and talent tbey migbtnot otbenvise be able to afford.

"Smaller organizations witb non-overlap-ping geographies can form collaborativesto work on IT initiatives, especially if tbeyhave a common vendor. For example, tbeymight start a shared service organization,essentially combining their IT opera-tions," she says.

Fischbach cites another advantage ofaffiliation. "Small, independent hospitals

tend to be tbe last priorify for vendors tbatcan make more money working witb a bigbealtb system like Mayo or KaiserPermanente. So if tbe small hospitals cangroup together, they can not only save onhardware purchases but they can also prob-ably get the attention of a vendor sooner."

To encourage collaboration among ruralproviders, HHS allocated $12 million in2011 for grants to networks of ruralhealthcare organizations in support of ITadoption and and meaningful use. Tbemoney must be used for purcbasingtecbnology, installing broadband net-works, and training staff.

In ?oii, when 25-bed Jersey ShoreHospital in north central Pennsylvaniadecided to team up with 21-bed FultonCounfy Medical Center in McConnelsburg,2.5 bours away, the two CllAHs didn't evenknow about tbe availabilify of tbese HHSgrants. They were just looking for a meansto share IT resources needed to acbieve

Wnia.org/sfp Fall 2012 3

meaningful use, including joint installa-tion of an EHR that would otherwise havecost each organization an estimated$?.3 million, according to CareyPlummer, Jersey Shore's CEO.

Thanks to the Pennsylvania MountainsHealthcare Alliance, a 19-hospital collah-orative to which both helong, they foundeach other, a partnership that has savedeach some $3oo,ooo on EHR implemen-tation—and provided grant money, too.Both hospitals expect to attest to stage 1meaningful use criteria by Sep. 1, 3oi3.(For more details, see the case study onpage 6 of this newsletter.)

Vendor Relationships

Not all small and rural healthcare organi-zations are struggling to find IT dollarsand meet meaningful use deadlines; someof them were close to the finish line whenthe American Recovery and ReinvestmentAct was enacted. Winona Health Services,a Minnesota system consisting of one99-bed hospital, a nursing home, anassisted living community, and 4,5 employedphysicians, started its EHR journey morethan 10 years ago and was ready to attestin November 2011, says CFO and treasur-er Michael M. Allen, FHFMA, CPA.

"We really just needed to go the last mile.There were a few small pieces of function-ality to put in place, and there was stillwork to do with the medical staff to bringa few operational processes in line withmeaningful use criteria."

Central to Winona's success, according toAllen, is something he recommends thatevery small hospital pursue: a close,strategic, integrated relationship with itsEHR provider.

"As a small, independent system thatwanted to accomplish big things, we knewwe'd get lost in the shuffle with any ven-dor if the relationship was simply based

Leasing Now an Option for CAHs

Many critical access hospitals (CAHs) breathed a sigh of relief in July when the Centers for Medicare

& Medicaid Services (CMS) changed its policy to allow CAH's nneaningful use incentive payments to

include the cost of capital leases for certified electronic health record (EHR) technology.

Previously, while a CAH could include lease costs on its cost report, only reasonable costs to which

purchase depreciation would apply were allowable for incentive payments. But in July, CMS decid-

ed that a capital lease is essentially the same asa virtual purchase agreement and meets the intent

of the statute and regulation to qualify the leased asset as a purchased asset. The cost must be

based on the fair market value of the asset at the date the lease was initiated. For more information

about this reversal, visit www.cms.gov/EHRIncentivePrograms.

on a transaction. The EHR is so critical tothe goals of the organization and of thecommunity. You need to feel comfortablewith your partner, and be able to worktogether over tbe long haul."

Despite due diligence, Allen cautions thathospitals are not going to fully understandwhat they're getting from a vendor atproposal time; it's just too complex.

"Increasingly, however, EHR systems aregoing to cost about the same and haveabout tbe same functionality. Ifyou have astrong, give-and-take relationship, thecost and other issues will fall into line. "

What does a give-and-take relationshiplook like from the provider side? Feedbackplays a prominent role. AUen himself sitson the vendor's client care council with 35or 40 other hospitals and systems.

"We get together at least twice a year andat other times on the phone, and work onimprovements and solutions to problemsin tbe delivery or use of software or tbebilling for software—whatever it mightbe. It's rewarding from my perspectivebecause I've got colleagues from all theseother places in the room, and we learnfrom each other."

Likewise, Winona physicians sit on thevendor's physician council, which focuseson how physicians use the software to

improve patient care and workflows, andhow changes could enhance and acceler-ate those improvements.

"We also open ourselves up for site visitsby other small hospitals that want to seehow the system is working," says Allen."The vendor organizes the visits, but itstill takes a day of our time every time."

In return, Allen explains, the vendorhelps Winona mature its software. "Maybethey need a beta partner for some newsoftware, which is exciting and interestingbut also very time intensive. So, typically,they will end up giving us that functionali-ty or discounting it significantly."

Sometimes there are gray areas in theagreement, things the provider and ven-dor don't see eye to eye on. BecauseWinona has been generous in workingwith the vendor, "they're going to be moreflexible and understanding," says Allen.

"If all you do is take, at some point tberelationship is just not going to be therewhen you need it most, " he continues."You need to make investments of moneyand effort both. Structure the contract in away that you can manage financially, thenroll up your sleeves and put in the time."

Maximum Value

Once a hospital has an EHR in place that

will allow it to quality for meaningful use

4 Fall 2012 Strategic Financial Planning

A commentary by Jeffrey C. Bauer

incentives, how can the hospital be sure it

is getting maximum value from that sys -

tem? The trick, says Jim D'ltri, partner,

GSG Healthcare Group, is to not stop there.

"In a small way, meaningful use is pushingthe effective application of automation tomake the hospital more efficient, but itdoesn't go far enough in terms of safetyand quality. The hospital has to engrainthe meaningful use values into its culture,into its normal workflows. For example,meaningful use requires 3o percent ofmedical orders to be done through com-puterized provider order entry. But itmakes no sense to stop at 3o percent."

Meaningful use, like the EHR, is part of amuch bigger agenda, says D'ltri. "In theend, it's about harmonizing investmentsto foster accountability, assuming respon-sibility for the health of a population, andmanaging consumption wisely." ^

Lauren Phiiiips is president, Phiiiips Medicai Writers,

Ltd., Beiiingham, Wash., and a frequent contributor to

Strategic Financial Planning (phiiwrite@att.net).

interviewed for this article (in order of appearance):

Tracey Mayberry is partner, CSC Heaithcare Group,

Poweil, Ohio (tmayberry2@csc.com). Todd Nelson,

technical director for senior financial executives/

accounting, HFMA, Westchester, iil. (tneison@hfma.org).

Aaron Fischbach is public health analyst. Federal

Office of Rural Health Poiicy, Rockville, Md. Carey

Plummer is CEO, Jersey Shore Hospital, Jersey Shore,

Pa (cplummer@jsh.org). Michael M. Allen, FHFMA,

CPA, is CFO and treasurer, Winona Health Services,

Winona, Minn., and a member of HFMA's Minnesota

Chapter(malien@winonaheaith.org). Jim D'ltri, partner,

CSC Healthcare Group, Pittsburgh (jditri@csc.com).

Reform at Half-Time: ACA Versus the Economy

The Supreme Court's ruling on the Affordable Care Act is not the end of the

reform game. It's half-time. Here's my color commentary on what we've seen

so far, and what we might expect as play continues.

The Affordable Care Act (ACA) v/as enacted at

the end of a bruising first quarter. Nothing much

happened in the second as everyone v/aited for

judges to decide if the game v/as being played

according to the rules. Assuming the same teams

return after half-time elections, lobbyists playing

for both sides will dominate the third period. An

underrated piayer—the economy—wiii determine

the outcome in the final quarter.

Why? The 2012 Roberts decision upheld a 2010

iaw built on unrealistic projections that the econ-

omy would recover before the mandate goes into

effect in 2014. The economy has not rebounded

as hoped, and today's consensus forecast sug-

gests neither governments nor patients wiii be

able to meet their financial obligations under the

law. if lobbyists don't neutralize key provisions

over the next two years, economic stagnation

will likely defeat the ACA.

Economic Forces at Play

Two economic forces make it difficult for

ObamaCare to win, even though the referees

decided the game can continue. First, ACA

makes mandatory insurance "affordable" by dra-

matically cutting the covered portion of care.

Today's average health pian pays approximately

80 percent of a patient's health costs, leaving

20 percent to be billed to the beneficiary.

Mandated coverage in 2014 wiii be priced on an

actuarial assumption that basic insurance pays

As an economist unabashedly

committed to reinventing the

way we deliver health care,

I simply cannot see how

consumers will be able to

hold up their end of the

reform bargain when the

mandate goes into play.

oniy 60 percent—leaving the insured patient

with a 40 percent out-of-pocket obligation.

Many ACA fans will cry foul when they discover

this unpleasant play in the game plan. (As Chief

Justice Roberts noted, the Supreme Court only

decides whether a law is constitutionai, not

whether it is viable.)

The second trend is ongoing decline in spending

capacity. Personal wealth, employment income,

consumer confidence, and other key compo-

nents of purchasing power have fallen dramati-

cally since 2008 and are unlikely to rebound by

2014. The student loan bubble will probably burst

in the meantime, the banking system is digging

itself into a deeper hole, and the global economic

outlook is depressing (literally). Taxes are also

likely to rise over the next two years because

austerity is not re-igniting economic growth.

Hence, as an economist unabashedly committed

to reinventing the way we deliver health care, I

simply cannot see how consumers will be able to

hold up their end of the reform bargain when the

mandate goes into piay. The ACA will not gener-

ate more money for healthcare providers

because there won't be more money in govern-

ment coffers or consumers' pocketbooks. Odds

are that economics will defeat ObamaCare.

The Providers' Card

Can providers survive under such dismal cir-

cumstances? Yes, as long as strategic financial

leaders work relentlessly to harness the abun-

dant waste in current operations and redirect

recovered resources to creating an efficient and

effective delivery system—doing health care

right all the time, as inexpensively as possible.

Some innovative American health systems have

already proven that it can be done without the

ACA. *

Jeffrey C. Bauer, PhD, is an independent speaker andconsultant based in Chicago, (¡effbauer@mindspring.com)

hlma.org/slp Fail 2012 5

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