Editor's note: The Medicare reforms discussed in the article below were signed into law on December 8.

More than 54 million people live in rural America, including 9 million Medicare beneficiaries. All that separates them from untreated burns, unmended broken bones and unnecessary death is a safety net of about 2,200 hospitals.

The question on the minds of rural families, and the politicians who represent them, is "Where is the financial safety net for these hospitals?"

During the 1990s alone, 186 rural hospitals closed.¹ A full 34% of the survivors continue to operate in the red today, their status as precarious as an ARDS patient's. However hard they've squeezed the teats, administrators of rural health care institutions have managed to wring precious few drops of milk from that well-fed Holstein cow known as the federal government.

Things changed for the better in 1997, when Medicare's overseers created new designations that enabled rural facilities to qualify for more funding. But an even more historic shift is at hand.

Tucked inside the proposal to revamp Medicare now working its way through Congress, overshadowed by the closely watched debate about prescription drug benefits for seniors, hidden away like a produce stand on an Appalachian back road, are several amendments designed to help rural facilities recruit and retain physicians by raising their Medicare reimbursement rates.

What's more, rural hospitals have found a reliable ally in Health and Human Services Secretary Tommy Thompson, a man who hails from rural Wisconsin and has taken up their cause.

All this attention from Washington has them happy in the Heartland.

"Ten years ago, the focus was on urban hospitals," said Bill Sexton, chief executive officer of a 25-bed hospital in Oregon. "More recently, we've seen some shift to pay attention to rural facilities."

It "really is a great time for rural America on a national level," added Alan Morgan, vice president of government affairs for the National Rural Health Association in Alexandria, Va. "Tommy Thompson comes from rural America and is putting the emphasis on rural health care. He's a great advocate. And there is obviously a recognition within Congress that you need to treat rural hospitals differently."

Modest Budgets
Because of their small size and modest budgets - rural hospitals have a median of 58 beds as opposed to 186 for urban hospitals, according to the American Hospital Association (AHA) - they are less able to absorb the financial burdens imposed by the Balanced Budget Act (BBA) and the Health Insurance Portability and Accountability Act (HIPAA), two government initiatives that have gouged the fiscal underbellies of all hospitals.

"Rural hospitals operate in a different health care delivery environment than other hospitals," Morgan declared. "They operate in areas with the highest health disparities in the population. Their patients have the fewest health care options open to them. Patients' health care status is worse than in urban or suburban areas."

Because rural hospitals typically have lower volumes of patients, however, they fall into a different payment classification within the prospective payment system of Medicare and Medicaid, he explained. That's why major metropolitan hospitals tend to hog Medicare's trough.

"Rural areas have higher illness rates, more elderly and more low-income individuals than in the general population," Morgan said. "That's the grain of rural America. That type of patient mix makes it a unique challenge."

Indigent Care
Treating a rural population often means not getting paid. All hospitals offer indigent care, but Sexton's 25-bed facility - Providence Seaside Hospital, in the northwest corner of Oregon's coast - provided more than $1.1 million in nonreimbursable indigent care last year alone.

"The old story is 'no margin, no mission,'" he said. "If you're not making ends meet, it's difficult to give things away. That's been the story for rural hospitals for decades. We have more elderly and indigent populations than our urban counterparts. And the smoking rate is generally higher."

Providence Seaside sees it all: pneumonia, COPD, heart problems and cancer. Many patients have temporary jobs and may or may not have health insurance. "Some will be in to receive the service, and we can never find them again," Sexton said. "They go to another town and do the same thing and leave no forwarding address."

Lumberjacks hurt while felling huge logging trees and fisherman caught in rough waters keep the hospital's ER busy. "We sit at the mouth of the Columbia River," he said. "Fishermen go out in 30-foot swells sometimes. When the tide comes in, all of a sudden ocean water can wash over boats and capsize them." Tourists, who don't know the river, get stranded on sandbars.

Faced with these challenges, Sexton's hospital was losing money until Medicare created a special payment status called "critical access hospital" for facilities with 25 beds or less that operate 15 acute care beds and 10 "swing" beds.

Critical access status allowed hospitals like Providence Seaside to get reimbursed at cost by Medicare, a higher reimbursement rate than that afforded by the prospective payment system, because payment is not tied to patient volume.

Thanks to this legislation, which Sexton helped create, his hospital went from a negative 4% margin to a positive 1% margin. "That's not much, but it means you're breaking even, at least," he said.