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State Issues

TORCH is recognized by state leaders and legislators as acting in the best interest of rural and community hospitals. Maintaining a cooperative relationship with key policy makers in state government, TORCH works collaboratively with state organizations interested in preserving and promoting rural hospitals and their endeavors to provide access to health care in rural Texas. Communities in Texas benefit from our activities as we help maintain an economic base while protecting patients by working for approval of adequate practice standards.

Overarching Policy Challenges Facing Texas Rural Hospitals

  • "One Size Fits All" - The biggest state and federal policy challenge for rural hospitals is a gradual shift away from rural specific reimbursement and rules that take into consideration the unique operating dynamics of rural hospitals such as low and varying patient levels, limited health services, small purchasing volume, a lesser availability of ancillary services such as primary care, therapy, home health, and other such dynamics. Policy trends, many driven by budget cuts, seem to be reverting back toward a “one size fits all” which does not mesh with the operating environment for most rural hospitals and will slowly lead to the financial demise of many. Similar policies and budget cuts from the early 1980s lead to approximately 1,000 hospital closures across the country from the 80’s into the mid-90s, half of which were rural hospitals. During that same period of time, more than 80 hospitals closed in Texas, most of them being rural.
  • "Nickel and Diming" – While substantial cuts in payments and elimination of special payment considerations for rural hospitals are constantly being discussed at the state and federal levels as part of budget discussions, a more imminent threat is ongoing small payment cuts. These cuts often come at the Medicaid and Medicare program levels through rule changes, audit practices, shifting interpretations of rules and law, etc. While these cuts are often small in nature, sometimes impacting rural hospitals no more than $10-to-$25,000 a year, the growing trend of such cuts is collectively and methodically eroding the financial stability of rural hospitals because of their narrower financial margins.

Current State Issues Include:

  • Preserving Medicaid inpatient cost reimbursement for rural hospitals - Texas rural hospitals are reimbursed for Medicaid inpatient services at rates near each individual hospital’s cost as opposed to standard or negotiated rates. This is an important provision of the Texas state budget as Medicaid services at some rural hospitals exceed standardized rates because of the low volume operating dynamics of a rural hospital. The impact of paying rural hospitals slightly higher rates in certain situations is negligible in the cost of Medicaid for Texas but allows the hospitals to provide the services without losing money to keep their doors open. Without this provision, many rural hospitals could not afford to treat Medicaid patients. Continuation of this provision is critical to maintain access to care for Medicaid recipients in rural Texas. It is also important to note that the rates paid to rural hospitals for inpatient care are based on "allowable costs" meaning a substantial amount of a hospital’s total cost may be covered but not always 100 percent. The cost payment provision applies only to inpatient services. Outpatient Medicaid services in rural hospitals are subject to contracted or standard rates that sometimes do not cover the cost of services.

  • Recent Medicaid payment cut for outpatient services - the 82nd session of the Legislature (2011) ordered payment cuts to various Medicaid providers. This included an eight percent cut in payment to all hospitals (rural and urban) for Medicaid outpatient services. This forces many rural hospitals to provide these services as a loss.

  • Recent Medicaid Emergency Services payment cut – the 82nd session of the Legislature (2011) called for the Medicaid program to reduce unnecessary emergency room utilization by Medicaid recipients. As a result, the Texas Health and Human Services Commission implemented a somewhat subjective policy on September 1, 2011 reducing payments to all hospitals by 40 percent when an ER visits is non-emergency care. This new policy disproportionately harms hospitals in rural areas where there is a much lower availability of primary care, especially at night and on weekends. Many sick patients turn to the rural hospital ER because they have no other option. Hospitals costs are understandably higher in an ER so the hospital is penalized under the new policy having no option but to treat such patients because of federal law and protecting themselves from possible litigation. This policy should be reconsidered for rural areas, especially those without adequate primary care for all residents.

  • Medicaid Managed Care Conversion in Rural Areas and 1115 waiver – the conversion of Medicaid in Texas to a private insurance HMO system is disrupting a supplemental payment system to Texas hospitals known as Upper Payment Limit (UPL). This supplemental (after the fact) payment covers the difference between lower Medicaid rates and Medicare rates. This system historically has provided Texas hospitals $1 billion a year, with almost $100 million going to rural hospitals. The federal government doesn’t recognize the new private insurance Medicaid in Texas as traditional Medicaid and would have ended the supplemental payments. However, under an agreement between Texas and the federal government (through a process known as an 1115 waiver), the payments will continue but with a totally different system.

    Texas is in the process of changing the supplemental payments from formula driven on a per hospital basis to a split fund system – one paying each eligible hospital based on a formula similar to the previous UPL program (basically the more uncompensated care and Medicaid a hospital provides, the more they are paid) and a second fund that will take money from the first fund to be spent on regional health related projects. While the overall concept is designed to promote new and innovative programs where they are needed, rural hospitals are concerned the new system could deprive them of dollars they have historically received and need to operate with.


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