Medi-Cal Cut Could Force Some Rural Hospitals To Close Nursing Units

Tom Hayes worries about his boilers.

As CEO of Eastern Plumas Health Care – which operates the only critical care facilities in rural Plumas County, north of Sacramento — Hayes oversees care for a good percentage of the population of a county the physical size of Delaware.

“We’re pretty much the only ones out here,” Hayes said.

The double, 12 foot-wide, diesel-powered water heaters behind EPHC’s main facility in Portola represent the continued operation of the hospital, clinics and skilled nursing facilities for much of Plumas County.

“Those things are 42 years old. We need to replace those, and that’s about an $850,000 purchase,” Hayes said. Normally, that kind of expenditure might come out of cash reserves, but those reserves are nearly exhausted, Hayes said.

The health center’s next option would be to get a bank loan to finance it. But that doesn’t seem a likely solution this time around: A looming cut in Medi-Cal provider reimbursement rates could cripple the Plumas facilities, and the banks know that, Hayes said.

“There’s no way to get a loan for that now,” Hayes said. “We had our line of credit cancelled by the bank when they heard about this.”

“This” is a 10% Medi-Cal rate reduction that the state imposed in 2011; the rate change is still in limbo, awaiting the outcome of legal challenges. The cut will hit Plumas County particularly hard, Hayes said, because a high percentage of its rural patient population is Medi-Cal beneficiaries. Medi-Cal is California’s Medicaid program.

In December, the state’s cuts were ruled legal by a federal court. That case is awaiting a ruling on appeal in the 9th U.S. Circuit Court of Appeals, a ruling that could come any day now.

According to state officials, California will save about $50 million a month if the Medi-Cal cut takes effect.

“All of our appeals have been presented,” said Toby Douglas, director of the Department of Health Care Services, “and [a decision] could be any time.”

State officials consider the cut to be retroactive to its enactment in 2011. If the court upholds the rate reduction, providers will have to pay back 10% of the Medi-Cal reimbursement they received over the past two years.

The state has said it will only ask for half of the amount at a time, about 5% a year in retroactive withholding. That means a 15% reduction to already-low reimbursement rates for the next four years, before it becomes just a 10% cut thereafter.

If the reductions take effect, Hayes said he’s looking at potential disaster.

“These cuts are critical enough that we’re facing closure, not only of our 66 beds in the skilled nursing facility, but we’re also looking at possible closure of the hospital and clinic services,” Hayes said. “We’re the only Medi-Cal provider around here for miles. This would be devastating for this community.”

Harder Hit for Some Skilled Nursing Facilities

Distinct-part skilled nursing facilities are set to absorb even higher rate cuts than other providers. The state is imposing the 10% cut on 2008-2009 payment levels, which are roughly 25% lower than 2011 levels. As a result, the actual rate cut for DP/SNFs is about 35%, Hayes said.

“We would likely have to close our skilled nursing facilities, and that’s a big part of our business,” Hayes said.

Add in the retroactive payments, and you could be topping 50% in reductions, Hayes said.

“In addition to that decrease, of course the state is going to reduce our other Medi-Cal services by 10%, too,” Hayes said. “Our ancillary services reimbursement will be reduced by 10%, and our inpatient services reimbursement will be reduced by 10%.”

Hayes throws up his hands at the idea of it.

“It’s crazy,” he said. “Why in the world would you go back five years, and then on top of that reduce those rates even more? I don’t know how anyone can survive that kind of reduction.”

Urban Nursing Facilities Also Feel Threatened

Hayes is not alone in his concern over the looming provider cut.

In a more urban setting, Steve Gold — chief officer for post-acute care at Palomar Health in Escondido, in northern San Diego County – worries the skilled nursing beds in his facility may disappear. About 100 of the beds in the 225-bed facility are part of a distinct-care skilled nursing unit that might have to close if the full cuts are realized, Gold said.

“We will search out every opportunity to maintain the facilities, but if the systems’ viability is threatened, we have to consider closure,” Gold said.

That would be a problem for those patients but would not threaten the San Diego County hospital’s viability, Gold said. However, in rural areas, acute care skilled nursing facilities subsidize some of the other money-losing Medi-Cal care those hospitals provide, according to Gold. Shutting down a SNF unit would have a ripple effect on the rest of the hospital’s operations.

“For the rural hospital providers, it most likely means bankruptcy,” Gold said. “They might not be able to keep their hospitals in operation. And because they’re so remote, people would have nowhere to go.”

Gold said he knows of five or six acute-care rural hospitals that may close because of the cuts.

California already has some of the lowest Medicaid reimbursement rates in the nation. According to a report released last month by the National Center for Policy Analysis, California spends less per Medicaid beneficiary than any other state. The report also said California has the second-highest percentage of its population enrolled in Medicaid among the 50 states. 

The 10% cut will make it extremely difficult for providers to take Medi-Cal beneficiaries, Gold said.

Legislative Intervention Possible

A bill was recently introduced in the Legislature to address the cuts to skilled nursing facilities. AB 900, by Assembly member Luis Alejo (D-Salinas), would exempt hospital-based, acute-care skilled nursing facilities from the cut. Other providers could be included in the legislation as well.

The Assembly Committee on Health is scheduled to hear the bill April 30.

DHCS officials recently sent an email response to the concerns over the rate cuts and to the possible legislative action of AB 900.

“DHCS is still awaiting the 9th Circuit’s decision on the petitioner’s request for rehearing of this case,” the email statement said. “DHCS is obligated by its federally approved access and monitoring program to closely monitor access for Medi-Cal members and to take appropriate steps to address access problems should they arise.”

DHCS’ written comments continued: 

“The various rate reductions approved by the federal Centers for Medicare & Medicaid Services were supported by extensive analyses conducted by DHCS. The findings showed that the approved reductions would allow California to continue to meet federal standards requiring an adequate level of access to care for members. In cases where the proposed rate reductions were not supported by the analyses, the amount of the reduction was either decreased or eliminated.”

Rural Providers Raise Issue of Access to Care

The network adequacy reports by DHCS are a particular concern for Hayes.

“The state justified all of this by suggesting there is an adequate network of distinct-part skilled nursing facilities,” Hayes said. “But they compared our county, Plumas County, with that of Ventura County,” he said.

“If we do close, those patients will have to be transferred anywhere from 100 to 500 miles away,” Hayes said. “I don’t think they can do that.”

Gold said his patients have needs other facilities can’t or won’t meet. “I can tell you right now every day I place people who no one else will absorb,” Gold said.

Gold said his facility has 1,600 admissions and discharges a year. “That’s a lot of patients,” Gold said. “The question is, where do all those people go?”

As for the state’s network adequacy report, Gold said: “I doubt very seriously the adequacy of that report.”

What’s Next

If the federal appeals court upholds the ruling that the Medi-Cal reimbursement rate cuts are legal, advocates say they would consider asking the Supreme Court to review the case.

Meanwhile, Hayes will plug along and hold off on replacing those boilers until the cuts are either implemented or circumvented.

“If we cannot persuade the Legislature to reinstate the funding, I’m looking at cutting different services and one of our facilities immediately,” Hayes said. “Then I would look at closing the other campus.”

Hayes has made a list in his head, he said, of the cuts and trims he can make to keep the facility going. “On a day-to-day basis, it would be tough to pay the bills, tough to make payroll,” he said. “It would be a slow death of the facility. Dental service will be one of the first things, maybe no activities coordinator, lay off housekeeping, administration, the overhead departments, that’s what will happen. It’s a gradual process, where you start reducing because the income isn’t there.”

Hayes said he’s reluctant to talk about the possible extreme actions that might eventually be taken.

“It’s hard to retain providers in that setting. In an organization, when there’s a lack of hope, people look for other jobs,” Hayes said. “But I just want to make sure everyone understands the gravity of this. It’s serious. Maybe we will close and maybe we won’t, but we won’t look like what we do today.”

Related Topics

Insight Medi-Cal