Bill would let rural hospitals apply for federal designation

For funding boost, facilities would have to eliminate nearly all inpatient services

Arkansas’ rural hospitals could soon face a choice: Keep their beds open for limited overnight services, or focus almost exclusively on emergency and outpatient care.

The Arkansas House approved legislation Thursday that will allow small rural hospitals to apply for a new federal designation as a “Rural Emergency Hospital,” which could bring in some much-needed additional dollars.

It’s a new designation that could be open to 28 rural hospitals, already subsidized by the federal government. The new designation would mean millions of federal dollars and higher reimbursement rates for Medicare, but designation as a Rural Emergency Hospital would mean having to drop almost all of their inpatient services — such as childbirth, rehabilitation and complex surgeries — to focus exclusively on emergency, observation and outpatient care.

For some rural hospitals, giving up inpatient care would be a benefit, as overnight hospital treatment often requires specialists who are mostly found at larger, urban hospitals. In many rural communities, people needing overnight care or surgeries are already used to making trips to larger hospitals in Little Rock, Fayetteville, Pine Bluff or Fort Smith for treatment.

State Rep. Lee Johnson, R- Greenwood, introduced legislation that would incentivize facilities to make the switch from the Critical Access Hospital designation that provides some inpatient care to outpatient and emergency medicine-oriented Rural Emergency Hospitals.

“Because of the advances we’ve seen in medical care, more and more we’re needing to transfer patients from our rural facilities to our urban facilities,” Johnson said. “This is no slight on our rural facilities, it is just the fact is how we deliver care has become more complicated.”

Hospitals that do opt to apply for the designation “shall not have inpatient beds,” unless it is licensed “as a skilled nursing facility to provide post hospital extended care” or “provides behavioral health services,” according to the language in the bill.

Johnson’s bill, House Bill 1127, has moved to the Senate for consideration.

The Rural Emergency Hospital designation, created by Congress in 2020, is a sign of a growing trend. Many rural hospitals have shifted to more emergency and outpatient care while maintaining a token number of inpatient beds that are often empty and are a drag on bottom lines.

“In the past, Medicare has forced hospitals to provide inpatient beds, even if they’re rarely used,” Bob Wilson, a co-founder of the Rural Healthcare Initiative, a nonprofit based in North Carolina, said in a news release. “That leads to financial losses that prevent hospitals from investing in services like maternal or behavioral health that might be more needed in their communities.”

Inpatient beds have to be staffed, which can be costly in a rural community where hospitals may only have one or two patients staying the night.

“If you start taking those costs away, it’s just more economical to run as a [Rural Emergency Hospital] with a few beds for those patients you might hold for a day or two,” said Mellie Bridewell, president and founder of the Arkansas Rural Health Partnership, a nonprofit network of 16 hospitals.

Bridewell said four out of the network’s 16 hospital CEOs expressed interest in applying for the Rural Emergency Hospital designation. But it’s a move that won’t work for all rural hospitals. In Arkansas, there are 28 Critical Access Hospitals, a special category of rural health care facilities that provide emergency and limited inpatient care.

Terry Amstutz, CEO of McGehee Hospital, a critical access facility, said he won’t apply for the new designation, at least not for now. McGehee Hospital averages three to four inpatients at any given time, Amstutz said, which is a large enough number to not make the switch. But given the small margins in health care, that could change.

“Things can change really fast,” Amstutz said. “Especially in a small hospital, you live by one or two extra patients.”

Rural Health Initiative estimated that nine rural hospitals in Arkansas could benefit from applying for the new federal designation, but switching to an emergency medicine and outpatient facility would come with some trade-offs, with some patients being transferred to a facility much farther away. The change also could mean cuts to payroll as inpatient beds and the staff needed to maintain them are cut, said Dawn Carter, founder and senior partner of Ascendient Healthcare Advisors, a consulting firm affiliated with Rural Healthcare Initiative.

But there are benefits, Carter said, as hospitals that make the switch to the Rural Emergency designation could start providing more outpatient services such as treatment for opioid addiction or maternal care while also keeping their emergency rooms open 24/7.