Rural Health Care:  Rights and Responsibilities 
By Jeff Lemieux
Note--revised August 25, 2003 in the 2nd to last paragraph to emphasize that new subsidies for rural providers should be attached to willingness to participate in PPO networks.  (Qualifications for existing subsidies for rural health providers would not be affected.)

To qualify for new subsidies from Medicare, rural hospitals and medical groups should be required to sign a contract with at least one private health plan, such as one of the new Preferred Provider Organizations (PPOs) envisioned in both the House and Senate prescription drug bills.  This would help alleviate concerns that it will be impossible to set up health networks in rural areas, because rural hospitals are local monopolies and are not obliged to make deals with health plans and compete for business.

Health care in rural areas is problematic.  It is hard for rural counties to recruit and maintain clusters of health specialists -- there simply aren't enough patients to go around.  In an attempt to keep up with urban and suburban health providers, rural hospitals and doctors routinely appeal for extra funds from Medicare.

This year's Medicare bills continue the practice of adding subsidies for rural health providers.  For example, the House bill (H.R. 1) allocates $25 billion dollars over 10 years for additional subsidies or payments for rural health care. 

However, the flip side of rural health care is that hospitals and medical offices tend to be local monopolies.  They want funding levels akin to those of city and suburban hospitals, but they do not want to compete for business from various health plans, as city and suburban health providers must.

Both the House and Senate prescription drug bills envision a new system of regional PPO plans -- health plans that have both in-network benefits (with low copayment rates) and out-of-network benefits like those in Medicare's government-run fee-for-service program.

But health plans worry that they will not be able to cut deals with rural health providers, and thus could not form networks in rural areas. 

To some extent this problem is inevitable.  Health plans will never be able to form networks and foster competition in truly depopulated areas. 

But rural areas often contain mid-sized cities and towns with hospitals and other medical facilities.  The problem is, there may only be one hospital, or one medical group specializing in a given form of care.

With local monopolies, rural health providers face no competition.  Health plans cannot offer to steer extra patients to them in exchange for discounted rates -- monopoly hospitals will get all patients anyway.

This is why rural areas have few choices of health plans -- health plans often can't make a profit if the local health providers cannot be made to compete against each other.  For example, the Balanced Budget Act of 1997 vastly increased payment rates Medicare would pay HMOs and other types of private health plans if they expanded into rural areas.  Few did.

Many rural legislators are anxious to get more private health plans into their districts.  Others are tired of trying in vain.  But in any case, some modern health plans are gradually learning how to better manage their enrollees' care, and are adding quality control programs and programs for patients with chronic illnesses that would be beneficial in rural areas.

One way to help health plans expand into rural areas would be to make new Medicare subsidies included in the Medicare prescription drug bills contingent on rural hospitals' and medical groups' willingness to contract with at least one private health plan that offers Medicare coverage in the area.

This would accomplish two goals:  (1) it would help alleviate health plans' concerns that they would not be able to create in-network benefits in rural areas, and (2) it will give taxpayers an assurance that rural health providers are willing to take on additional responsibilities in the public interest, in exchange for additional public subsidies.

Link:
CentristPolicyNetwork.Org 2003 Medicare and Prescription Drug Resource Page