National Academies Press: OpenBook
« Previous: 4 Human Resources
Suggested Citation:"5 Finance." Institute of Medicine. 2005. Quality Through Collaboration: The Future of Rural Health. Washington, DC: The National Academies Press. doi: 10.17226/11140.
×

5
Finance

SUMMARY

The Quality Chasm report calls for the implementation of payment systems that encourage the delivery of quality health care. This chapter begins by addressing how pay-for-performance initiatives should be implemented in rural communities. The committee recommends that rural demonstration projects be carried out to test different approaches to pay-for-performance systems in rural areas.

To establish the right environment for the implementation of pay-for-performance initiatives, financial stability for rural health care delivery systems is required. Such stability is also required to finance investments in human resource networks and information and communications technology. Many rural health care delivery systems have been financially unstable. The chapter addresses the significant policy steps, most recently the Medicare Modernization Act of 2003, taken to address underpayment to rural providers. The committee believes it will be important to establish that these financial gains are being maintained.

In addition, major shortages of mental health and substance abuse professionals were documented earlier in this report. On the basis of these shortages, the committee concluded that a major assessment of the funding of mental health and substance abuse services in rural areas is required.

Suggested Citation:"5 Finance." Institute of Medicine. 2005. Quality Through Collaboration: The Future of Rural Health. Washington, DC: The National Academies Press. doi: 10.17226/11140.
×

This chapter addresses rural health care finance in three broad areas. The first section examines pay-for-performance as a strategy for improving the quality of health care, as recommended in the Quality Chasm report (IOM, 2001). The second section reviews the various mechanisms used to fund rural health care services generally, while the third focuses on the special case of the funding of rural mental health and substance abuse services. The final section presents conclusions and recommendations.

PAY-FOR-PERFORMANCE

There is now a large evidence base, as documented in the Quality Chasm report (IOM, 2001) and discussed in Chapter 3, to substantiate a sizable gap between the health care services people receive and the services they should receive based on acknowledged best practices. To encourage providers to improve quality, some private and public purchasers have begun implementing a key recommendation of the Quality Chasm report: to link payments to measures of performance.

Because this is a relatively new strategy, there is only limited evidence available on the effects of pay-for-performance programs on quality. The Stanford University and University of California-San Francisco Evidence-based Practice Center, funded by the Agency for Healthcare Research and Quality, has just completed a literature review to identify published randomized controlled trials of incentive systems (Dudley et al., 2004). Of 5,045 publications reviewed, only 9 report results of randomized controlled trials on incentive systems. Of these 9 studies, 8 involved using specific financial incentives as interventions and tested a total of 10 hypotheses (Christensen et al., 1999; Davidson et al., 1992; Fairbrother et al., 2001; Hickson et al., 1987; Hillman et al., 1998, 1999; Kouides et al., 1998; Roski et al., 2003). In 6 cases, the incentive being tested was associated with the desired and statistically significant changes in the delivery of quality care, while in the other 4 cases, there was no significant difference in outcome between the control and the incentive arms of the trial. The remaining study involved reputational incentives as the intervention (Hibbard et al., 2003). In this study, hospitals with low performance scores that were released to the public were significantly more likely to engage in quality improvement activities than hospitals with high performance scores that were released to the public.

In summary, pay-for-performance research carried out using randomized controlled trials has produced some positive results. Some of the above trials demonstrated that introducing incentives can lead to desired improvements in the quality of care delivered. However, the scope of this research is still highly

Suggested Citation:"5 Finance." Institute of Medicine. 2005. Quality Through Collaboration: The Future of Rural Health. Washington, DC: The National Academies Press. doi: 10.17226/11140.
×

limited. The circumstances in which pay-for-performance techniques will succeed are not well understood. Further, 7 of the above 9 trials focused on the use of incentives to improve preventive care. Pay-for-performance incentives for a broader range of types of care need to be investigated.

Major Ongoing Pay-for-Performance Studies

Both private- and public-sector payers are now funding some major pay-for-performance studies. These are described in the following subsections.

Bridges to Excellence

Bridges to Excellence is a General Electric–led employer group initiative1 aimed at improving the quality of care by recognizing and rewarding health care providers who demonstrate that they have implemented comprehensive solutions in managing their patients and deliver safe, effective, patient-centered, timely, efficient, and equitable care (Bridges to Excellence, 2003). The initiative encompasses three programs:

  • Physician Office Link—Based on their implementation of specific processes to reduce errors and increase quality, physicians can earn up to $50 per year for each patient covered by a participating employer or plan.

  • Diabetes Care Link—Enables physicians to achieve 1-year or 3-year recognition for high-quality care, with qualifying physicians receiving an $80 bonus for each diabetic patient covered by a participating employer or plan.

  • Cardiac Care Link—Enables physicians to achieve 3-year recognition for high-quality care, with qualifying physicians eligible to receive up to $160 for each cardiac patient covered by a participating employer and plan.

Rewarding Results

A national initiative of The Robert Wood Johnson Foundation and the California HealthCare Foundation, Rewarding Results aims to invent, prove,

1  

Bridges to Excellence participants include large employers and health plans plus other organizations (including the Centers for Medicare and Medicaid Services, the National Committee for Quality Assurance, the Joint Commission on Accreditation of Healthcare Organizations, and the National Quality Forum) responsible for selecting, collecting, and reporting the measures.

Suggested Citation:"5 Finance." Institute of Medicine. 2005. Quality Through Collaboration: The Future of Rural Health. Washington, DC: The National Academies Press. doi: 10.17226/11140.
×

and diffuse innovations in systems of provider payment and nonfinancial incentives that will encourage and reward high-quality health care. The foundations are awarding grants to plan, implement, and evaluate demonstrations of such provider payment systems and nonfinancial incentives (Rewarding Results, 2002).

National Voluntary Hospital Reporting Initiative

In December 2002, the American Hospital Association, Federation of American Hospitals, and Association of American Medical Colleges launched this initiative to collect and report hospital quality performance information (CMS, 2004a). The associations identified three conditions (acute myocardial infarction, heart failure, and pneumonia) for which they selected 10 measures. The Centers for Medicare and Medicaid Services (CMS) displays the data submitted by hospitals (www.cms.hhs.gov/quality/hospital). By February 2004, more than 1,400 hospitals were providing data on at least one of the measures (CMS, 2004a). Rural hospitals (excluding critical access hospitals) are participating in the study. To encourage participation, Section 501(b) of the Medicare Modernization Act of 2003 mandates that a hospital not submitting performance data for the 10 measures receive a 0.4 percent lower increase in prices for fiscal year 2005 than a hospital submitting such data.

Premier Hospital Quality Incentive Demonstration Project

Hospitals participating in the joint Premier, Inc.-CMS demonstration project will be eligible for increased Medicare payments if they are among the top performers in one of five clinical areas—heart attack, coronary artery bypass graft, heart failure, community-acquired pneumonia, and hip and knee replacement. The top 10 percent of hospitals in each clinical area will receive a 2 percent increase in Medicare payments; the next 10 percent will receive a 1 percent increase. Within the five areas, CMS will evaluate hospital performance on 34 measures, which include process steps, such as prompt administration of beta blockers, and outcomes, such as mortality rate. In the third year, participating hospitals that have failed to improve their performance in a specific clinical area beyond a minimum threshold established in the first year of the project will be subject to a payment reduction of 1 or 2 percent (CMS, 2004b). Premier, Inc., has announced that 278 hospitals have signed up for the project (Premier, Inc., 2003), 30 percent of

Suggested Citation:"5 Finance." Institute of Medicine. 2005. Quality Through Collaboration: The Future of Rural Health. Washington, DC: The National Academies Press. doi: 10.17226/11140.
×

which are rural hospitals, including some critical access hospitals (Personal communication, S. Alexander, May 27, 2004).

Pay-for-Performance Program Mandated in the Medicare Modernization Act of 2003

Section 649 of the Medicare Modernization Act of 2003 mandates that the Secretary of Health and Human Services establish a pay-for-performance demonstration program incorporating health information technology and evidence-based outcome measures. A maximum of four sites is mandated: two in urban areas; one in a rural area; and one in a state housing a medical school with a department of geriatrics that manages rural outreach sites and is capable of serving patients with multiple chronic conditions, one of which is dementia.

Challenges Facing Rural Providers

Even if payment for services is considered adequate by payer and provider alike, additional challenges remain for any effort to incorporate performance measures into payment calculations.

First, to the extent that an initiative to pay for performance requires investment in new information systems, other equipment, or additional personnel, rural providers are unlikely to have the reserves or borrowing capacity to provide that capital. Even when the capital is available, most rural providers must apply it to meeting their basic needs: new physical plant and equipment required for basic patient services. For example, many of the nation’s rural hospitals were built during an era when inpatient care was the predominant mode of delivering services and before many changes were made in organizing even that form of care. These hospitals need to be modernized so they can be used as outpatient facilities and be more efficient providers of inpatient care.

A second challenge will be providers’ natural proclivity to avoid any risk to their financial well-being—losing either dollars per service or total services. The threats to urban providers of thin or negative margins and losing patient business are too real to be set aside. Those providers in the most precarious financial position will require special consideration. In the most vulnerable places, where patient revenues in the best of circumstances are unlikely to be sufficient to sustain services, subsidies and investments in the tools needed for quality improvement are required (Mueller et al., 2003).

Suggested Citation:"5 Finance." Institute of Medicine. 2005. Quality Through Collaboration: The Future of Rural Health. Washington, DC: The National Academies Press. doi: 10.17226/11140.
×

The source of the subsidy could also be the source of investment in quality initiatives designed to improve performance. For example, the Bureau of Primary Health Care has created a special grant program, Health Disparities Collaboratives: Changing Practice, Changing Lives, to achieve rapid improvements in the care provided through community health centers across the country, including those in rural areas. This example highlights the need for external investment in certain rural settings, as well as opportunities to fund that investment.

A further challenge in rural areas is one of scale. Measuring performance requires sufficient data to understand incidents in the context of processes of care in systems of health care delivery. As discussed earlier, conducting such analysis in a site that has a very limited number of possible encounters of interest (such as hospital admissions for particular conditions) can yield a distorted picture of the quality of care. To overcome this challenge, data can be aggregated across like providers in similar delivery systems to increase the number of patient encounters for which quality outcomes can be determined.

Pay-for-Performance Objectives, Approaches, and Measures

To date, pay-for-performance programs have focused primarily on encouraging providers to make changes in their own health care practices that will improve the quality of care for their patients. The committee believes that rural areas provide an opportunity to experiment with pay-for-performance strategies designed to encourage improvements in both individual practices and the overall community health system. Eventually, those demonstrations might be expanded even further to reward improvements in community health status, thus encouraging health care leaders to work collaboratively with other community leaders from educational institutions, social service agencies, and places of employment to achieve such improvement.

In sum, then, pay-for-performance incentives should seek to improve the quality of care delivered to individual patients and ultimately to raise the overall health status of the community. In particular, they should seek to encourage:

  • Health care providers to make changes in their own practices that will improve the quality of care for individual patients.

  • Health care providers to develop stronger collaborative relationships with each other to provide comprehensive, coordinated care where appropriate, for example, for chronically ill patients.

Suggested Citation:"5 Finance." Institute of Medicine. 2005. Quality Through Collaboration: The Future of Rural Health. Washington, DC: The National Academies Press. doi: 10.17226/11140.
×
  • Patients and their families to identify and demand high-quality care.

  • The development of communitywide initiatives aimed at improving health behaviors.

Several financial approaches, possibly in combination, are available to achieve the above objectives:

  • Giving providers higher payments for higher performance on quality measures.

  • Requiring the payment of lower cost-sharing amounts and copayments if patients go to higher-quality providers as identified through quality measures.

  • Sharing the savings from quality improvements between providers and patients.

  • Employing risk sharing and capitation—payment mechanisms that provide incentives for better overall management of care across settings and time.

An important and difficult aspect of designing an incentive program is identifying appropriate measures of performance. Chapter 3 provides a detailed discussion of quality and quality measures. For each condition or group of conditions, a balanced set of measures is needed addressing the six quality aims set forth in the Quality Chasm report: safety, effectiveness, patient-centeredness, timeliness, efficiency, and equity (IOM, 2001). Further, measures are required for both individual and population health. In crafting these measures, consideration must be given to the cost and difficulty of applying them; standardization of measures will be helpful in this regard. Particularly important in the context of the present report is that the chosen measures must be capable of being applied to rural health care systems. Meeting this need may require addressing certain methodological issues; for example, small numbers for each facility may call for pooling of facilities.

Nearly all pay-for-performance experimentation is sponsored by health plans (Rosenthal et al., 2004) that serve primarily urban areas. The committee believes that there should be much greater pay-for-performance experimentation in rural areas than is currently planned and that there should be five pay-for-performance demonstration projects in rural communities—significantly more than the maximum of two mandated by the Medicare Modernization Act of 2003. These projects should be built around existing rural groupings of health care providers, for example, of rural health clinics, com-

Suggested Citation:"5 Finance." Institute of Medicine. 2005. Quality Through Collaboration: The Future of Rural Health. Washington, DC: The National Academies Press. doi: 10.17226/11140.
×

munity health centers, and critical access hospitals. There should also be a demonstration project involving the linkage of several types of health care providers, such as hospitals, community health centers, and nursing homes. Finally, the payment methods tested should include both patient-based and community-based measures.

The pay-for-performance demonstration projects could also include incentives for using innovative ways of reducing waste. For example, in the delivery of primary care, potential savings might be derived from e-visits, group visits, and less-costly ways of handling chronic illness.

THE FUNDING OF RURAL HEALTH CARE

Significant proportions of the $1.55 trillion spent on health care in the United States in 2002 were spent on hospital care (31.3 percent), physician and clinical services (21.9 percent), dental services (4.5 percent), and nursing home and home health care (9.0 percent)2 (Levit et al., 2004). In 2000, 1.3 percent of the total health care expenditure ($17 billion) was devoted to public health (Frist, 2002).

The financing of health care requires both payments for goods and services and capital for investment. Sources of payment for goods and services are both private (e.g., private insurance and direct patient payment) and public (e.g., public insurance programs such as Medicare and Medicaid, as well as federal, state, and local taxes). There are three sources of capital: the reserves providers accumulate, debt financing, and philanthropy.

Many types of health care providers in rural areas are highly dependent on Medicare and Medicaid for payment for services, and in some instances much more so than their urban counterparts. It has proven problematic to adapt the Medicare Prospective Payment System mandated in 1983 for inpatient hospital payments and in 1997 for outpatient and other services to the special circumstances of rural health. In some cases, the Prospective Payments System has led to underfunding of rural care. Moreover, recent stresses on state budgets have led to pressures to cut Medicaid rates and to restrict eligibility for the benefits, thereby reducing revenues for rural health care providers.

2  

Other major spending items are retail sales of medical products (mainly prescription drugs) (13.7 percent of the total), other professional services (3.0 percent of the total), other personal health care (2.9 percent of the total), administrative costs (6.8 percent of the total), and investment (3.7 percent of the total).

Suggested Citation:"5 Finance." Institute of Medicine. 2005. Quality Through Collaboration: The Future of Rural Health. Washington, DC: The National Academies Press. doi: 10.17226/11140.
×

This section addresses the rural aspects of Medicare payments to hospitals and primary care physicians, as well as the funding of rural health clinics, community health centers, dental services, nursing homes, home health services, emergency medical services, and public health services. Weak financial performance by rural hospitals impacts their ability to raise capital, and this issue is addressed in the final subsection.

Medicare Hospital Payments

As suggested above, hospitals in rural areas (see Appendix C for an overview) are particularly dependent on Medicare funds. In 1999 Medicare paid 45 percent of total costs in rural hospitals as compared with 34 percent for their urban counterparts (MedPAC, 2001). Among rural hospitals, Medicare accounted for 60 percent of inpatient days in 1999, and for those hospitals with fewer than 50 beds, the proportion rose to 63 percent (Moscovice and Davidson, 2003).

Over the years since 1983, concerns about whether rural hospitals could survive under the Prospective Payment System have led Congress to create special categories of rural hospitals that receive either cost-based payments or elevated Prospective Payment System payments: rural referral centers, sole community hospitals, Medicare-dependent hospitals, and, most recently, community access hospitals. Notwithstanding these adjustments, throughout the 1990s inpatient Medicare margins for rural hospitals were substantially below urban margins. In the early 1990s, Medicare inpatient aggregate margins3 were negative for both urban and rural hospitals. In the mid-1990s, inpatient margins began to improve, with aggregate inpatient margins being higher for urban than for rural hospitals. In 1997, urban hospital inpatient margins reached a peak of 18.0 percent, while the margins for rural hospitals reached a peak of 10.3 percent. Thereafter, inpatient margins began to decline: by 1999, urban inpatient margins had fallen to 13.5 percent and rural margins to 4.1 percent (see Table 5-1). Indeed, by 1999 over a third of all rural hospitals had negative Medicare inpatient margins (MedPAC, 2001).

During the late 1990s, the overall Medicare margin (including inpatient, outpatient, home health, skilled nursing, and psychiatric and rehabilitation

3  

The inpatient margin is calculated (in percentage terms) as the difference between inpatient payments and Medicare-allowable costs divided by inpatient payments (MedPAC, 2001). The same general approach is used for the overall Medicare margin and the total margin.

Suggested Citation:"5 Finance." Institute of Medicine. 2005. Quality Through Collaboration: The Future of Rural Health. Washington, DC: The National Academies Press. doi: 10.17226/11140.
×

TABLE 5-1 Medicare Inpatient Hospital Margins, by Urban and Rural Location, 1990–1999

Year

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

Urban

–1.2

–2.2

–0.8

1.6

6.4

11.8

16.8

18.0

14.8

13.5

Rural

–3.7

–3.7

–1.4

–0.5

0.6

6.1

10.3

9.5

5.5

4.1

SOURCE: MedPAC, 2001.

units) for rural hospitals was several points lower than the inpatient Medicare margin (see Table 5-2). By 1998, when some Balanced Budget Act payment policies went into effect, the overall Medicare margin for rural hospitals had dropped 6 percentage points to –2.1 percent. In subsequent years, the overall margin has remained at approximately this level: –2.9 percent in 1999, –2.4 percent in 2000, –1.9 percent in 2001, and –3.9 percent in 2002 (MedPAC, 2001, 2004b).

In December 2003, Congress passed the Medicare Modernization Act, which modified Medicare payment policies for rural providers. These changes, effective in 2004, are expected to create an environment of greater financial stability for rural hospitals. For all rural hospitals, excluding those converted to community access hospital status by fall 2003, MedPAC expects the overall Medicare margin in 2004 to be 2.3, several points higher than the actual overall Medicare margin in 2002 of –3.9 (see Table 5-3).

Issues concerning the adequacy of rural hospital payments will continue to be raised, however, and rural hospital finance needs to be reviewed peri-

TABLE 5-2 Medicare Inpatient (1996–1999) and Overall (1996–2002) Rural Hospital Margins

Year

1996

1997

1998

1999

2000

2001

2002

Rural hospital Medicare inpatient margin

10.3

9.5

5.5

4.1

 

 

 

Rural hospital Medicare overall margin

5.0

4.1

–2.1

–2.9

–2.4

–1.9

–3.9

SOURCE: MedPAC, 2001, 2004b.

Suggested Citation:"5 Finance." Institute of Medicine. 2005. Quality Through Collaboration: The Future of Rural Health. Washington, DC: The National Academies Press. doi: 10.17226/11140.
×

TABLE 5-3 Overall Medicare Margins for Rural and Urban Hospitals

Year

2002 (actual)

2004 (estimated)

Rural hospitals

–3.9

2.3

Urban hospitals

–2.6

1.3

NOTE: The table includes data from all hospitals covered by Medicare’s inpatient Prospective Payment System, except those hospitals converted to critical access hospital status by fall 2003 (about 850).

SOURCE: MedPAC, 2004a: Chart 7-18.

odically. This is the case not least because the more generous margins4 provided by private-sector health insurers that have helped sustain rural hospitals may be reduced in an increasingly price-competitive environment.

Medicare and Medicaid Payments to Primary Care Physicians

Similar to the situation with hospitals, rural physicians (see Appendix C for an overview) rely more on Medicare and Medicaid payments than their urban counterparts. Data from the 2000–2001 Community Tracking Study Physician Survey conducted by the Center for Tracking Health System Change reveal that rural physicians receive 38 percent of their payments from Medicare, while urban physicians receive 34 percent (difference significant at p = 0.01); likewise, rural physicians receive 19 percent of their payments from Medicaid, while urban physicians receive 14 percent (difference significant at p = 0.01) (Personal communication, K. J. Mueller, June 23, 2004). Medicare is also important to physicians in rural areas because it is a price leader, with private insurers often using fee schedules based on the Medicare schedules (Ginsburg, 2002).

The annual uprating and the geographic weighting factors of Medicare

4  

For the period 1996–1999, overall margins were considerably higher than overall Medicare margins for rural hospitals. Total margins for rural hospitals were 7.1 percent (1996), 6.6 percent (1997), 4.7 percent (1998), and 4.7 percent (1999). Overall Medicare margins for rural hospitals were 5.0 percent (1996), 4.1 percent (1997), –2.1 percent (1998), and –2.9 percent (1999) (MedPAC, 2001).

Suggested Citation:"5 Finance." Institute of Medicine. 2005. Quality Through Collaboration: The Future of Rural Health. Washington, DC: The National Academies Press. doi: 10.17226/11140.
×

physician fee schedules have been controversial over the past few years. Medicare physician fee schedules are uprated using a sustainable growth rate (SGR) formula. Because of changes to that formula mandated by the Balanced Budget Act of 1997, Medicare payments to physicians were cut by 5.4 percent in 2002. Following congressional intervention, another 4.6 percent cut for 2003 was replaced by a 1.6 percent increase. Further congressional intervention through the Medicare Modernization Act of 2003 replaced cuts in 2004 and 2005 with 1.5 percent increases. Without additional legislation, cuts are likely to resume in 2006. MedPAC believes that the SGR formula fails to account for changes in the cost of physician services and that policy makers should consider alternative methods (MedPAC, 2001).

The above discussion is relevant to all physicians. Of special interest to rural physicians are the geographic price indexes used to calculate physician fees across the country. Physician fees are derived from three elements: the cost of physician labor to deliver a service, the practice costs associated with delivering a physician service, and the cost of professional liability insurance. Each element should fully reflect geographic differences across 89 payment areas. In response to arguments that physician work should cost the same regardless of where it is carried out, the geographic variation in the physician labor cost element has been weakened. The impact of the geographic variation in this element was further weakened by the Medicare Modernization Act of 2003, which called for a study by the General Accountability Office (GAO) (formerly the General Accounting Office) to assess the validity of the geographic adjustment factors used for each element of the fee schedule (MMA Section 413(c)(1)).

Individual states and the District of Columbia determine Medicaid fees for primary care physicians. These fees are low and significantly lower than the equivalent Medicare fees (GAO, 2003b). Low Medicaid fees have meant that many primary care physicians are unwilling to accept new Medicaid patients. In a national 2001 survey, only 54 percent of primary care physicians reported accepting most or all new Medicaid patients (Zuckerman et al., 2004). However, in rural areas, independent primary care clinics (and hospital outpatient departments) can qualify for rural health clinic status. Rural health clinics receive special “reasonable” cost reimbursement from Medicaid, i.e., higher than the standard Medicaid fee rates. The Benefits Improvement and Protection Act of 2000, however, allows states to replace cost-based reimbursement with the new Prospective Payment System. The financial impact of this legislation on rural health clinics is not yet known.

Suggested Citation:"5 Finance." Institute of Medicine. 2005. Quality Through Collaboration: The Future of Rural Health. Washington, DC: The National Academies Press. doi: 10.17226/11140.
×

Medicare and Medicaid Support for Rural Health Clinics and Community Health Centers

A part of primary care in rural areas is provided through rural health clinics and community health centers (see Appendix C for an overview). Rural health clinics are heavily dependent on Medicare and Medicaid funding, with these two sources accounting for about 55 percent of their total revenues. Commercial and private insurance accounts for about 30 percent of total revenues, while revenues from uninsured, private pay, and free/ reduced-cost care patients account for 15 percent (Gale and Coburn, 2003).

The overall financial health of some rural health clinics has been poor according to a survey carried out at the University of Southern Maine (Gale and Coburn, 2003). Data from the survey showed that total average expenses for these facilities ($681,457) exceeded average revenues ($641,683) by $39,774. Among more than 300 rural health clinics for which data were available, about half wrote off 5 percent or more and about 10 percent wrote off 15 percent or more of their charges as free or reduced-cost care. Further, about 8 percent of visits represented free or reduced-cost care. This survey predates the impact of the Benefits Improvement and Protection Act of 2000, which, as noted, allowed states to replace cost-based reimbursement with the Prospective Payment System. The impact of this legislation on the aggregate financial status of rural health clinics is not yet known.

Since their inception, community health centers have been heavily reliant on a patchwork of sources of public funds. During the 1990s, Medicaid funding increased proportionally while Section 330 funding decreased proportionally (HRSA, 2002). Of the total 2,000 revenues of the 748 community health centers receiving Section 330 grants, 34 percent came from Medicaid, 6 percent from Medicare, 25 percent from Section 330 and other federal grants, 14 percent from nonfederal grants (state and local grants, foundations), 6 percent from patients, and 15 percent from other private and public payers (BPHC, 2002).

Rural Resources for Dental Care

For more than 40 years, dental care has been funded predominantly by private sources (OPHS, 2000). Of total national dental expenditures in 2002, 44.0 percent was paid as out-of-pocket payments and 49.5 percent through insurance benefits (Levit et al., 2004).

According to a 1997 Behavioral Risk Factors Surveillance System survey, dental insurance coverage is strongly correlated with family income

Suggested Citation:"5 Finance." Institute of Medicine. 2005. Quality Through Collaboration: The Future of Rural Health. Washington, DC: The National Academies Press. doi: 10.17226/11140.
×

TABLE 5-4 Dental Insurance Rates for Various Levels of Family Income

Family Income

Percentage with Dental Insurance

Less than $15,000

31.5

$15,000–$24,999

40.6

$25,000–$34,999

54.1

$35,000–$44,999

67.8

More than $50,000

74.9

SOURCE: 1997 Behavioral Risk Factors Surveillance System, Centers for Disease Control and Prevention (NIH, 2002).

(NIH, 2002). For families with income in the range $15,000–$24,999, 41 percent had dental insurance, whereas for those with income in the range $35,000–$44,999, 68 percent had dental insurance (see Table 5-4). Since incomes of families in rural areas are below those of their urban counterparts, there is less disposable income in rural areas to pay for dental services and less likelihood that rural families will have dental insurance. Thus, there are fewer economic resources per population available for dental services in rural than in urban areas. This differential partly explains the shortage of dentists in rural areas.

Medicaid and Medicare Support for Nursing Homes and Home Health Services

The largest single source of payment for skilled nursing care is Medicaid. Two of three nursing home residents have their care covered at least in part by Medicaid (GAO, 2003c). Under Medicaid, states and territories set their own nursing home payment rates. Despite the fiscal pressures being experienced at the state level, GAO found in a review of 19 states that during fiscal years 1998 through 2004, nursing home payment rates remained largely unchanged (GAO, 2003c). However, GAO did report that state officials were warning about the possibility of reduced nursing home payments after fiscal year 2004. Further, industry-sponsored studies found that nursing home costs for Medicaid-covered residents exceeded Medicaid payment rates by an average of $9.78 per resident day in 2000 and an average of $11.55 per resident day in 2001 in the 37 states included in the study (BDO Seidman, 2003).

Suggested Citation:"5 Finance." Institute of Medicine. 2005. Quality Through Collaboration: The Future of Rural Health. Washington, DC: The National Academies Press. doi: 10.17226/11140.
×

Legislative and administrative steps were taken in the late 1990s to reduce Medicare expenditures on home health care. The Balanced Budget Act of 1997 refined eligibility standards and changed the payment system. In addition, the Secretary of Health and Human Services initiated a program to reduce fraudulent use of the benefit. Over the period 1996–2000, the number of Medicare home health beneficiaries fell from 3.5 to 2.5 million, and over the period 1998–2000, the number of Medicare-certified home health agencies fell from about 10,000 to about 7,000 (MedPAC, 2004b).

MedPAC recently reviewed the impact of these changes on the availability and financial stability of home health agencies (MedPAC, 2004b). Since 2000, the number of Medicare-certified home health agencies has stabilized at about 7,000. Further, most communities have a home health agency: 99 percent of Medicare beneficiaries live in areas served by at least one home health agency. The vast majority of Medicare beneficiaries have a choice of provider, with 97 percent of Medicare beneficiaries living in areas served by more than one agency. MedPAC found that in the aggregate, freestanding home health agencies, representing about 70 percent of the total number of agencies, were financially stable in 2001 and projected to be so in 2004. The actual Medicare margin in 2001 was 17.0 percent for rural agencies and 16.0 percent for urban. The projected Medicare margin for 2004 is 16.9 percent for rural agencies and 16.3 percent for urban. In contrast, hospital-based agencies, representing about 30 percent of the total number of agencies, had an actual aggregate margin of 2.5 percent in 2001. The MedPAC report does not provide an analysis of the reasons for this wide divergence in aggregate margins between free-standing and hospital-based agencies. The lower margins impact rural areas more than urban since a greater proportion of hospital-based agencies are rural (48 percent) as compared with the rural proportion of freestanding agencies (35 percent) (MedPAC, 2004b). Lingering concerns about low Medicare home health margins in rural areas led to a recommendation in an earlier MedPAC report that Congress extend for 1 year 5 percent add-on payments for home health services provided to rural Medicare beneficiaries (MedPAC, 2003). This extension, effective April 2004, was included in the Medicare Modernization Act of 2003.

A 2000 survey carried out at the University of Minnesota examined the impact of closures of skilled nursing facilities and home health agencies attached to rural hospitals. The Balanced Budget Act of 1997 mandated use of the Prospective Payment System for skilled nursing care and home health services. The resulting reductions in payments led to the closure of some rural hospitals’ post–acute care services. According to the results of the survey, 14 percent of hospitals that operated a skilled nursing facility in Octo-

Suggested Citation:"5 Finance." Institute of Medicine. 2005. Quality Through Collaboration: The Future of Rural Health. Washington, DC: The National Academies Press. doi: 10.17226/11140.
×

ber 1997 had closed that facility by October 2000, and 13 percent of hospitals that operated a home health agency in October 1997 had closed that agency by October 2000 (Stensland and Moscovice, 2001).

These closures did not, however, lead to major reductions in access to care. In all but one case in which a hospital closed its skilled nursing facility, another such facility was operating within 15 miles of the hospital. Similarly, in all but one instance in which a home health agency was closed, another agency served the community (Stensland and Moscovice, 2001). It should be noted that the above survey was conducted before the Benefits Improvement and Protection Act of 2000 mandated higher payments for both skilled nursing facilities and home health services. Further, the Medicare Modernization Act of 2003 extended a 5 percent bonus payment for rural home health services through March 31, 2005. As a result, the current Medicare payment structure is more favorable than was the case when the above survey was carried out.

The Funding of Rural Emergency Medical Services

Rural emergency medical services (see Appendix C for an overview) rely heavily on volunteers. In addition, emergency medical services receive financial support mainly from transport fees and income from state and local taxes. A survey of 300 emergency medical services providers affiliated with critical access hospitals (83 percent response rate) revealed that on average, 62 percent of revenue was derived from transport fees (175 respondents) and 28 percent of revenue from state and local taxes (184 respondents) (Mohr, 2003).

Sources of reimbursement for transport fees include Medicare, Medicaid, commercial insurance or managed care, and private payers. Medicare is the largest source of these reimbursements. In 1998 on average, Medicare revenues accounted for 41 percent of providers’ transport reimbursement fees for rural ambulance providers that bill Medicare (Mohr et al., 2000). This overstates the role of Medicare payments as many rural ambulance services do not bill for services. The national percentage of ambulance services that bill for services is not known. State-level data indicate considerable variation: some states report that very few of their rural service providers bill for services while others, such as Michigan and Wyoming, report that two-thirds to three-quarters of their rural service providers do so (Mohr, 2003).

According to state emergency medical service directors, a large proportion of rural emergency medical services are considered to be financially unstable (Knott, 2002). Further, in a recent report (see Box 5-1), GAO notes that the rural adjustment in the new ambulance fee schedule probably does not

Suggested Citation:"5 Finance." Institute of Medicine. 2005. Quality Through Collaboration: The Future of Rural Health. Washington, DC: The National Academies Press. doi: 10.17226/11140.
×

fully reflect the differences in the cost of providing ambulance services between rural and urban areas because the key factor affecting provider cost is annual trip volumes, which vary widely across rural counties (GAO, 2003a). The report recommends that CMS better target the Medicare rural payment adjustment for trips provided in rural counties with low population densities by adjusting base rates rather than the mileage rate (GAO, 2003a).

The above issues were addressed in the Medicare Modernization Act of 2003, which increased payment for trips of more than 50 miles, used a blended national and regional rate to set the fee schedule, and increased the base rate for ground ambulance services with low population densities. Looking to the future, the dependence of ambulance services on Medicare funding is likely to grow as the number of people aged 65 or over increases. In 1990, those aged 65 or over made up just 12 percent of the population but accounted for 36 percent of ambulance transports (Overton, 2002). Moreover, the cost of providing services may rise since some communities that have difficulties recruiting and retaining volunteer staff may have to hire paid staff (GAO, 2003a). On the other hand, an increasing number of rural volunteer providers are beginning to bill more aggressively for their services (GAO, 2003a). This is challenging for volunteer providers, particularly those who have no billing-related expertise.

Public Health Expenditures

Funding for public health comes from a wide array of sources, including local, state, and federal government programs; grants from foundations; reimbursements from insurance companies; and patient and regulatory fees. Recently published estimates based on National Health Account data show that over the period 1985–2000, public health spending increased from 1.05 to 1.32 percent of total health spending. During this same period, federal funds accounted for just under 30 percent of the total spent on public health (Frist, 2002).

Metropolitan and nonmetropolitan local public health agencies5 have widely differing funding sources (NACCO, 2001) (see Table 5-5). In 1999, metropolitan local public health agencies received 58 percent of their funds

5  

It should be noted that focusing exclusively on local public health agencies for data on public health activities leaves out many rural communities without a local government public health infrastructure. There is currently no data source providing a comprehensive picture of all rural public health activities (Center for Rural Health Practice, 2004).

Suggested Citation:"5 Finance." Institute of Medicine. 2005. Quality Through Collaboration: The Future of Rural Health. Washington, DC: The National Academies Press. doi: 10.17226/11140.
×

BOX 5-1
Ambulance Services: Medicare Payments Can Be Better Targeted to Trips in Less Densely Populated Rural Areas

In 2002, the Centers for Medicare and Medicaid Services implemented a new ambulance fee schedule, under which providers receive a base payment (dependent on the kind of services delivered) plus a mileage payment. There is a rural adjustment for the mileage payment, increasing payments for trips that begin in rural areas.

The General Accountability Office (GAO) found that trip volume is the key factor affecting differences in ambulance providers’ cost per trip (GAO, 2003a). The majority of ambulance providers’ costs reflect readiness—the need to have an ambulance and crew available. These costs are fixed. Thus, providers that make fewer trips tend to have higher costs per trip. In 2001, rural counties averaged 1,200 Medicare-covered trips (both emergency and nonemergency), while urban counties averaged 9,100 trips. Moreover, the number of Medicare-covered trips provided in rural areas varied greatly with population density. The quarter of rural counties that are most densely populated averaged 2,000 Medicare trips, while the quarter of rural counties that are least densely populated averaged just 300 Medicare trips.

Ambulance providers are paid on average 16 percent more for trips originating in the least densely populated quarter of rural counties than for trips originating in the most densely populated quarters of rural counties. This modest difference is much smaller than the nearly eightfold difference in average trip volumes (the key factor affecting cost per trip) between the least and most densely populated quarter of rural counties.

The GAO report recommends that the Centers for Medicare and Medicaid Services better target the Medicare rural payment adjustment for trips provided in rural counties with low population densities by adjusting base rates rather than the mileage rate.

from local government, 22 percent from state government (including federal pass-through funds), 14 percent from service reimbursement, and 3 percent directly from the federal government. By contrast, nonmetropolitan local public health agencies received 34 percent of their funds from local government, 35 percent from state government (including federal pass-through funds), 25 percent from service reimbursement, and 3 percent directly from the federal government.

The IOM’s Committee on Assuring the Health of the Public in the 21st Century recently called for the Department of Health and Human Services to develop a comprehensive investment plan for a strong governmental public health infrastructure, with federal, state, and local governments providing adequate and sustainable funding for this purpose (IOM, 2003). Recent legislation—the Public Health Threats and Emergencies Act of 2000 and

Suggested Citation:"5 Finance." Institute of Medicine. 2005. Quality Through Collaboration: The Future of Rural Health. Washington, DC: The National Academies Press. doi: 10.17226/11140.
×

TABLE 5-5 Sources of Funding for Local Public Health Agencies

 

Metropolitan

Nonmetropolitan

Local public health agency

58 percent

34 percent

State government*

22 percent

35 percent

Service reimbursement

14 percent

25 percent

Federal government

3 percent

3 percent

Other

3 percent

3 percent

*Including federal pass through money.

SOURCE: NACCO, 2001.

the Public Health Security and Bioterrorism Preparedness and Response Act of 2002—aimed at improving bioterrorism preparedness will help strengthen the public health infrastructure.

Access to Capital for Rural Hospitals

Following the expression of concern (NACRHHS, 1999) about the need to repair or replace aging rural hospitals, the Walsh Center for Rural Health Analysis, University of Chicago, carried out a survey of 950 rural hospitals with under 50 beds to identify their capital needs and their ability to borrow funds (Stensland et al., 2002). As part of this survey, funded by the Health Resources and Services Administration, respondents were asked to estimate for their hospital the annual charges for borrowing $1 million. Of 221 respondents, 81 percent (178) were able to estimate their cost of capital, while the remainder (43) stated they would not qualify for a $1 million loan. The latter hospitals tended to be older, lower-volume facilities with operating losses. Likewise, a more recent survey, undertaken by the Rural Health Research Center, University of Minnesota, indicated that a significant proportion of critical access hospitals has difficulty raising capital. Of the critical access hospitals surveyed (95 percent response rate) 39 percent indicated that they had experienced an important capital need of at least $250,000 and had not tried to borrow the money because they had no chance of obtaining it (Gregg, 2004).

Suggested Citation:"5 Finance." Institute of Medicine. 2005. Quality Through Collaboration: The Future of Rural Health. Washington, DC: The National Academies Press. doi: 10.17226/11140.
×

Two national programs have evolved over the years to help less credit-worthy hospitals—the Department of Housing and Urban Development’s (HUD) Hospital Mortgage Insurance Program and the Department of Agriculture’s Community Facilities Program. The Hospital Mortgage Insurance Program, commonly know as the HUD Section 242 Program, was established in 1968 to soften the impact of the sunsetting Hill-Burton Program. It has served primarily as a source of capital for urban facilities. The Community Facilities Program, started in 1972, is the lender of last resort to a wide range of eligible rural organizations in addition to hospitals. The two programs have provided only modest capital outlays to rural hospitals, only a quarter of which have been able to take advantage of them (Gregg et al., 2002). In addition to these two federal programs, there are about two dozen state-operated capital-related programs for which rural hospitals may be eligible. Almost three-quarters of these programs provide capital through grants, while a quarter do so through loans (Gregg et al., 2002).

Another, more limited program, focused on rural health care facilities, is the Southern Rural Access Program. This program is designed to help improve access to basic health care in eight of the most rural, medically underserved states in the country (Alabama, Arkansas, Georgia, Louisiana, Mississippi, South Carolina, (East) Texas, and West Virginia). To achieve these goals, the program emphasizes the development of rural health leadership, rural health networks, and revolving loan funds, as well as recruitment and retention of primary health care providers (Stewart et al., 2003). The program is funded by The Robert Wood Johnson Foundation and administered by the Pennsylvania State College of Medicine. As of November 2002, loans totaling $31 million6 had been approved (Stewart et al., 2003).

One key to increasing access to capital for rural hospitals is to devise strategies for increasing their profitability. Recent survey data on critical access hospitals suggest that the longer hospitals operate in this capacity, the greater is the likelihood that they will be able to make investments that can have an impact on their continued financial profitability (Gregg, 2004). Implementation of the Medicare Modernization Act of 2003 can be expected to improve the operating margins of some rural hospitals. However, for those rural hospitals that are in serious financial difficulties and whose operations meet clear and pressing health care needs of their local populations, new policies are required.

6  

By the end of 2004, loans totaling $40 million are expected to have been approved (Personal communication, M. Beachler, June 2004).

Suggested Citation:"5 Finance." Institute of Medicine. 2005. Quality Through Collaboration: The Future of Rural Health. Washington, DC: The National Academies Press. doi: 10.17226/11140.
×

Need for Financial Stability

Many parts of the rural health care delivery system have been financially fragile (for example, rural hospitals) or subject to payment uncertainties (for example, Medicare physician fees and Medicaid fees in general). In response, Congress has sought, most recently through the Medicare Modernization Act of 2003, to improve the financial climate for rural health care. Periodic reviews of the impact of this act on the financing of rural health care would, however, be prudent. Financial stability is required if rural health care facilities are to make the investments in human resource networks and information and communications technology required to deliver high-quality care on a consistent basis and establish a solid platform for the implementation of pay-for-performance systems.

THE FUNDING OF RURAL MENTAL HEALTH AND SUBSTANCE ABUSE SERVICES

In 1997, $85 billion, or 8 percent of total health care expenditures, was spent on mental health and substance abuse services. Of this amount, 86 percent ($73 billion) was for the treatment of mental health disorders and 14 percent ($12 billion) for the treatment of substance abuse disorders (Coffey et al., 2000). The majority of the funding of mental health and substance abuse treatment comes from public sources—the opposite of all health care spending. In 1997, public sources funded 58 percent of mental health and substance abuse treatment, as compared with 46 percent of all health services. The public sources were Medicaid (20 percent), Medicare (12 percent), other state and local sources (20 percent), and other federal sources (6 percent), while the private sources were private insurers (24 percent), out-of-pocket payments (16 percent), and other private sources (2 percent) (Coffey et al., 2000).

Private insurance, paying about a quarter of all mental health and substance abuse services, continues to place special limits on mental health benefits despite legislation designed to achieve parity between private mental health and general health insurance. The Mental Health Parity Act of 1996 prevented health plans from placing annual or lifetime financial limits on coverage of mental illnesses unless such limits existed for other medical services. Yet despite this federal legislation and state parity laws, the large majority of insured workers in employer-sponsored health plans in 2002 were still subject to special limits on mental health benefits: 74 percent of covered

Suggested Citation:"5 Finance." Institute of Medicine. 2005. Quality Through Collaboration: The Future of Rural Health. Washington, DC: The National Academies Press. doi: 10.17226/11140.
×

workers were subject to annual outpatient visit limits and 64 percent to annual inpatient day limits (Barry et al., 2003).

Mental health care services are provided in a variety of settings. As noted earlier, primary care physicians are important providers of mental health services in rural areas (DeGruy, 1996; Ivey et al., 1998). Mental health centers (formerly designated “community mental health centers” by the federal government) have shifted their focus to caring for those with serious and persistent mental illness and seriously emotionally disturbed children, largely because their block grant funding is restricted to these populations (Wagenfeld et al., 1994). Recently, the Bureau of Primary Health Care expanded the role of federally qualified health centers in providing mental health and substance abuse services for underserved populations (Lambert and Agger, 1995). Moreover, fewer rural than urban hospitals offer inpatient psychiatric services (Hartley et al., 1999). Overall, there are major shortages of mental health professionals in rural areas (see Appendix C). In September 1999, 87 percent of the 1,669 federally designated mental health professions shortage areas were rural counties (Bird et al., 2001).

Given the shortage of mental health and substance abuse services in rural areas, the committee believes a major assessment of the availability and funding of those services in rural areas is needed.

CONCLUSIONS AND RECOMMENDATIONS

Pay-for-Performance

The introduction of pay-for-performance approaches offers much potential to align payment incentives with the quality aims of the health system, but there is work to be done before these approaches can be implemented successfully in rural communities. Many rural providers lack the necessary quality infrastructure to participate in these payment programs. As discussed in Chapter 3, steps should be taken immediately to identify a set of standardized performance measures appropriate for use in rural communities, and technical assistance should be available to assist rural providers in establishing quality improvement programs. Chapter 6 addresses the need to invest in electronic health record systems that give clinicians immediate access to complete patient information and clinical knowledge, and provide the data needed to measure and continuously improve performance. It would also be wise to conduct demonstration projects in rural communities to test alternative approaches to pay-for-performance.

Suggested Citation:"5 Finance." Institute of Medicine. 2005. Quality Through Collaboration: The Future of Rural Health. Washington, DC: The National Academies Press. doi: 10.17226/11140.
×

Recommendation 5. The Centers for Medicare and Medicaid Services should establish 5-year pay-for-performance demonstration projects in five rural communities starting in fiscal year 2006. During the first 18 months, the communities should receive grants and technical assistance for establishing processes to capture the patient data and other information needed to assess performance using a standardized performance measure set appropriate for rural communities. For the remaining 3.5 years, different approaches to implementing pay for performance should be tested in the various demonstration sites. The selected communities should be diverse with respect to socio-demographic variables, as well as the degree and type of formal integration of local and regional providers.

The Funding of Rural Health Care

Many rural health care delivery systems are financially unstable. Although significant steps have been taken to correct historical underpayment of rural providers under Medicare, the operating margins of many hospitals are still very low, and concerns about the equity of physician payments persist. Rural providers have been heavily impacted as states have modified eligibility criteria or lowered provider payments under Medicaid and the Children’s Health Insurance Program in response to worsening state financial conditions.

Rural health care delivery systems must be financially stable if they are to finance investments in human resource networks and information and communications technology and to implement pay-for-performance initiatives. The committee concludes that an assessment is needed of the aggregate impact of changes in the Medicare program, state Medicaid programs, private health plans, and insurance coverage on the financial stability of rural health care providers, and that the Agency for Healthcare Research and Quality is well positioned to coordinate this assessment.

Recommendation 6. Rural health care delivery systems must be sufficiently stable financially to underwrite investments in human resources and information and communications technology and to implement pay-for-performance initiatives. The Agency for Healthcare Research and Quality should produce a report by no later than fiscal year 2006 analyzing the aggregate impact of changes in the Medicare program, state Medicaid programs, private health plans, and insurance coverage on the financial stability of rural health care providers. The report should detail specific actions that should be

Suggested Citation:"5 Finance." Institute of Medicine. 2005. Quality Through Collaboration: The Future of Rural Health. Washington, DC: The National Academies Press. doi: 10.17226/11140.
×

taken, if needed, to ensure sufficient financial stability for rural health care delivery systems to undertake the desired changes described in this report.

The Funding of Rural Mental Health and Substance Abuse Services

Given the shortages of mental health and substance abuse providers in rural areas, the committee concludes that a comprehensive assessment is needed of the availability of mental health and substance abuse services in rural areas (recognizing that another IOM committee is currently exploring the implications of the Quality Chasm report for the field of mental health and addictive disorders).

Recommendation 7. The Health Resources and Services Administration and the Substance Abuse and Mental Health Services Administration should conduct a comprehensive assessment of the availability and quality of mental health and substance abuse services in rural areas. This assessment should cover services provided in both primary care and specialty settings, and should include the following:

  • A review of (1) the various insurance and direct service programs in the public and private sectors that provide financial support for the delivery of mental health and substance abuse services and (2) the populations served by these payers and programs.

  • An evaluation of the adequacy of current funding and an analysis of alternative options for better aligning the various funding sources and programs to improve the accessibility and quality of these services. Attention should be focused on identifying and analyzing options designed to encourage collaboration between primary care and specialty settings.

REFERENCES

Barry CL, Gabel JR, Frank RG, Hawkins S, Whitmore HH, Pickreign JD. 2003. Design of mental health benefits: Still unequal after all these years. Health Affairs 22(5):127–137.

BDO Seidman. 2003. A Report on Shortfalls in Medicaid Funding for Nursing Home Care. Washington, DC: American Health Care Association.

Bird DC, Dempsey P, Hartley D. 2001. Addressing Mental Health Workforce Needs in Underserved Rural Areas: Accomplishments and Challenges. Portland, ME: Edmund S. Muskie School of Public Service, Maine Rural Health Research Center.

Suggested Citation:"5 Finance." Institute of Medicine. 2005. Quality Through Collaboration: The Future of Rural Health. Washington, DC: The National Academies Press. doi: 10.17226/11140.
×

BPHC (Bureau of Primary Health Care). 2002. Uniform Data System National Rollup Calendar Year 2001 Data (Exhibit A: Total Revenue Received by BPHC Grantees). [Online]. Available: http://www.bphc.hrsa.gov/uds/data.htm [accessed July 1, 2004].

Bridges to Excellence. 2003. Rewarding Quality across the Health Care System. [Online]. Available: http://www.bridgestoexcellence.org/bte/ [accessed April 28, 2004].

Center for Rural Health Practice. 2004. Bridging the Health Divide: The Rural Public Health Research Agenda. Bradford, PA: University of Pittsburgh, Center for Rural Health Practice.


Christensen DB, Holmes G, Fassett WE, Neil N, Andrilla CH, Smith DH, Andrews A, Bell EJ, Hansen RW, Shafer R, Stergachis A. 1999. Influence of a financial incentive on cognitive services: CARE project design/implementation. Journal of the American Pharmacists Association 39(5):629–639.

CMS (Centers for Medicare and Medicaid Services). 2004a. National Voluntary Hospital Reporting Initiative. [Online]. Available: http://www.cms.hhs.gov/quality/hospital/ [accessed April 29, 2004].

CMS. 2004b. Premier Hospital Quality Incentive Demonstration Program. [Online]. Available: http://www.cms.hhs.gov/quality/hospital/PremierFactSheet.pdf [accessed April 29, 2004].

Coffey RM, Mark T, King E, Harwood H, McKusick D, Genuardi J, Dilinardo J, Buck JA. 2000. National Estimates of Expenditures for Mental Health and Substance Abuse Treatment. Rockville, MD: Center for Substance Abuse Treatment and Center for Mental Health Services, Substance Abuse and Mental Health Services Administration.


Davidson SM, Manheim LM, Werner SM, Hohlen MM, Yudkowsky BK, Fleming GV. 1992. Prepayment with office-based physicians in publicly funded programs: Results from the children’s Medicaid program. Pediatrics 89(4, Part 2):761–767.

DeGruy F. 1996. Mental Health Care in the Primary Care Setting. Washington, DC: National Academy Press.

Dudley RA, Frolich A, Robinowitz DL, Talavera JA, Broadhead P, Luft HS. 2004. Strategies to Support Quality-based Purchasing: A Review of the Evidence (Technical Review No. 10). AHRQ Publication No. 04-0057. Rockville, MD: Agency for Healthcare Research and Quality.


Fairbrother G, Siegel MJ, Friedman S, Kory PD, Butts GC. 2001. Impact of financial incentives on documented immunization rates in the inner city: Results of a randomized controlled trial. Ambulatory Pediatrics 1(4):206–212.

Frist B. 2002. Public health and national security: The critical role of increased federal support. Health Affairs 21(6):117–130.


Gale JA, Coburn AF. 2003. The Characteristics and Roles of Rural Health Clinics in the United States: A Chartbook. Portland, ME: Edmund S. Muskie School of Public Service, University of Southern Maine.

GAO (General Accounting Office). 2003a. Ambulance Services: Medicare Payments Can Be Better Targeted to Trips in Less Densely Populated Rural Areas. GAO-03-986. Washington, DC: GAO.

GAO. 2003b. Medicaid and SCHIP: States Use Varying Approaches to Monitor Children’s Access to Care. GAO-03-222. Washington, DC: GAO.

Suggested Citation:"5 Finance." Institute of Medicine. 2005. Quality Through Collaboration: The Future of Rural Health. Washington, DC: The National Academies Press. doi: 10.17226/11140.
×

GAO. 2003c. Medicaid Nursing Home Payments: States’ Payment Rates Largely Unaffected by Recent Fiscal Pressure. GAO-04-143. Washington, DC: GAO.

Ginsburg PB. 2002. Testimony before the Subcommittee on Health of the House Committee Ways and Means: Hearing on Physician Payments, February 28, 2002. [Online]. Available: http://waysandmeans.house.gov/legacy/health/107cong/2-28-02/2-28gins.htm [accessed June 29, 2004].

Gregg W. 2004. Best Practices in Obtaining Capital Funding for Major Hospital Projects: The Experience of CAHs. San Diego, CA: Annual Meeting of National Rural Health Association.

Gregg W, Knott A, Moscovice I. 2002. Rural Hospital Access to Capital: Issues and Recommendations. Minneapolis, MN: Rural Health Research Center, University of Minnesota.


Hartley D, Bird D, Dempsey P. 1999. Rural Mental Health and Substance Abuse. In: Ricketts TC, ed. Rural Health in the United States. New York: Oxford University Press. Pp. 159–178.

Hibbard JH, Stockard J, Tusler M. 2003. Does publicizing hospital performance stimulate quality improvement efforts? Health Affairs 22(2):84–94.

Hickson GB, Altemeier WA, Perrin JM. 1987. Physician reimbursement by salary or fee-for-service: Effect on physician practice behavior in a randomized prospective study. Pediatrics 80(3):334–350.

Hillman AL, Ripley K, Goldfarb N, Nuamah I, Weiner J, Lusk E. 1998. Physician financial incentives and feedback: Failure to increase cancer screening in Medicaid managed care. American Journal of Public Health 88(11):1699–1701.

Hillman AL, Ripley K, Goldfarb N, Weiner J, Nuamah I, Lusk E. 1999. The use of physician financial incentives and feedback to improve pediatric preventive care in Medicaid managed care. Pediatrics 104(4, Part 1):931–935.

HRSA (Health Resources and Services Administration). 2002. Experts with Experience: Community and Migrant Health Centers: Highlighting a Decade of Service (1990–2000). [Online]. Available: ftp://ftp.hrsa.gov/bphc/pdf/chc/tenyear_report.pdf [accessed July 1, 2004].

IOM (Institute of Medicine). 2001. Crossing the Quality Chasm: A New Health System for the 21st Century. Washington, DC: National Academy Press.


IOM. 2003. The Future of the Public’s Health in the 21st Century. Washington, DC: The National Academies Press.

Ivey SL, Scheffler R, Zazzali JL. 1998. Supply dynamics of the mental health workforce: Implications for health policy. Milbank Quarterly 76(1):25–28.


Knott A. 2002. Access to Emergency Medical Services in Rural Areas: The Supporting Role of State EMS Agencies, Minneapolis, MN: Rural Health Research Center, University of Minnesota.

Kouides RW, Bennett NM, Lewis B, Cappuccio JD, Barker WH, LaForce FM. 1998. Performance-based physician reimbursement and influenza immunization rates in the elderly: The primary care physicians of Monroe County. American Journal of Preventive Medicine 14(2):89–95.


Lambert D, Agger MS. 1995. Access of rural AFDC Medicaid beneficiaries to mental health services. Health Care Financing Review 17(1):133–145.

Levit K, Smith C, Cowan C, Sensenig A, Catlin A. 2004. Health spending rebound continues in 2002. Health Affairs 23(1):147–159.

Suggested Citation:"5 Finance." Institute of Medicine. 2005. Quality Through Collaboration: The Future of Rural Health. Washington, DC: The National Academies Press. doi: 10.17226/11140.
×

MedPAC (Medicare Payment Advisory Commission). 2001. Report to the Congress: Medicare in Rural America. Washington, DC: MedPAC.

MedPAC. 2003. Report to Congress: Medicare Payment Policy. Washington, DC: MedPAC.

MedPAC. 2004a. A Data Book: Healthcare Spending and the Medicare Program. Washington, DC: MedPAC.

MedPAC. 2004b. Report to Congress: Medicare Payment Policy. Washington, DC: MedPAC.

Mohr PE. 2003. Survey of Critical Access-Affiliated Emergency Medical Service Providers. Bethesda, MD: Project HOPE Walsh Center for Rural Health Analysis.

Mohr PE, Cheng M, Mueller CD. 2000. Findings from the 1999 National Survey of Ambulance Service Providers. McLean, VA: American Ambulance Association.

Moscovice I, Davidson G. 2003. Rural Hospitals: New Millennium and New Challenges. Minneapolis, MN: Rural Health Research Center, University of Minnesota.

Mueller KJ, Stoner JA, Shambaugh-Miller MD, Lucas WO, Pol LG. 2003. Method for identifying places in rural America at risk of not being able to support adequate health services. Journal of Rural Health 19(4):450–460.


NACCO (National Association of City and County Health Officials). 2001. Local Public Health Agency Infrastructure: A Chartbook. Washington, DC: NACCO.

NACRHHS (National Advisory Committee on Rural Health and Human Services). 1999 (October 1). Fiscal Year 2000 Recommendation: Rural Hospital Capital Need Loan Program. [Online]. Available: http://ruralcommittee.hrsa.gov/recom_999.htm [accessed February 2004].

NIH (National Institutes of Health). 2002. Oral Health U.S., 2002. Bethesda, MD: National Institutes of Health, Centers for Disease Control and Prevention.


OPHS (Office of Public Health and Science, Office of the Surgeon General). 2000. Oral Health in America: A Report of the Surgeon General. Rockville, MD: National Institutes of Health, National Institute of Dental and Craniofacial Research.

Overton J. 2002. Chapter 14: Reimbursement Trends in Prehospital Systems and Medical Oversight (3rd Edition). Kuehl AE, ed. Dubuque, IA: Kendall/Hunt Publishing Company.


Premier, Inc. 2003. Groundbreaking Medicare Project Underway with 278 Hospitals. [Online]. Available: http://www.premierinc.com/frames/index.jsp?pagelocation=/all/informatics/qualitydemo/news/03-dec/280-hospitals.htm [accessed April 29, 2004].


Rewarding Results. 2002. Aligning Incentives with High-Quality Health Care. [Online]. Available: http://www.rwjf.org/publications/publicationsPdfs/cfp-rewarding_results.pdf [accessed April 28, 2004].

Rosenthal MB, Fernandopulle R, Song HR, Landon B. 2004. Paying for quality: Providers’ incentives for quality improvement. Health Affairs 23(2):127–141.

Roski J, Jeddeloh R, An L, Lando H, Hannon P, Hall C, Zhu SH. 2003. The impact of financial incentives and patient registry on preventive care quality: Increasing provider adherence to evidence-based smoking cessation practice guidelines. Preventive Medicine 36(3):291–299.

Stensland J, Moscovice I. 2001. Rural Hospitals’ Ability to Finance Inpatient, Skilled Nursing and Home Health Care. Minneapolis, MN: Rural Health Research Center, Division of Health Services Research and Policy, University of Minnesota.

Suggested Citation:"5 Finance." Institute of Medicine. 2005. Quality Through Collaboration: The Future of Rural Health. Washington, DC: The National Academies Press. doi: 10.17226/11140.
×

Stensland J, Schoenman J, Mueller C, Singer A. 2002. Capital Needs of Small Rural Hospitals: Final Report for the Office of Rural Health Policy. Rockville, MD: Health Resources and Services Administration.

Stewart MK, Beachler M, Slayton D. 2003. Improving access to capital for health care infrastructure: The experience of the southern rural access program’s revolving fund. Journal of Rural Health 19(Supplement):391–396.


Wagenfeld MO, Murray JD, Mohatt DF, DeBruyn JC. 1994. Mental Health and Rural America: 19801993. An Overview and Annotated Bibliography. ORHP, U.S. DHHS NIH Pub. No. 94-3500:1–116.


Zuckerman S, McFeeters J, Cunningham P, Nichols L. 2004. Changes in Medicaid Physician Fees, 19982003: Implications for Physician Participation. [Online]. Available: http://content.healthaffairs.org/cgi/content/full/hlthaff.w4.374/DC1 [accessed September 27, 2004].

Suggested Citation:"5 Finance." Institute of Medicine. 2005. Quality Through Collaboration: The Future of Rural Health. Washington, DC: The National Academies Press. doi: 10.17226/11140.
×
Page 119
Suggested Citation:"5 Finance." Institute of Medicine. 2005. Quality Through Collaboration: The Future of Rural Health. Washington, DC: The National Academies Press. doi: 10.17226/11140.
×
Page 120
Suggested Citation:"5 Finance." Institute of Medicine. 2005. Quality Through Collaboration: The Future of Rural Health. Washington, DC: The National Academies Press. doi: 10.17226/11140.
×
Page 121
Suggested Citation:"5 Finance." Institute of Medicine. 2005. Quality Through Collaboration: The Future of Rural Health. Washington, DC: The National Academies Press. doi: 10.17226/11140.
×
Page 122
Suggested Citation:"5 Finance." Institute of Medicine. 2005. Quality Through Collaboration: The Future of Rural Health. Washington, DC: The National Academies Press. doi: 10.17226/11140.
×
Page 123
Suggested Citation:"5 Finance." Institute of Medicine. 2005. Quality Through Collaboration: The Future of Rural Health. Washington, DC: The National Academies Press. doi: 10.17226/11140.
×
Page 124
Suggested Citation:"5 Finance." Institute of Medicine. 2005. Quality Through Collaboration: The Future of Rural Health. Washington, DC: The National Academies Press. doi: 10.17226/11140.
×
Page 125
Suggested Citation:"5 Finance." Institute of Medicine. 2005. Quality Through Collaboration: The Future of Rural Health. Washington, DC: The National Academies Press. doi: 10.17226/11140.
×
Page 126
Suggested Citation:"5 Finance." Institute of Medicine. 2005. Quality Through Collaboration: The Future of Rural Health. Washington, DC: The National Academies Press. doi: 10.17226/11140.
×
Page 127
Suggested Citation:"5 Finance." Institute of Medicine. 2005. Quality Through Collaboration: The Future of Rural Health. Washington, DC: The National Academies Press. doi: 10.17226/11140.
×
Page 128
Suggested Citation:"5 Finance." Institute of Medicine. 2005. Quality Through Collaboration: The Future of Rural Health. Washington, DC: The National Academies Press. doi: 10.17226/11140.
×
Page 129
Suggested Citation:"5 Finance." Institute of Medicine. 2005. Quality Through Collaboration: The Future of Rural Health. Washington, DC: The National Academies Press. doi: 10.17226/11140.
×
Page 130
Suggested Citation:"5 Finance." Institute of Medicine. 2005. Quality Through Collaboration: The Future of Rural Health. Washington, DC: The National Academies Press. doi: 10.17226/11140.
×
Page 131
Suggested Citation:"5 Finance." Institute of Medicine. 2005. Quality Through Collaboration: The Future of Rural Health. Washington, DC: The National Academies Press. doi: 10.17226/11140.
×
Page 132
Suggested Citation:"5 Finance." Institute of Medicine. 2005. Quality Through Collaboration: The Future of Rural Health. Washington, DC: The National Academies Press. doi: 10.17226/11140.
×
Page 133
Suggested Citation:"5 Finance." Institute of Medicine. 2005. Quality Through Collaboration: The Future of Rural Health. Washington, DC: The National Academies Press. doi: 10.17226/11140.
×
Page 134
Suggested Citation:"5 Finance." Institute of Medicine. 2005. Quality Through Collaboration: The Future of Rural Health. Washington, DC: The National Academies Press. doi: 10.17226/11140.
×
Page 135
Suggested Citation:"5 Finance." Institute of Medicine. 2005. Quality Through Collaboration: The Future of Rural Health. Washington, DC: The National Academies Press. doi: 10.17226/11140.
×
Page 136
Suggested Citation:"5 Finance." Institute of Medicine. 2005. Quality Through Collaboration: The Future of Rural Health. Washington, DC: The National Academies Press. doi: 10.17226/11140.
×
Page 137
Suggested Citation:"5 Finance." Institute of Medicine. 2005. Quality Through Collaboration: The Future of Rural Health. Washington, DC: The National Academies Press. doi: 10.17226/11140.
×
Page 138
Suggested Citation:"5 Finance." Institute of Medicine. 2005. Quality Through Collaboration: The Future of Rural Health. Washington, DC: The National Academies Press. doi: 10.17226/11140.
×
Page 139
Suggested Citation:"5 Finance." Institute of Medicine. 2005. Quality Through Collaboration: The Future of Rural Health. Washington, DC: The National Academies Press. doi: 10.17226/11140.
×
Page 140
Suggested Citation:"5 Finance." Institute of Medicine. 2005. Quality Through Collaboration: The Future of Rural Health. Washington, DC: The National Academies Press. doi: 10.17226/11140.
×
Page 141
Suggested Citation:"5 Finance." Institute of Medicine. 2005. Quality Through Collaboration: The Future of Rural Health. Washington, DC: The National Academies Press. doi: 10.17226/11140.
×
Page 142
Suggested Citation:"5 Finance." Institute of Medicine. 2005. Quality Through Collaboration: The Future of Rural Health. Washington, DC: The National Academies Press. doi: 10.17226/11140.
×
Page 143
Suggested Citation:"5 Finance." Institute of Medicine. 2005. Quality Through Collaboration: The Future of Rural Health. Washington, DC: The National Academies Press. doi: 10.17226/11140.
×
Page 144
Suggested Citation:"5 Finance." Institute of Medicine. 2005. Quality Through Collaboration: The Future of Rural Health. Washington, DC: The National Academies Press. doi: 10.17226/11140.
×
Page 145
Suggested Citation:"5 Finance." Institute of Medicine. 2005. Quality Through Collaboration: The Future of Rural Health. Washington, DC: The National Academies Press. doi: 10.17226/11140.
×
Page 146
Next: 6 Rural Health Care in the Digital Age »
Quality Through Collaboration: The Future of Rural Health Get This Book
×
Buy Hardback | $44.95 Buy Ebook | $35.99
MyNAP members save 10% online.
Login or Register to save!
Download Free PDF

Building on the innovative Institute of Medicine reports To Err Is Human and Crossing the Quality Chasm, Quality Through Collaboration: The Future of Rural Health offers a strategy to address the quality challenges in rural communities.

Rural America is a vital, diverse component of the American community, representing nearly 20 % of the population of the United States. Rural communities are heterogeneous and differ in population density, remoteness from urban areas, and the cultural norms of the regions of which they are a part. As a result, rural communities range in their demographics and environmental, economic, and social characteristics. These differences influence the magnitude and types of health problems these communities face.

Quality Through Collaboration: The Future of Rural Health assesses the quality of health care in rural areas and provides a framework for core set of services and essential infrastructure to deliver those services to rural communities. The book recommends:

  • Adopting an integrated approach to addressing both personal and population health needs
  • Establishing a stronger health care quality improvement support structure to assist rural health systems and professionals
  • Enhancing the human resource capacity of health care professionals in rural communities and expanding the preparedness of rural residents to actively engage in improving their health and health care
  • Assuring that rural health care systems are financially stable
  • Investing in an information and communications technology infrastructure

    It is critical that existing and new resources be deployed strategically, recognizing the need to improve both the quality of individual-level care and the health of rural communities and populations.

  1. ×

    Welcome to OpenBook!

    You're looking at OpenBook, NAP.edu's online reading room since 1999. Based on feedback from you, our users, we've made some improvements that make it easier than ever to read thousands of publications on our website.

    Do you want to take a quick tour of the OpenBook's features?

    No Thanks Take a Tour »
  2. ×

    Show this book's table of contents, where you can jump to any chapter by name.

    « Back Next »
  3. ×

    ...or use these buttons to go back to the previous chapter or skip to the next one.

    « Back Next »
  4. ×

    Jump up to the previous page or down to the next one. Also, you can type in a page number and press Enter to go directly to that page in the book.

    « Back Next »
  5. ×

    Switch between the Original Pages, where you can read the report as it appeared in print, and Text Pages for the web version, where you can highlight and search the text.

    « Back Next »
  6. ×

    To search the entire text of this book, type in your search term here and press Enter.

    « Back Next »
  7. ×

    Share a link to this book page on your preferred social network or via email.

    « Back Next »
  8. ×

    View our suggested citation for this chapter.

    « Back Next »
  9. ×

    Ready to take your reading offline? Click here to buy this book in print or download it as a free PDF, if available.

    « Back Next »
Stay Connected!