New budget model for rural hospitals is not a panacea for fiscal woes

  • Sarah Boden/WESA

(Pittsburgh) — A new fiscal model aimed at keeping rural hospitals solvent is expanding in Pennsylvania, though this global budgeting strategy doesn’t always prevent facilities from operating at a loss.

Rural hospitals provide vital services to communities with sparse medical resources. As populations in small towns across America decline, so do revenues at hospitals that find themselves treating fewer patients.

To keep facilities open, Pennsylvania piloted a program last year that gives hospitals some predictability in their budgets. Instead of getting paid per medical service, hospitals receive a lump sum from insurance companies.

In 2019, Endless Mountains Health System in Susquehanna County became one of the first hospitals in the state to implement global budgeting

CEO Loren Stone said, though it’s a step in the right direction, there are flaws in the system for calculating hospital payments. That’s because the amount that hospitals receive from insurance companies is based on prior years’ revenues, even if the facility lost money during those years.

“Starting off at a point where you’re just receiving prior years’ revenue that wasn’t covering expenses,” said Stone. “We really need it to be a break-even, or a profitability model, as opposed to just a prior net-revenue model.”

Stone added that he likes how the global model incentivizes cost-cutting through preventive care, because healthier patients require fewer costly medical interventions.

“It provides us a bridge, to what is going to be the future of health care … providing population health and managing health status outside of the facility,” he said.

Eric T. Roberts, an assistant professor of health policy and management at the University of Pittsburgh, said the global budgeting system has a lot of promising elements, including technical assistance from the state. But he cautioned that a hospital is only one component of a local community’s health system.

“There are physicians that practice outside the hospital who in Pennsylvania will not be under a global budget,” said Roberts. “If the long-term goal of these programs is to develop more population-based methods of payment, we eventually need to think about ways that will integrate physicians into these models.”

In total, 13 rural hospitals will use global budgeting this year. For eight of these hospitals, 2020 will be their first year of this program. This includes Monongahela Valley and Washington Hospitals in Washington County, and Green Hospital in Green County.

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