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Rural Hospitals and the New Rural Emergency Hospital Designation, with Janice Walters

Date: May 2, 2023
Duration: 32 minutes

Janice WaltersAn interview with Janice Walters, Chief Operating Officer for the Rural Health Redesign Center, home of the Rural Emergency Hospital Technical Assistance Center. Walters provides us with an overview of Medicare's Rural Emergency Hospital (REH) designation, which became available on January 1, 2023.

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Andrew Nelson: Welcome to Exploring Rural Health, a podcast from the Rural Health Information Hub. My name is Andrew Nelson. In this podcast, we'll be talking with a variety of experts about providing rural healthcare, problems they've encountered, and ways in which those problems can be solved. This is an episode about Medicare’s new Rural Emergency Hospital designation, which became available on January 1st, 2023. This interview was recorded on April 14th of 2023.

Today I'm talking to Janice Walters, Chief Operating Officer for the Rural Health Redesign Center. Thank you for joining us today, Janice.

Janice Walters: Glad to be here. Thank you for inviting me.

Andrew Nelson: Today we're going to be talking about the Rural Emergency Hospital designation. To get started, can you give us some background on when that designation was created, and why?

Janice Walters: Sure. So, Medicare designated the Rural Emergency Hospital, otherwise known as an REH, as a new provider type in the Consolidated Appropriations Act of 2021, to address concerns that some rural hospitals would not be able to sustain operations and are at risk of closure. This new REH designation became effective January 1st, 2023, and is being made available to Critical Access Hospitals as well as small rural hospitals with less than 50 beds, with the overall goal to allow continued access to certain healthcare services and rural communities.

Andrew Nelson: Can you tell me a little bit about the technical assistance your center is providing for hospitals that are considering converting to an REH?

Janice Walters: Our rural health technical assistance center that's leading this work is really comprised of a lot of individuals that have rural relevance, rural health leadership experience. We certainly appreciate and understand the emotion that could be tied to making this decision, because there are certain things that Rural Emergency Hospitals can do, and there's certain things Rural Emergency Hospitals can't do, based on statute. And so anytime there's change of this nature, we certainly understand the emotion that can be tied to those decisions. So some of the TA that we provide is really first educating rural healthcare leaders and their boards of directors as well as communities, regarding what this new designation is and what the designation is not. So we certainly start with education as the first step for organizations where we believe in mutual agreement with the organization, that it makes sense to maybe see if this is a potential solution for the hospital, leadership team, and its board of directors to consider.

We support a financial analysis, because there are different payment terms associated with the Rural Emergency Hospital designation. And so we all understand that first and foremost, the math has to work. And if the math doesn't work, if this doesn't provide a more sustainable future for the hospital, then there's really no sense moving on. But for where we think there could be the opportunity where the math might work, we then work with the hospital to perform a pretty intense financial assessment to really identify what the financial position could be for the hospital as a Rural Emergency Hospital. We also then support hospital leaders with understanding what might need to change. So from a strategic planning perspective, we work with them to understand what types of strategies could be implemented.

And so if there were service line changes to be made, what might that look like within the rural community? There might actually be the opportunity for the Rural Emergency Hospital to expand outpatient services. So we know, they have to give up inpatient, but they could actually maybe expand services from an outpatient perspective, so we work with organizations to understand that. And then we certainly support the application process, educating again, what's needed for the application process. We do not submit the application on behalf of the hospital, because that is something that the hospital has to do themselves, but we certainly educate and walk with them through that application process, supporting them however we can, absent of doing the application for them. We understand just getting to the conversion is a lot to absorb.

And so we are positioned to then continue to walk with Rural Emergency Hospitals post-conversion and continue to provide technical assistance to them in the post-conversion space, and flex that to their needs as well. So that's the realm of technical assistance that we're prepared to provide Rural Emergency Hospitals or folks on the journey. I also like to say it's not our job where we sit as the TA center to tell an organization or a community what they should and shouldn't do, but walk with them on a journey and provide them the infrastructure by which to make an educated decision about the Rural Emergency Hospital designation and whether that's right for their community or not.

Andrew Nelson: Sure. Like you just said, making the conversion to being an REH is not necessarily going to be beneficial for every single rural hospital. For those that do make the switch, what are the benefits of that REH status, especially in terms of things like CMS' monthly facility payment and maybe getting higher outpatient payments?

Janice Walters: Right. So certainly, that is one of the benefits, and it is a new payment structure. We certainly know rural hospitals are struggling in fee-for-service, that they don't generate enough revenue through fee-for-service billable claims, to keep many rural hospitals open. And so to me, that is what is exciting about the new designation, is that it is a step in the right direction in terms of a different payment methodology.

We know the current fee-for-service is not sustainable. It's a step in the right direction for coming up with a different potential solution that might be right for some hospitals. So certainly getting a fixed facility payment that will bring stability of cash flow, stability of payment to that rural hospital to continue to provide essential services in the community, enhanced outpatient for rural emergency payment to again, keep those vital services in the community, versus having a hospital close. And I really do believe at the heart of this, it's good. It's trying to keep access to essential healthcare services in the rural community as an alternative to the hospital closing. And again, there are certain things that do have to be given up. There's a lot of emotion tied to this — rural residents might not be able to get inpatient services at their local hospital anymore. But again, the reality from my perspective is a lot of rural residents are already driving by the rural hospital for inpatient services. And so it's really about retaining essential emergency services, low acuity observation care labs and imaging, all of that in the community to serve the rural residents.

Andrew Nelson: I'd be interested in getting into that in a little greater depth. Are you seeing that considering switching to that designation, or actually making the conversion, has an impact on a community's perception of their hospital?

Janice Walters: I think it can. But again, I really believe for a lot of these hospitals and from our experience, the ones that we're working with, from a public perspective, very little may need to change specific to inpatient acute care. So a lot of these small hospitals, again, don't have a lot of inpatient care to begin with. They're already predominantly providing outpatient care. And so I do believe if the right communication and education is given to the community, that the rural residents may see very little change. And so I really do believe that whether it's hospital leadership, boards of directors, as well as community members, it's very, very important that those stakeholders are fully informed of the current reality.

Our hospital leaders have a lot of data that they can show and say, “This is our current reality. We already only have an inpatient census of one or two. Some of these patients may actually still be able to stay in an observation status.” And so, again, I think one of the key stakeholders that needs to be informed early on is EMS, because EMS transport, if education is not done and done well, might see this as a huge disruption and drive past the rural hospital or services that the rural hospital is very well equipped to continue to provide. Going back to education, stakeholder engagement, making sure your community is well informed of really what will change through transparency, what will stay the same and what will change is very, very important, as hospitals consider this transition and managing that public perception, because I think for most hospitals, the ones that we're working with, where we think a conversion might make sense, very little may actually change from the public's viewpoint in terms of the care that they receive.

Andrew Nelson: Can you give us kind of a rundown of the process for getting the designation and how long it might take to make that switch?

Janice Walters: I would like to say it's a quick process, but we're seeing that not to be the case; for some of the hospitals, the early folks that submitted their applications, it can be as much as 90 days or more. Certainly we are hoping that as more experienced states and the federal government get used to working with each other in this space, that it will go more quickly. The process is for a hospital that is continuing to operate, they actually submit what's called an 855 change form. So it's not viewed as a new application to become a Rural Emergency Hospital, but it's a transition from your current licensure, either as a small PPS [Prospective Payment System] hospital or a Critical Access Hospital to the REH. So it's a change application.

That might sound like a simple process, but from folks on the ground that are actually doing this, we're finding out that while it's called a change, you really are inputting a lot of the same information. But through that change, it's not actually requiring an onsite survey from the federal government's perspective to actually transition. Hospitals actually attest to meeting the Conditions of Participation. As part of their application, there's an attestation process, but then there is a role for the state government to play as it relates to reviewing and also approving the application. A transfer agreement has to accompany the application. You have to be able to identify what services you are going to provide, as well as services that will be discontinued, and what that transition plan looks like.

That's part of the formal application, and then there's a process again where the federal government reviews that, approves that, in communication with the state. And then the state also has to have infrastructure in place, even from a licensure. So many of our states don't necessarily even have the REH license recognized from a state statute perspective. So some states are having to work on that, but then also get the process in place to review the applications, approve the applications, and all of that. Again, it's not as quick as maybe we had hoped for the early adopters, but hopefully over time those processes will be ironed out between the federal government and the state governments that will allow for a quicker transition.

Andrew Nelson: Sounds like something that definitely has a lot of potential to really help out a lot of rural communities. And the smoother that transition can be, the better. What's a hypothetical hospital for which that designation would just be perfect?

Janice Walters: Yeah, great question. So I would say, based on what we're experiencing again, gathering data, we're currently working with 14 hospitals, but we've spoke with close to 50 at this point. We're doing this work in what we call “cohorts.” So we're working with our first group of hospitals, and then we'll be teeing up our second group of hospitals to kick off during the summer months. But really, the profile that I would say a hospital that has an average daily census of less than five, typically low acuity. They do not have a robust 340B program, because again, with this designation, they're no longer eligible for the 340B drug program.

So if they don't have a robust outpatient retail pharmacy 340B program, and are really just using 340B within the acute hospital, they might not have to forfeit a whole lot. Part of the financial equation is weighing what you have to give up in exchange for the fixed facility payment. And so if you're giving up a couple hundred thousand of 340B revenue, that's one thing. If you're giving up an excess of a million dollars of 340B revenue, it's probably not going to make sense. And then also swing bed, it really comes back to the amount of swing bed patients. We're actually finding that probably the number one barrier right now is for some of these hospitals, they are the only rehab from a Skilled Nursing Facility perspective in their community.

The Rural Emergency Hospital has to give up swing bed care, because that is an inpatient type of care. A lot of these organizations do not already own a Skilled Nursing Facility. It's not necessarily feasible for them to create a Skilled Nursing Facility in order to keep the swing bed patient in their community. And so if you have low inpatient census and very low swing bed census, and again, a predominance of your revenue is already tied to outpatient, that's what we're seeing where it makes sense. If you've got north of 10 to 15 patients, it really does then become a question of where are those inpatients going to go? Or if you do have swing bed patients, there's another community partner that you could transition those swing bed patients to, from a community need perspective, that would also be a consideration.

Just to clarify, we've talked to about 50 hospitals today, and that number changes every day because we have people reaching out to us every day. Slightly less than 50% at this point have decided to move forward with the financial assessment, some of which are already poised to submit the application, but they just want to look at that math, just to make sure. We work with folks along the way, different stages. Some aren't ready to submit an application until the deep dive financial assessment is done, some are ready to hit “submit” and just want another set of eyes on it. But again, that would be the statistic I would throw out. Probably just less than 50% are choosing to move on. We have had some raise their hands and say, “I don't want to be part of the first cohort. I don't want to be in cohort 1. I might consider cohort 2, but I want to see how it works for other people.” I think what we're seeing is the most desperate of hospitals are the ones that are really submitting their applications early because the hospitals on the brink of closure, and they really do see this as a lifeline, where there's some hospitals that feel like they have a little bit more runway, in order to make the decision of whether to convert or not. And again, that that's our job to help them on that journey to help them decide.

Andrew Nelson: Yeah. Thus far, have you seen any differences in REH adoption in different states? Are there certain states where it seems like there there's an especially large number of rural hospitals that are considering this possibility?

Janice Walters: I would say no, not at this point. I think in cohort 1, we have five or six states represented off the top of my head. But so we're working with 14 hospitals that are going through the deep dive. We started out with 20, we had a couple raise their hand and say, “Oh, I think I want to postpone this. Maybe we'll do cohort 2.” But actively working with 14. And I believe that’s spread across six states.

And also, because there's so much work that needs to be done in the state licensure, what we're actually finding is we have hospitals that are interested, but the state licensure might be what actually keeps them because either the REH designation is not yet recognized, or it may be there might have been an emergency rulemaking that allowed for the licensure to happen, but the state regulatory agency is not ready to advance that work. So with a number of even our cohort 1 hospitals, the hospital may be ready before the state is.

Andrew Nelson: Can you talk a little bit about some of the effects that REH conversion can have on a hospital's community? I suppose the, the most obvious one is that it could allow a hospital to remain open.

Janice Walters: Yeah. And I think exactly, it's an alternative to closure, which I think our legislators in DC had heard for a long time, “Hospitals are closing, hospitals are closing, we need something outpatient.” I think post pandemic, there's concern with giving up inpatient beds, just coming off the COVID pandemic when every bed across the country was pretty much needed, with a few exceptions. So there is that concern, like, “Should have this statute maybe had some changes made to it because of that coming pre-pandemic versus post-pandemic needs within these communities?” So again, I do believe at the heart, it was good. It was trying to preserve. I'm confident that with some few tweaks being made to it, we actually could maybe see more of an uptake in it.

Again, the swing bed elderly patients and need of rehab care, that's also an important service that I think rural hospitals should be able to provide. And so I really do believe right now we're putting our leaders in a very difficult position in terms of choosing what type of care to keep in the community. But really, you hit the nail on the head; keeping the hospital open, access to valuable services. And again, I actually think there could be the opportunity for the REH to grow services, through maybe health innovation, thinking about things differently. But if we're getting a fixed facility payment, what other outpatient services might we actually be able to bring to the community? Whether that's behavioral, mental health services, expansion of primary care, expansion of telemedicine, telehealth services to bring specialty care to the community.

So really, it's a balancing act in terms of, “Okay, what can we maybe gain, but what do we also have to give up?” And again, not dismissing at all the very emotional decision that's tied, that this might mean some of our patients that receive inpatient care in the community might have to go somewhere else for that. Again, I used the term “might,” the data will be what determines that. But I think this could be an opportunity for rural hospitals to embrace change. We know change is needed. There are things that we might not like about it, but “How can we take this and actually use it to spur innovation?” would be my challenge to rural health leaders. I know I had a very negative reaction to this when I first saw back in 2021.

But again, taking a step back, looking at the data objectively to say what level of inpatient care is already being provided in the community, but also recognizing that that does not necessarily mean that the hospital's cost structure is going to change, just because they're not providing inpatient care. Those staff can maybe be reallocated to other services that could be provided to the community in an outpatient setting. So I think that's also important to realize that just because they're not providing inpatient care does not mean that their overall cost structure is going to change a whole lot. But again, we work with hospitals to understand that. My challenge would be, “Look at this as the opportunity maybe to reinvent rural health for the better of the community.” Certainly, working through the challenges, and being responsible as we work through the challenges, as it relates to the provision of in inpatient and swing bed care in the community.

Andrew Nelson: Are there any unexpected things you've seen or heard about REH uptake so far?

Janice Walters: I don't know that it's really unexpected. I think there is opportunity, just like I expressed, that maybe if we think about it a little bit differently, we might actually be able to see more uptake in it than we originally thought. But again, the balance has to be community benefit, community need, and not losing sight of what the rural residents actually need. Because this is about people at the end of the day in making sure the needs of the rural community, the rural residents are met. And so there is concern that this could create inpatient deserts. The flip side of that is an inpatient desert will be created if the rural hospital closes. And so it's a very difficult and emotional decision. But again, just challenging rural healthcare care leaders; I don't think anybody's surprised that people are upset having to give up inpatient care.

I think probably the surprise, maybe as I think about it a little bit more in the context of this conversation, the fact that there aren't other swing bed solutions in these rural communities to provide that care has probably been the one thing that we've learned. It's not the revenue that the hospital has to give up associated with the swing bed that is creating the heartache. It's the fact that I have no other place to send these patients within a reasonable distance that need this rehab care; that the rural hospital is ideally situated to provide in the community, but because of statute, the way the statute is written, they can't. So that's probably been the most unexpected thing for me. It's not actually the revenue, but it's actually the lack of service provider in the community to provide that care specific to the swing bed.

And so I do think we could potentially also have a little bit more interest in this, again, coming off the pandemic. The reality of the rural health landscape has worsened coming out post-pandemic. And so again, more solutions are needed. I think this will be a very good solution for the smallest of small rural hospitals. I don't know that this is going to be a solution for the mid-size rural hospitals, or even the larger Critical Access. So Critical Access Hospitals are still small, but for the larger Critical Access Hospital that is still providing a lot of inpatient care in their community, I don't know that this is going to be a reasonable solution for them.

Andrew Nelson: Are there any hospitals that have fully made the switch at this point?

Janice Walters: So I believe via public information, there are three that are showing as REHs through public databases and websites that are available. I do believe there's more than that, that have submitted their application and are in this waiting period. As of a week or so ago, I still did not know of any that had actually received their fixed facility payment. And so that is the process, and that could have changed — full transparency — that could have changed within the last week or so. And that's a question that everybody wants to know, “How long do I have to wait?” And the other question that we're trying to seek clarification on is from the approval date, are hospitals expected to give it up inpatient care when they submit their application, even knowing that it could take 90 days, or is it we continue to provide inpatient care up until when we're approved, and then what does that look like from an operational perspective?

So there's some of the very technical types of questions that we're actually still trying to sort through and get answers to. As with anything new, there's learning that happens. There's new processes, and everything that has to be developed. So certainly folks that apply later will hopefully have an easier transition than these very first adapters that are really paving the way for the learning to happen. but again, they're, there's some of the technical things that we're still trying to sort through, but I do believe there's three that via public record show as REHs. but if any of them have actually received their fixed facility payments yet, I don't know the answer to that question.

Just to be clear, we do not work with every hospital that has submitted an application. So nobody is forced to work with us. We work with those who want to work with us. And so there are some hospitals in some states that just submitted their application, and so we don't have any direct involvement with them, which makes it very hard for us to assess where they're at in the process. If we're engaged with the organization, we have the ability to have more insight, more engagement, and understand the dynamic. So I just want to clarify that as the technical assistance center, you might think we should know the answers to these questions. The reason we don't know the answer to these questions is we're not working with these hospitals directly.

And so if we don't work with a hospital directly, we are limited to what's out there in the public space, just like everyone else. And so we're scrubbing the databases to see, how many are approved, how many have submitted their applications, et cetera. Because we're not working with them, we don't know that. So I just wanted to qualify that answer a little bit that folks might think we as the TA center we should know. But it's because we haven't been working with these hospitals directly. They haven't requested our assistance, and therefore we have limited insight into their process specifically.

Andrew Nelson: If a hospital does decide to go ahead and make the switch to being an REH, and then they find later on that it's not working out for them or it's not their best option, how would they go about converting to their previous designation?

Janice Walters: There is a path back for certain types of facilities. For the Critical Access Hospital that meets the current Critical Access Hospital criteria, or for a small PPS hospital that would want to convert back, that would be through submitting a new application to revert back or become a Critical Access Hospital again. Going from a Critical Access Hospital to an REH is a change form, or going from a PPS hospital to an REH that is currently open is a change form. To go back, it's a new application. And so they would have to submit the new application to revert from the REH to the Critical Access Hospital, or the REH to the PPS, that would be considered a new application. So they would have to go through the typical survey requirements and all of that, ensuring that conditions of participation are met and fulfill all of the regulatory requirements at that point in time to convert back or to go back, because it is considered a new application.

The exception to that is the Critical Access Hospital that has received their designation through a waiver, being deemed as a necessary provider, that that flexibility was available a number of years back. There's a number of Critical Access Hospitals that received their designation through that waiver. As we sit here today, we do not see a path back for a Critical Access Hospital, a waiver-designated Critical Access Hospital that would convert to an REH. We do not see a path back to this CAH, because that waiver flexibility does not exist as of today. And so that Critical Access Hospital that would convert to the REH, would not have a path back if they received their Critical Access Hospital designation by waiver.

It's a new application. So while the CAH-to-REH or the PPS-to-REH is submitting an 855 change form, it's a change of a current status. So that means you don't have to go through the full-blown survey for Conditions of Participation. You basically attest to meeting those, where if you want to go back, so you become an REH, and “This isn't working for us, I want to go back to being a Critical Access Hospital that meets the current definitions of a Critical Access Hospital, the current mileage restrictions and all of that.” They would have to meet all of that because it's a new application. So CMS would look at this application as ‘it's a new Critical Access Hospital’ or ‘it's going to be a new PPS hospital.’ So they would have to fulfill all of those application requirements, meet all of the conditions of participation, have the formal survey. All of that would need to be done in order for them to convert back.

Andrew Nelson: I would imagine in practical terms, that sounds like that's more of a hassle, there's more paperwork involved, and so forth. Would that have any bearing on their ability to continue to provide services or would the hospital be able to continue to provide whatever range of services were appropriate for their designation at that point?

Janice Walters: I'm not a lawyer, so I'm just thinking in very practical terms right now.

Andrew Nelson: Sure.

Janice Walters: They would continue to function as the REH under their current licensure until they were then licensed as the PPS or Critical Access Hospital again. That licensure would then allow them and meeting all of those Conditions of Participation would then allow them to start providing the inpatient services again. So they would have to function within the REH until that new license was issued. And at that point, then they could start providing the inpatient services again, once they were relicensed as the PPS or Critical Access Hospital.

The CAH that received their designation by waiver, and not having a path back to become a CAH if the REH doesn't work, has been a barrier. In some states, there's a lot of Critical Access Hospitals that aren't even willing to consider the REH for fear of giving up that Critical Access Hospital designation in the event the REH doesn't work. If we can get that flexibility either through regulation or statute, there seems to be disagreement in terms of what is needed in order to get that flexibility for the CAH that has their designation through that waiver, if we could get that changed or get that clarity, I think we would see an uptake in interest in some states that have a lot of waiver-designated Critical Access Hospitals. The fear of losing what they have is actually the barrier to trying something new.

Andrew Nelson: Yeah. Yeah. That makes sense. It's understandable.

Janice Walters: If we do a good job educating, I actually think that it could actually incite hope into the rural health landscape, which I really do think was the intention of the legislators in DC. I think there's opportunity for education in terms of “What tweaks do we need?” to make this maybe a little bit more rural relevant, address some of the gaps that even the REH will create. So there's always some unintended negative consequences of change. I don't think anybody does any of this stuff intentionally, but through education, if we get the right tweaks made, I actually think this could bring hope to the rural health landscape, but also do believe additional solutions are needed because we know it will not be a solution for a lot of rural hospitals.

Andrew Nelson: You've been listening to Exploring Rural Health, a podcast from RHIhub. In this episode, we spoke with Janice Walters, Chief Operating Officer for the Rural Health Redesign Center. Look in our show notes for more information about her work, and visit for all things pertaining to rural health.