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Each week, Health Affairs' Rob Lott brings you in-depth conversations with leading researchers and influencers shaping the big ideas in health policy and the health care industry.
A Health Podyssey goes beyond the pages of the health policy journal Health Affairs to tell stories behind the research and share policy implications. Learn how academics and economists frame their research questions and journey to the intersection of health, health care, and policy. Health policy nerds rejoice! This podcast is for you.
Hello, and welcome to A Health Podicy. I'm your host, Rob Lott. It's hard out there for a rural hospital in America. They serve a patient population that experiences disproportionately high burdens of chronic disease and mortality. And yet despite playing such a vital role in the health of their communities, rural hospitals continue to struggle.
Rob Lott:It's hard to hire clinicians and other staff. Operational costs are high and patient volumes are low. And when it comes to the most needed kinds of care, chronic disease management, maternity care, geriatric care, the margins are incredibly tight, if there's any margin at all. And so rural hospitals continue to close. Too often, the finances and the math underpinning them, they just don't work out in favor of continued operation.
Rob Lott:And so what can we do about it? That's the subject of today's health policy. I'm here with Doctor. Paula Chatterjee, an assistant professor of medicine at the Perelman School of Medicine and director of health equity research at the Leonard Davis Institute of Health Economics. She and her coauthors have a paper in the July issue of Health Affairs titled, quote, mixed evidence that rural hospitals' finances improved with participation in the Pennsylvania Rural Health Model.
Rob Lott:I can't wait to hear all about its findings and to learn all about the work's potential lessons for rural communities nationwide. Doctor. Paula Chatterjee, welcome to the podcast.
Paula Chatterjee:Thank you so much for having me.
Rob Lott:So let's just jump right in here, maybe with some context. Can you tell us a little bit about sort of the state of rural healthcare in Pennsylvania before this program started? I know I kind of provided a really broad overview of rural hospital finances generally. How's the experience in Pennsylvania compared to that bigger picture?
Paula Chatterjee:Sure. So let's jump in our time machine back to the Commonwealth of Pennsylvania. In, let's say, the early twenty tens. That's really sort of the eve of the global budget demonstration in the state. And so at that time, I think what we can say is that about a third of Pennsylvania's population lives in rural areas.
Paula Chatterjee:That amounts to around three and a half million people who live across around 8,000,000 acres. These are calculations that come from the Pennsylvania Office of Rural Health. So it's a big space for this three and a half million people. In terms of their demographics, in a lot of ways, mirrored what else was going on in rural America at the time. So about 20% of the rural population in Pennsylvania was 18, about 30% were baby boomers, another 20% were in the 65 group.
Paula Chatterjee:So we sort of see the typical demographics that we'd expect. This is a population that is disproportionately older. One of the things that, you know, I think is always salient to me is that since around 1970, rural Pennsylvania's per capita income gap, when you compare it to urban areas, has doubled. And so sort of, to me, that really serves as testament to some of the entrenchment of poverty in these areas and how long that's been an issue. I'll say half of rural Pennsylvanians around that time were employed in the manufacturing industry, wholesale, retail, health care and social services were really emerging as sort of growing parts of economy there.
Paula Chatterjee:And so, that's really sort of a snapshot of the people. If you want to hone in a little bit on the healthcare infrastructure, what I'll say is that some of the major health related issues, you know, on the eve of the global budget demonstration were really similar to what they are today. They included, you know, poor access to mental health services. They include alcohol related automobile deaths. They include an unfortunately high prevalence of abuse and neglect of older adults.
Paula Chatterjee:And again, those are not necessarily unique features across rural populations in general, but but are important in the Pennsylvania context. If we hone in on health care delivery, I'll say that around this time, there were estimates, that rural Pennsylvania had one doctor for every about 600 rural residents. And they were suffering from some of the same challenges to retaining a viable health care workforce and infrastructure that continue to plague us all today. You know? It's it was the cost of technology, high wages, the cost of obtaining highly educated workers.
Paula Chatterjee:All of that was related to sort of this workforce challenge. And hospitals at that time, they are, you know, today in a lot of ways, were particularly reliant on public payers. Right? They were reliant on Medicare, reliant on medical assistance, which is our Medicaid program. And that, combined with the high costs of an older adult population, was enough to put a lot of financial strain on providers.
Paula Chatterjee:And so if you want to look at sort of hard numbers on hospital closures in rural Pennsylvania in the pre global budget model time, there are about three salient closures or conversions that happened. There was one in 02/2006, another one in 02/2012, and then a a conversion in 2014. Those are data from the wonderful Schepp Center that I know so many of us are grateful to for for collecting these data. So I I hope that gives at least a little bit of a snapshot of what we're talking about here.
Rob Lott:That's great. And one point of clarification when you describe a conversion, what's happening there?
Paula Chatterjee:A conversion can be defined kind of widely. So sometimes conversions mean that the hospital is shutting down inpatient operations and really sort of operating as a freestanding ED. Sometimes they're preserving other service lines. It usually implies some downgrade of service capability, but it can differ sort of depending on the place or the time.
Rob Lott:Okay. Great. So against this backdrop, you studied, the Pennsylvania rural health model, which I know you've already described briefly as a global budget. Can you tell us a little bit more about how that works and how specifically this model was implemented?
Paula Chatterjee:Sure. So the Pennsylvania Rural Health Model or, p a r h m, I'm gonna call it PARM, like, you know, chicken parm, for the for the purpose of our conversation.
Rob Lott:I love a good chicken parm. So
Paula Chatterjee:Who does that? Who does that? So, parm was introduced by CMMI back in 2017. We're we're talking that's a time when we're a couple years into the ACA, but really noticing that rural hospitals are struggling in unique ways outside of of coverage challenges. And the way I like to think about Parm is that it was trying to test a theory, right?
Paula Chatterjee:The theory was that if you could provide rural hospitals with a predictable source of financing, I. E, a global budget, then maybe you would give them the stability that they need to transform their care delivery models to increase access, improve quality, improve health, and, you know, ultimately, as part of the program, to reduce growth in expenditures across payers. And really, the sort of combined, the hope was that this global budget would be a linchpin in the strategy for sort of keeping rural Pennsylvania hospitals open. And so, again, a lot of what I see Parm as being about was relying on this financial predictability piece because it's otherwise just really hard to ask rural hospitals to surmount, like, these herculean challenges in front of them, right? We're asking these hospitals to meet an increasingly complex and expensive, you know, nature of care for an aging population while relying on public payers.
Paula Chatterjee:Though, of course, as we all know, Medicare Advantage was growing over the same time that this program was being introduced. We ask these hospitals to, like, meet this challenge in a world where, like, single digit differences in their censuses can have tremendous volume based consequences for their finances. And so this, like, pesky denominator issue really, like, rears its head in every dimension, and that makes it hard for them to do big things. It's hard to do big things in an unpredictable world for these hospitals. And so PharmMike CS was trying to solve that part of the problem with the global budget.
Paula Chatterjee:It was, you know, trying to to give them this predictable source of financing. I'm happy to go into some of the details if that's helpful, but I'm also happy to to pause.
Rob Lott:Yeah. Thank you. Maybe give us, like, the the two minute version of how a global budget, typically works. My understanding is that they you know, exactly as you described it, there's a predictable payment. And I guess some questions are, what is that payment based on, and, you know, how might it vary from year to year?
Rob Lott:How is that implemented?
Paula Chatterjee:For each hospital that voluntarily wanted to participate in Parm, they would have a global revenue budget that was specific to each payer. So that includes Medicare, Medicaid, and commercial insurers that were participating in the state, of which there were a good number. The global budgets were indexed to historic revenue, and then they would make adjustments to account for different market dynamics from year to year. So that's one way in which you could expect some changes from year to year. The purpose of the budget was really to cover all hospital based inpatient and outpatient care.
Paula Chatterjee:It did not include things like physician payment, for example. And if you were a critical access hospital, for example, which already sort of operates under its own financing mechanisms, but let's say you also wanted to participate in Parm, you certainly could. And in those cases, the cost based reimbursement continues, but they sort of try and make it a little bit more predictable by keeping payment accounts equal and consistent throughout the year. Again, trying to enable this world of improved cash flow and and trying to avoid some of these periodic cash shortfalls. So again, all in the service of that predictability.
Rob Lott:Okay. Great. Well, then let's just dive in. Can you tell us a little bit about the outcomes you studied in your research paper and what you found?
Paula Chatterjee:For sure. So our paper was trying to understand what we like to call the quote unquote first stage of Parm. Right? We're trying to see if hospitals that chose to participate in the program had financial improvements because if they had those improvements, then that would allow them to be successful in sort of what we consider to be the second stage, which is then allowing them to transform their care delivery to meet the needs of patients in really innovative ways that sort of, you know, fire on all cylinders. So that's why we focus on finances in this paper.
Paula Chatterjee:We chose four financial measures to try and get a different aspects of a hospital's financial well-being. So we chose two measures of margins, which again, are trying to give us like a global financial picture. One of those margin measures was focused on revenue that's specific to patient care. The other measure of margins was focusing on sort of more global, like broader sources of revenue. We also looked at a measure of uncompensated care provided by a hospital.
Paula Chatterjee:And the reason we looked at that is because it's a measure of financial strain for a lot of hospitals. They have strong incentives to keep this number low. And then we looked at a measure of something called the current ratio, which is kind of like a measure of hospital liquidity. You know, the nitty gritty is that it's taking sort of a measure of assets to liabilities over the course of a year, and it's trying to give us a little bit of information about trajectory, about financial trajectory for that hospital. And so combined, we were hoping that these four measures might tell us a little bit about the global financial picture for these hospitals that participated in PARM.
Paula Chatterjee:So that's what we chose to measure. It's hard one one of the things I'll say is that whenever you're talking about small groups, it can be hard to, like, draw statistical conclusions. And so here, we're talking about 17 hospitals that were participating in PARM compared to 40 nonparticipating hospitals in Pennsylvania for which we had full data in our period. It's just hard. But but we didn't want those small numbers to stop us from trying to pursue a rigorous analysis here.
Paula Chatterjee:And what I'll say, what I was really excited about in this paper is that we are lucky that new relatively new statistical approaches have, like, caught up to this, like, analytical challenge. And so I promise I won't, you know, torture our listeners with too many details. But what I will say is I'll say that in 2022, some, you know, really smart people came up with a new estimator that really allows us to apply a difference in differences framework to small sample sizes and still uphold the validity of all the statistical assumptions you need to make to, you know, to ensure that this type of analysis is responsible. So again, not going go into the nitty gritty. I fear I've already done so too much, but I think it's important to say oh, go ahead.
Rob Lott:No. Was going to say this is super helpful context, especially when we're looking at sort of such a, I don't want to say narrow, but small starting point. And so glad you kind of had those tools at your disposal. What did you find?
Paula Chatterjee:So what we found is that participation in the Pennsylvania Rural Health Model was associated with a 4.5 percentage point differential increase in operating margins and a 4.7 percentage point increase in total margins. However, what I will say is that those results became non statistically significant once you started adjusting for some other components. And when we looked at some of the other measures of hospital finances, things like uncompensated care, that measure of liquidity, we actually didn't find any significant differences between the hospitals that participated in Parm and those that didn't. And so for that reason, we sort of conclude by saying this is a little bit of mixed evidence. In some of the models, we see improvements.
Paula Chatterjee:In other models, we don't. And that's really trying to apply some of the state of the art approaches that we have to this hard question.
Rob Lott:Wonderful. I wanna look under the hood of those results with you in just a minute. But first, we'll take a quick break. And we're back. I'm here with doctor Paula Chatterjee talking about the Pennsylvania Rural Health Model.
Rob Lott:So just a minute ago, you shared that the results were mixed. Were you able to kind of look below that surface level and maybe identify some findings that that you want to look into further or that might sort of be the starting point for policy discussions?
Paula Chatterjee:For sure. We tried to look at this question in a bunch of different ways and really tried to kick the tires through a lot of different statistical approaches. You know, we can get into the details, but, know, this was obviously a murky time to be evaluating a payment program. You know, there was a a the the small issue of the pandemic, which happened to be smack dab right in the middle of the the implementation of this program. And so we try to look a little bit into how different features of the pandemic might have been at play with this payment program.
Paula Chatterjee:And I think there are a lot of interesting questions there because, you know, we're we're lucky to be able to talk to some of the folks who are participating in this program. And it's just it's it's fascinating what implementation has looked like on the ground for a lot of these hospitals. You know, some hospitals began participating in the global budget and were able to set up community health worker programs to try and meet patients in different areas. Others have been trying to invest in different telemedicine capabilities. And so I think our paper sort of gives us that 30,000 foot view a little bit, and we're really excited to sort of dive in a little bit further and figure out what exactly has been going on on the ground in terms of of deploying these resources to meet the needs of patients.
Rob Lott:Great. I'm curious about those conversations for the folks on the ground. Did, what's the most surprising thing you heard from from them in those conversations?
Paula Chatterjee:You know, I I perhaps it shouldn't be surprising to me at all, but I think that, you know, in in discussing some of these findings with the folks on the ground, they you know, maybe I'll take a step back for a sec. CMS has mentioned that the first couple years of Parm, when they were deciding the allocations of the budget, there were concerns that some of them may may have actually been overestimates of budgets, and that may have been just due to some details in accounting. And what I'll say is that even upon receiving, you know, what some might consider were overestimates, a lot of these rural hospital leaders were saying, it's gonna take a lot for us to feel financially stable. Right? These are folks who have been dealing with financial volatility for decades in many cases.
Paula Chatterjee:And while there's a lot while while I think that the principle of the global budget is really to achieve that stability on a shorter term, you're asking hospital leaders to view this program with a much longer lens and history. And so, I think that, you know, for me, that just gives more field of the fire to understand what are the specific challenges, what which of those challenges can be met with a global budget, which can't. And so for me, again, it perhaps shouldn't have been surprising, but I think viewing it in the lens of some of these long standing challenges was a really informative thing for me to learn.
Rob Lott:So that's a great segue, I think, for my next question, which is to ask about how this piece or the piece that is this program fits in with many other programs and payments aimed at supporting rural healthcare, things like the critical access hospital designation, rural emergency hospital program, for example, as well as all those programs that aren't necessarily targeted at rural communities, but which rural communities depend on 340B, the higher Medicare rates for hospital outpatient procedures. All of those things that have helped in a way over the years boost revenue for rural hospitals. How do you see Parm kind of fitting in that ecosystem?
Paula Chatterjee:I think I see Parm as part of that suite of programs that is trying to get at different drivers of these financial challenges for rural hospitals, right? Like I mentioned, Parm is trying to get at this issue of volatility through prospective, predictable funding. I see the other programs as trying to address similar but still a little bit distinct aspects of the financial challenge, right? I see the critical access hospital as an effort to increase resources for small geographically isolated hospitals based on, you know, how it was originally motivated in 1997 Balanced Budget Act. And it does this through cost based reimbursement, but it remains a volume dependent program and is not perspective like a global budget.
Paula Chatterjee:There's other programs, right? There's the Low Volume Adjustment Hospital Program, which is from CMS as well. And that's trying to get at the volume related challenge. And it gives you a payment adjustment that is commensurate to the volume related challenges. I see the rural emergency hospital program, which is trying to address the issue of high fixed costs for a lot of these rural hospitals.
Paula Chatterjee:We're saying, Hey, it's okay for you to power down some of those inpatient operations. We understand that that's expensive for you, but let's keep other services robust and available. And so, think of 340B and DISH and some of these other financial sources in a in a little bit of a separate bucket. Again, addressing financial challenges, but perhaps a little bit more broadly generalized across the you know, outside of the rural context, but, of course, very much instrumental for these hospitals. But I think, you know, after I I go through this alphabet soup, I'll say that I think all of this together sometimes points me in a particular direction, which is that we've come up with a lot of approaches to try and get at the challenges of rural hospitals, but they're still struggling.
Paula Chatterjee:And I think that that has made me want to think a little bit more about upstream policy intervention and what that might look like beyond the world of hospital payment.
Rob Lott:So that makes me think of a paper that we published in, the May issue of Health Affairs by, Caitlin Carroll at the University of Minnesota and her colleagues that looked at the prices, at rural hospitals when other nearby hospitals close. No surprise, prices go up when that happens for the surviving hospitals. And we had Doctor. Carroll on this podcast a few weeks ago. We talked about sort of that alphabet soup, the crazy quilt of policies.
Rob Lott:And I asked her if she felt like they were working and she, in a classic academic response said, yes and no, no shade there. But she said basically they're working because many rural hospitals, they're keeping many rural hospitals from closing, but they're not working because many rural hospitals are still closing. And one of the theories she offered for that disconnect was that the policies just aren't targeted well enough. And so I guess my question for you, do you agree with that sentiment? How would you sort of respond to this this dynamic?
Rob Lott:And then two, how would you assess parm in terms of how well targeted it is?
Paula Chatterjee:So for starters, just good life advice to agree with doctor Caitlin Carroll, who knows whose work I love and admire, in this area. I think let me be a little specific about that. I I think I agree with Caitlin in that these policies work for some hospitals and they don't for others. And I I think there's a couple of reasons for this. Right?
Paula Chatterjee:Part of this is just because rural America is beautifully heterogeneous and has different challenges, and the existing policy solutions we have address some but not others. You know, another point I think that Kaelin makes beautifully is this issue about fit. Right? Like, we I find this line of argument to actually be consistent with what folks in community health centers have told me recently. Right?
Paula Chatterjee:In their case, what's happening with them is they're being presented with, like, an array of value based payment programs, but they have little idea on how to choose between them. It's hard for them to know ex ante which ones are going to be advantageous and which ones are gonna introduce undue risk or complications of participating. They agree with the general sentiment of what those policies are trying to achieve, but it's really hard to pick what the best fit is. For rural hospitals, I think the fit is not clear because the financial landscape of rural health care is just changing really fast under their feet, right? Whether it's acquisitions by bigger health systems, opportunities to, you know, engage with capital through private equity or growth in Medicare Advantage, right?
Paula Chatterjee:It's hard to pick a financial strategy when the crystal ball is so murky. More broadly, I'll say that I think asking rural hospitals to assume upside or downside risk is just gonna be a big ask, right? They already have an absurd set of challenges they're trying to navigate, and additional uncertainty is just not desirable. Right? Even if it offers the opportunity for financial stability, like in Parm.
Paula Chatterjee:Right? Hospital leaders were still concerned about the uncertain. What if payers change their mind about budget calculations? What if there are new benchmarks? What if a new financial threat presents itself like a pandemic?
Paula Chatterjee:Right? These are reasonable concerns. And I think that's why we saw sort of, you know, a small number of participants in Parm despite the intention to try and get as many rural hospitals involved. Whether that means it's a good fit for them or not, I'm not quite sure. We do know that some hospitals that participated did feel like they were able to weather the pandemic a little bit better than others, but that's just one dimension of fit.
Paula Chatterjee:I think we'd hear a different story if we talk to every hospital.
Rob Lott:Sure. Before we wrap up, let let's take a step back and maybe, I'd love to hear your thoughts for our listeners thinking about where we go from here. What do you think is the next step on this front when it comes to policy? And if your paper were to maybe inspire any sort of concrete or specific policy changes or improvements, what would you hope that to be?
Paula Chatterjee:So can I give two answers? Absolutely. The reason there's two is one is that, like, the 3,000 foot level, and the other one is at 30,000 feet. So my Go
Rob Lott:for it.
Paula Chatterjee:My 3,000 foot takeaway is that global budgets might still be a very useful tool for rural hospitals, right? There's another way to frame our results is that despite the tumultuous period in which Parm was introduced, participating hospital did not take a financial hit, right? And that is valuable and important, especially for a lot of rural hospitals that see financial losses from year after year, right? I think that trying global budgets in a state without rate setting like Pennsylvania in contrast to someplace like Maryland is valuable because you can see how a global budget works in the wild. Right?
Paula Chatterjee:And and as we know, global budgets are only, you know, going to become more prominent. They're included in the AHEAD model and sort of continuing to follow the trajectory of this program, I think, is going to be important and interesting. My 30,000 foot takeaway goes back a little bit to the earlier discussion, which is that there's actually been quite a bit of policy attention on rural hospitals for the past several decades, right? There's been a lot of programming designed to support them and address the challenges that they find themselves in. But despite that, they're still struggling, right?
Paula Chatterjee:Rural health outcomes are still suffering. And I think that juxtaposition of facts demands us to just, like, pause for a second and ask why. Why are all of these well intentioned policies not making big dents in this problem? And I think the way I find myself thinking about this these days is that when you talk to rural hospital leaders, they'll tell you about their financial challenges, but they'll actually spend most of their time talking about their patients and their workers. Right?
Paula Chatterjee:They'll tell you about how the burden of disease has just grown so dramatically and how it's harder and harder to keep highly educated labor in in rural areas to sustain the hospital and how their communities have been struggling for so long that people leave, and that reduces the tax base that's available to try and keep the hospital open. And so I find myself trying to take those observations and fit them into what we know about payment. And and I think where that leads me these days is I think just focusing on payment is going to continue to be an incomplete solution. It's a very attractive place to focus as a, you know, admitted health services researcher because we can control parts of it, right? And because the stakeholders are confined to the healthcare industry, we can try and frame this as a healthcare problem.
Paula Chatterjee:But I think improving health in rural areas is going to require investing in rural communities in a much broader way, right? Like, only then do you have a population for the hospital to serve. Only then can you keep clinicians there to support these hospitals. By just focusing on payment, I worry that we're using a bucket to empty the ocean. And so my 30,000 foot view these days is that I'm wondering if there's a way for us to think about rural health policies that are coupled investments for rural people.
Paula Chatterjee:Right? I think we need to sustain economic opportunities in these areas, expand broadband, you know, attract businesses and infrastructure to these communities for payment policy to have a chance at being fully effective and realizing the potential that we want for it. And so I think that that that's sort of the direction that I I I find myself wanting to start thinking about this problem.
Rob Lott:Great. Well, that's probably a good spot for us to wrap up. A wonderful way to to think about it looking forward. Doctor. Apala Chatterjee, thank you so much for joining us on the podcast.
Paula Chatterjee:Thank you so much for the conversation.
Rob Lott:To our listeners, if you enjoyed this episode, subscribe, recommend it to a friend, leave a review, and tune in next week. Thank you. Thanks for listening. If you enjoyed today's episode, I hope you'll tell a friend about a health plus.