Between one-third and one-half of all nursing centers are in rural areas. Compared with urban skilled nursing providers, rural providers often face less competition for market share, resulting in strong occupancy.
Another strength for rural providers is the low penetration of Medicare Advantage, which offers lower reimbursement rates than traditional Medicare. In addition, some rural providers may benefit from a higher private-pay census due to fewer home care and assisted living options in their market. Less competition and less downward pressure on reimbursement rates have created more positive economic environments for many in the rural sector.
Though occupancy may be strong, a primary challenge for rural providers is the large distances between stakeholders, such as hospitals and pharmacies. Rural providers also face challenges relative to the makeup of their residents, many of whom pay for long term care through Medicaid, which pays a much lower daily rate for skilled nursing care compared with other sources such as Medicare. In addition, labor can be a challenge as the talent pool in rural areas may be limited.
The shift toward value-based payments carries significant impact for the entire profession. The challenges and opportunities vary between urban and rural providers, and the Centers for Medicare & Medicaid Services (CMS) appears to be aware of these differences.
Congress and CMS are attempting to address the unique needs of rural providers through advanced technology and regulatory exceptions so that seniors in rural areas have proper access to quality long term and post-acute care. While such accommodations will be welcome by many rural operators, the lack of actionable data illustrating the challenges and opportunities unique to the rural skilled nursing market must be addressed.

The Quality Disparity

Because of distance and available resources, rural skilled nursing properties may have difficulty accessing ancillary services or resources that are not provided in-house. For example, the nearest pharmacy could be several miles away, leading to challenges in acquiring medicines without advanced notice or on weekends.

In fact, according to a study from Oregon reported in HealthDay, a correlation exists between limited pharmacy access and higher rehospitalization rates among rural seniors, compared with their urban counterparts. Hospitals also may be farther away than those in urban or suburban settings, leading to longer travel times during acute episodes.

Indeed, a recent study published in JAMA Surgery found high-risk injured rural patients using 9-1-1 medical services had a higher rate of transfer between medical settings (3.2 percent, compared with 2.7 percent for urban patients) and longer travel distances as a result of those transfers. Transitions in medical care, such as a transfer from a regional hospital to a trauma center during a major medical episode, are particularly vulnerable moments for patients and can lead to higher transportation and care costs.

While rural providers may incur additional costs from travel and other expenses, labor is often more affordable in rural areas. Although labor is sometimes less expensive, an adequate stream of qualified labor in the rural setting may be lacking.

Adequate Staffing A Challenge

A study published in Health Services Research led by researchers from Miami University and the University of South Florida found that staffing is one reason quality of care may be lower in rural nursing centers than in their urban counterparts.

In the study, rural properties had fewer average hours per patient day staffed by registered nurses, occupational and physical therapists, and others. The researchers credit 3.8 percent of the disparity in quality between urban and rural nursing centers to the lower staffing levels in rural properties.

The study found that overall staff levels for certain rural providers are only 88.3 percent of the staff levels in urban areas, and staff levels for registered nurses were at only 67.3 percent of the staff level in urban settings.

The researchers also pointed to rural providers’ higher share of Medicaid residents, government ownership, and being independently operated (rather than part of a multifacility chain property) as explanations for the quality disparity between rural and urban providers.

Rural properties are usually smaller than urban properties and have smaller budgets. The smaller the budget, the more dependent the property may be on its revenue sources. For rural providers that are heavily dependent on Medicaid reimbursement, they may be constrained by a payer source that rarely reimburses for services at a rate greater than the actual cost of care. In fact, in many instances, Medicaid reimburses at a rate under the actual cost of care, according to a report by the American Health Care Association titled, “A Report on Shortfalls in Medicaid Funding for Nursing Center Care.”

Nationally, the rate that Medicaid paid skilled nursing providers in June 2016 was $198 daily, on average, according to data from the National Investment Center for Seniors Housing & Care (NIC). Compared with Medicare’s $499 average revenue per patient day, Medicaid’s relatively low daily reimbursement rate likely poses a challenge to rural providers with large Medicaid populations.

Competition And Market Share

Rural properties usually face less competition for market share than urban properties. Fewer direct competitors, and fewer indirect competitors such as assisted living properties, typically exist in their areas. Home health as an alternative to a long term or post-acute care provider is also less feasible in this setting. A Health Affairs analysis found that most people who are homebound live more than 30 miles from a “high-volume” home health provider.

While a lack of competition may help skilled nursing providers increase market share, having fewer potential partners also means participating in accountable care organizations and bundled payment programs may be more difficult. As a result, these rural properties could face difficulties in participating in shared savings models prioritized by CMS through the Comprehensive Care for Joint Replacement model and other programs.

Critical Access Hospitals (CAHs), which are rural hospitals that get special treatment from CMS because they provide services in areas where no alternative exists, may encroach on skilled nursing market share for post-acute care through “swing beds.” A CAH may provide skilled nursing care in up to 25 of its inpatient beds under certain circumstances.

The Frontier Community Health Integration Project Demonstration, a new pilot program from CMS, will allow participating CAHs to add 10 additional beds to be used only for skilled nursing care. Swing beds only house post-acute patients, whose care is usually reimbursed by Medicare at a higher rate because of acuity and therapy needs. This means that rural skilled nursing providers could miss out on a greater percentage of this attractive patient pool under the CMS pilot.

Health Care Reform Takes Rural Needs into Consideration

On the surface, these challenges may paint a gloomy picture for rural skilled nursing providers, but not all is lost. Urban providers have challenges of their own, and many rural properties appear to maintain high occupancy because of the lack of competition from other skilled nursing providers or alternative housing and care solutions, such as home health and assisted living.

Rural providers also will soon benefit from the Rural Health Care Connectivity Act of 2015, which became law in June of this year. The act makes rural nonprofit providers eligible for Federal Commerce Commission funds, which can be used for improving broadband and telecommunications infrastructures.

With the introduction of these funds, rural providers may be able to employ telehealth as a means of reaching residents located far from the center. Telehealth could be especially valuable in follow-up care for post-acute patients, by monitoring the health of these patients to keep readmissions low. The Fiscal Year (FY) 2017 Labor, Health and Human Services, and Education and Related Agencies Appropriations Bill allocates over $150 million for rural health programs, up $3 million from FY 2016.

Another reassurance for rural health care providers came from acting CMS Director Andy Slavitt. In testimony before the Senate Finance Committee, he cited the unique needs of rural providers as one reason his agency was considering delaying changes to provider payment initiated by the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA).

CMS made accommodations for rural health care providers by raising the required participation threshold in the final rule published in October of this year. Providers can also choose to gradually implement some requirements, which rural providers had asked for during the comment period for the proposed rule.

While rural providers may face some challenges, increased awareness by policy makers and the potential for technology could help them find opportunities to improve quality of care—while improving their bottom lines.

Data, Data, Data

What rural providers, policy makers, and investors need first and foremost is better data collection in the skilled nursing sector. From operations to regulations and finance, it’s clear that urban and rural properties cannot be compared directly. Stakeholders need a rich data source that provides actionable insights into the needs of rural skilled nursing providers and their residents. And those data should be easily accessed and understood, too.

Right now, there are limited data to highlight these two sub-markets of the skilled nursing sector. Most of the data today come from government sources and are typically 12 to 18 months old and presented in a format that makes it difficult to distill thoughtful and actionable analyses.

In fact, the Government Accountability Office issued a report in October of this year recommending that CMS make skilled nursing data more readily available for consumption by the public and ensure the accuracy of those data.

In the meantime, some in the profession are looking to fill the data void with their own reports. NIC recently published its quarterly Skilled Nursing Data Report, which includes data collected directly from skilled nursing providers within 75 days of the end of the previous quarter.

A likely next step of the report is to break out the data into urban and rural properties to understand what the patient day mix and revenue per patient day are in these two sub-markets. For example, anecdotally, the impression in the industry is that most rural properties are more highly dependent on Medicaid. Empirically, the sector is at a loss to validate and expand upon that theory until more robust data that reflect current market dynamics are available.

Armed with the right data, all stakeholders in the sector will be better informed to make sound decisions that lead to thriving skilled nursing centers and—most importantly—high-quality care for the nation’s frail elderly.
Liz Liberman is a health care analyst at the National Investment Center for Seniors Housing & Care. She can be reached at eliber