Pennsylvania’s Rural Health Model: A Conversation with the Secretary of Health

October 28, 2019 | ASTHO Staff

Rural communities across the nation are experiencing a significant number of hospital closures. Nationally, 119 rural hospitals have closed since 2010, and an additional 21 percent of rural hospitals are at high risk of closure. ASTHO spoke with Rachel Levine, MD, Secretary of Health for the Commonwealth of Pennsylvania, to learn how the Pennsylvania Rural Health Model is addressing the sustainability of rural hospitals by redesigning the payment and delivery of care.

There is a national trend of rural hospitals experiencing financial instability and closure. How has this played out in Pennsylvania?

In our current fee-for-service environment, which relies on steady and high patient volumes to generate revenue, it’s increasingly difficult for small, rural hospitals to maintain a financially successful bottom line. This is especially true given the trends in rural demographics and in medical practice: we see declining rural populations and declining inpatient admissions. Pennsylvania hasn’t seen rampant rural hospital closures, but we felt the need to act to save our rural hospitals.

If a rural hospital closes, it can lead to significant problems in terms of access to care, compounded by the transportation barriers that already exist in rural areas. The financial implications of the closure of a hospital in a rural area can be economically significant because they are often one of the biggest, if not the biggest employer, in the region. Should a rural hospital close, communities face significant loss of jobs and economic opportunity.

What is Pennsylvania’s approach to rural hospital closures?

Over the last four-and-a-half years, we have been developing a model to address the financial challenges of rural hospitals in Pennsylvania by changing the fiscal environment in which they operate. This work was initiated under Dr. Karen Murphy, my predecessor at the Pennsylvania Department of Health.

Our initiative creates a framework through which a hospital works with the department of health and all of its major insurance payers – Medicare, Medicaid, and commercial plans – to transition from a fee-for-service arrangement to a monthly global budget. The global budget emphasizes population health and outpatient services and isn’t dependent on fluctuations in volume of patients, particularly in terms of inpatient admissions.

While the planning for this initiative began with the Center for Medicare & Medicaid Innovation (CMMI) in 2015, implementation began in January 2019. In January we worked with five hospitals to develop a transformation plan in collaboration with all the major payers. This program has been going for about nine months and is going very well.

Does every hospital customize their global budgets to suit their own unique context?

Yes and No. There is a model or framework that applies to each hospital, but each hospital plan is individualized. Each hospital works with department of health staff and consultants first to apply the transformation framework to their hospital and then the hospitals bring in insurance carriers to discuss their payment. Our contract with CMMI is for six years, but the expectation is that these hospitals will continue under their global budgets and not revert back to fee-for-service when the initiative with CMMI ends.

Do you plan to expand the program?

We plan to significantly ramp-up the program. By January 2020, we plan to have 18 hospitals undergoing this transformation to a global budget; recruitment for the 13 hospitals in round 2 is already underway. By January 2021, we will have 30 rural hospitals participating. In the coming years, we will also be trying to include more payers from across the state because the payer mix of regions change.

How will the program be evaluated?

The hospital transformation plans and global budgets are living plans, so there are quarterly evaluations that sometimes lead to adjustments being made as necessary. There will also be a rigorous evaluation component with CMMI.

How do you expect the program to change in the coming years?

One of the most innovative aspects of this program is our work with the state legislature to develop the Rural Health Redesign Center [RHRC]. This would take this program out of the department of health, where it is currently run, and instead create a public-private partnership for its sustainability. A bill introducing this concept passed unanimously in the Pennsylvania Senate this session and will be considered in the fall by the House.

This new structure would also allow RHRC to not be dependent on government funding. The vision is for the RHRC to be self-funding and independent. The Secretary of Health would still have a seat on the board, along with the secretary of human services, commissioner of insurance, hospitals, and insurance carriers. The goal is to have the center set up and running by the new year.

Would you encourage other public health leaders to participate in payment reform initiatives?

Yes, it is very much within the role of public health leaders and state health officials to be involved in payment reform, though how that looks varies by state structure. For example, Pennsylvania has a separate Department of Human Services where Medicaid lives, and there’s a separate insurance department that regulates commercial insurance. Each secretary or commissioner has their niche and role.

What are the early lessons learned or rural health improvement strategies you would share with your fellow state/territorial health officials?

Collaboration is very important. The Pennsylvania Department of Health is a central player but not the central player. This program benefited from strong leadership from the governor, and CMMI’s support has been critical. We’ve also engaged the Center for Rural Health, the hospital and health system associations in Pennsylvania, the Pennsylvania Medical Society, and many other stakeholders.

Second, you need a healthy dose of patience and persistence, since change does not happen overnight. Right now, everyone in healthcare is talking about paying for quality and not quantity, but the system has one foot still planted in fee-for-service while leaning toward global budgets. It takes a fair amount of time, innovation, and courage to make that leap to payment for quality in our current environment.