American College of Physicians: Internal Medicine — Doctors for Adults ®


The following article received first place for feature writing in the Society of National Association Publications' 2000 Excel Awards competition. Observer also received a first place for newswriting in the competition.

Hard times for medicine in the heartland

Drastic cutbacks are forcing rural providers to make tough choices

From the November 1999 ACP-ASIM Observer, copyright 1999 by the American College of Physicians-American Society of Internal Medicine.

By Phyllis Maguire

MOBRIDGE, S.D.—On a Thursday morning in late July, Benjamin J. Henderson, FACP, guns his four-seat Piper Cherokee down a grass runway just outside of town. Soon he is soaring above lush fields and vast prairie, looking out over the hundreds of miles of north-central South Dakota where he has served as the sole internist for 24 years.

Dr. Henderson is flying to a clinic in the tiny town of Timber Lake where he spends a half day each week. While he could easily drive the 40-mile trip in his pickup truck, flying to work is one of the perks of practicing medicine in the nation's heartland. Even more important to Dr. Henderson is the chance to work near the ranch where he was raised, treating people he's known since he was a boy.

But that way of practice is being threatened. Medicare payments to rural areas have always been low, but drastic cuts from 1997's Balanced Budget Act (BBA) are crippling rural clinics and hospitals like the one in Mobridge where Dr. Henderson works. At the same time, large urban hospital systems are trying to make small rural providers part of large networks. While some view such alliances as the saving grace of small rural hospitals, skeptics fear that large systems are behaving more like predators than partners.

Faced with that threat, Dr. Henderson and other rural physicians are making tough choices that will likely change the character of medical practice throughout rural America.

Financial threats

In Mobridge, a town of 4,000 people on the banks of the Missouri River, fears of those changes are being played out at Mobridge Regional Hospital, a 48-bed facility that serves 20,000 people in five counties. Dr. Henderson has been a key figure in the town's medical care since 1975, when he joined the Mobridge Medical Clinic, which is today part of the hospital.

With the farming community so financially stressed, raising fee-for-service rates at the clinic is out of the question

As his plane coasts high above the prairie, Dr. Henderson explains that growing up, he had wanted to be a rancher like his father. His oldest brother bought the family spread, however, so he decided to take a different path.

Medicine was a natural second choice for young Ben, who was always doctoring animals on the ranch—family dogs with snakebites, sheep with difficult labors—and performed his first caesarian section on a cow when he was 12. For Dr. Henderson, there was no better place to practice medicine than the state where he grew up.

So after graduating from the College of Osteopathic Medicine in Kansas City and completing a residency at the Cleveland Clinic, he returned to South Dakota. He and his wife wanted to raise children in a small town filled with family-owned businesses. Mobridge, which boasts a one-screen movie theater, fit the bill.

Today, at 58, Dr. Henderson tends to cowboys who have been gored at the annual Mobridge rodeo and doctors the high school sports teams. Thank-you letters from patients are printed in the Mobridge Tribune. And his home is decorated with reminders of patient goodwill, like hand-sewn star quilts from the relatives of Native American patients who have died.

Dr. Henderson says that despite such affirmations, there are distinct downsides to rural practice. While there is little managed care in this rolling expanse of ranches, farms and reservations, isolation makes recruitment extremely difficult. Dr. Henderson is one of 170 internists in a state that has only 1,300 physicians. Physician recruitment in Mobridge got so tough that he and his clinic partner, a family practitioner, sold their practice to Mobridge Regional Hospital two years ago and moved into a new hospital wing, in part to attract new doctors. Their strategy—offering salaried positions instead of buy-ins—helped recruit a second family practitioner and a general surgeon.

But even such moves can't put off the biggest threat to rural practice: the vast disparities between Medicare's urban and rural fees. It's a topic that clearly rankles rural providers, and reductions from the BBA are making matters much worse. While hospitals across the country are slated to see $71 billion in Medicare inpatient reimbursement cuts over a five-year period, hospitals in South Dakota are projected to lose $163 million, with Mobridge Regional taking a $862,000 hit—roughly 5% of its Medicare revenues. So far, only a third of all BBA cuts have been implemented, meaning that the coming years could be very harsh.

The Mobridge hospital, where Dr. Henderson is both an employee and a board member, gets 60% of its revenues from Medicare. It is already losing money from the inpatient prospective payment system. But that's just the beginning: The hospital next will be hard hit by BBA reductions in home health services reimbursements, and a prospective payment plan for outpatient services will slash payments to Dr. Henderson's clinic.

The BBA hardships come at the same time that Mobridge Regional is struggling to pay off debt from a recent expansion program. The hospital recently constructed a new clinic wing, bought two medical groups (including Dr. Henderson's), expanded home health services and launched the satellite clinic in Timber Lake. But BBA changes have skewed the hospital's repayment plans, turning a projected 3% surplus into an 11% deficit.

As Dr. Henderson sets his plane down near the hangar at Timber Lake, he admits that the hospital's situation is grave. "We're treading water," he says grimly. "And we're not making it."

Trouble on the frontier

The clinic in Timber Lake is a stark reminder of the financial challenges facing rural providers. The clinic has lost money since it opened its doors in 1996, though Dr. Henderson says that this could be the year that it finally begins to break even.

Up to 70 patients a week now come to the clinic in this frontier town of 400 situated in the Cheyenne River Indian Reservation that is home to the Oglala Sioux. One quarter of its patients are Native Americans, who have a high incidence of cardiovascular disease and diabetes. Reimbursements from Indian Health Services are both low and slow. Only 15% of clinic patients have Medicare coverage. "That's because we're new," explains physician assistant Sheila Schweitzer, who staffs the clinic full time. Most Medicare patients don't like to try new practitioners. Those who do are those who find it difficult to travel elsewhere, she explains.

Most of her patients—and Dr. Henderson's in Mobridge—are ranchers and farmers being squeezed by a second year of plummeting crop prices. Both Dr. Henderson and Ms. Schweitzer now see more alcoholism, domestic abuse and depression. A growing number of farm families are going without insurance or buying only catastrophic coverage and foregoing preventive care. Those policies at least cover the farm accidents that Dr. Henderson has to treat every year: farmers getting arms caught in machinery or being pinned beneath balers.

"They're a different breed of folks," Dr. Henderson says about his patients. "They're very independent, very self-reliant, and that can be a double-edged sword. They seek medical help later rather than sooner and always downplay symptoms." The fierce need to not be beholden even stops some families from enrolling in the state's Children's Health Insurance Program. Says Ms. Schweitzer: "They see it as some kind of welfare."

Partnering with a large urban system would bring much-needed cash and negotiating clout, but might also gut the hospital's services.

The area's tough times have directly affected both the hospital and its clinics. With the farming community so financially stressed, raising fee-for-service rates at the Timber Lake or Mobridge clinics is out of the question, and there is no chance of boosting local taxes to help the hospital.

Survival strategies

After seeing patients, reviewing X-rays and reading charts, Dr. Henderson heads back to Mobridge to attend the first of several meetings with urban hospital systems interested in partnering with the hospital. To survive, Mobridge Regional needs a partner that can offer capital and economies of scale.

Partnership with a large urban system would likely bring cash, marketing resources and negotiating clout, but it could also create dilemmas. Dr. Henderson worries that a partner might gut the hospital's services, using Mobridge as a source of referrals and shifting primary care services and surgeries out of town. That strategy would destroy local access for Mobridge patients and be particularly damaging for the frail elderly who already face transportation problems.

Also at stake is the town's economic base. With 135 full-time employees, the hospital is Mobridge's largest employer.

The hospital has two prospective partners: a hospital system in Aberdeen, S.D., 100 miles to the east, and another in Bismarck, N.D., 100 miles to the north. For years, Mobridge Regional has referred patients to both hospitals for procedures like heart and neurological surgeries. The Bismarck system is already linked to Mobridge Regional through a telemedicine unit it installed, and the system operates a medical helicopter to evacuate Mobridge patients.

The Aberdeen system is very interested in partnering, but that prospect poses some problems. In 1988, the Aberdeen system opened a primary care clinic right across the street from the Mobridge hospital—and Dr. Henderson's own clinic. In larger markets, competing clinics might drive down prices or improve patient services. Here, it only divides an already meager patient base, making both clinics unprofitable. Dr. Henderson is afraid that in a partnership agreement, the Aberdeen system would hold onto its own primary care clinic and eliminate Dr. Henderson's practice

The Mobridge hospital is exploring one other option: becoming a critical access hospital under the BBA's state rural hospital flexibility program. As a critical access hospital, Mobridge Regional would get more for Medicare services through cost-based reimbursements than from the BBA's prospective payment plans. But there's a catch: Patients in critical access hospitals have to be transferred to larger facilities after 96 hours. Some of the hospital's administrators believe this restriction wouldn't affect most patients because the hospital's average daily census is eight, and the average length of stay is less than four days.

Dr. Henderson, on the other hand, adamantly opposes this option. Under BBA rules, critical access hospitals do not have to be staffed by full-time physicians, nor are physicians required for emergency room care. Such changes, says Dr. Henderson, will discourage rather than attract internists to rural areas, at the same time that an aging rural population needs internists' skills.

The length-of-stay limit would also curtail more complicated procedures and drive away patients with serious illnesses that could require longer hospitalizations. Those patients are likely to go elsewhere rather than risk being transferred mid-stay—a further drain on hospital reimbursements and physicians' medical skills.

The toll that a critical access designation could take becomes apparent the next morning during Dr. Henderson's hospital rounds. One of his hospitalized patients is recovering from a sigmoid colectomy; another has infectious hepatitis A and has tested positive for Epstein-Barr. Both are expected to remain hospitalized for more than four days. If Mobridge Regional became a critical access facility, those patients would have to be transferred. That would be hard not only on them but also on their families, who would have to trek roughly 100 miles to a non-critical access facility to visit their loved ones.

Later, in his small office at the clinic, Dr. Henderson gives a more personal reason for opposing the critical access option. His oldest son is now finishing an internal medicine residency and owes the Air Force four years of service before he can return to Mobridge to practice medicine with his father. But with the hospital's future so unsettled, Dr. Henderson doesn't know what kind of practice his son will find here in five years.

"If we become a critical access hospital, that will never occur," he says of the prospect of practicing medicine with his son. "It just won't happen."

New cuts could devastate rural hospitals

While most of health care is reeling from the Balanced Budget Act (BBA) of 1997, rural providers complain that they are shouldering more than their fair share.

HCFA estimates that BBA cuts will reduce payments to all hospitals an average of 5.7%, but will slash outpatient reimbursements to small rural hospitals, which are more dependent on Medicare. A recent Lewin Group study estimated that under BBA, hospitals with fewer than 50 beds will eventually lose almost 13% on the Medicare services they provide.

Such a huge reduction could devastate any hospital—and rural hospitals have no fat to trim. "The small rural hospital governing boards knew it was their job to keep costs down ... because they'd have to tell their friends at the Rotary Club why they'd raised hospital rates," said Wayne W. Myers, MD, director of the Office of Rural Health Policy for the federal Health Resources and Services Administration.

"The big killer" for rural hospitals, said Keith J. Mueller, PhD, the chair of the Rural Health Panel for the Rural Policy Research Institute at the University of Nebraska Medical Center, will be Medicare's outpatient prospective payment system, which has yet to be finalized. Such a plan would replace cost-based reimbursements with capitated rates.

The BBA is hurting rural hospitals in other ways. For the past 10 years, federal and state governments have encouraged rural hospitals (unlike urban facilities) to offer diversified services like skilled nursing facilities, home health care services and satellite clinics. As BBA cuts target each of those services, the cumulative effect on rural hospitals is devastating.

Some help may be on the way. The BBA was originally expected to save Medicare $103 billion over five years, but the Congressional Budget Office now estimates that savings will top $191 billion. Those additional savings, combined with a federal budget surplus, have led to talk of restoring some BBA cuts.

National and grassroots efforts to restore BBA reductions are gathering steam, while skilled nursing and home health trade groups, as well as the American Hospital Association, are mounting lobbying campaigns. And both the House and the Senate are considering bills that would help rural providers. (The National Rural Health Association's side-by-side analysis of the congressional bills can be found at

The Department of Health and Human Services, however, has opposed changes to the BBA, insisting that rural providers and services have yet to shut down. But that "wait and see" stance could be disastrous, said Darin E. Johnson, director for government affairs of the non-profit National Rural Health Association.

"Because the BBA hasn't been fully implemented, it's very hard to show full impact data," he explained. "But if a hospital shuts down, the doctors and mid-levels will leave—a major issue for rural providers. Once it's gone, it's almost impossible to get back." If such a worst-case scenario occurs, the BBA would be dismantling successful efforts—such as the National Health Services Corps loan repayment program and the J-1 visa waiver program—that have attracted more physicians to rural practice.

Analysts say that the BBA is already accelerating the "regionalization" of rural health care, as small hospitals look for larger partners. And if proposed BBA reductions aren't rolled back, analysts predict that hundreds of small hospitals will convert to critical access systems over the next few years.

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