Study evaluates new model for funding rural healthcare in Pennsylvania

Community hospitals are a vital source of healthcare for rural populations in the US, yet many rural hospitals are in financial distress, with more than 130 rural hospitals closing over the last decade.

According to Dennis Scanlon, director of the Center for Health Care and Policy Research, rural health is particularly relevant to Pennsylvania, which is home to over three million rural residents. Prior research has shown that the 27% of Pennsylvanians who live in rural areas experience higher rates of chronic disease, substance use and poverty than their urban counterparts.

In response to the challenges faced by healthcare providers in rural Pennsylvania, the Center for Medicare and Medicaid Innovation is funding the Pennsylvania Rural Health Model. This $25m, six-year project represents a new model for funding healthcare that aims to improve health for patients, increase financial stability for rural hospitals, and decrease healthcare costs.

A team of researchers from Penn State’s Department of Health Policy and Administration, Center for Health Care and Policy Research, and Pennsylvania Office of Rural Health studied the launch of this new model in 2019, and a recent article in Journal of Healthcare Management summarised the lessons the researchers learned about implementing a new model for funding healthcare.

40% of rural hospitals are in danger of closing for financial reasons, according to a 2020 study from the Center for Healthcare Quality and Payment Reform. Additionally, the researchers said prior studies have shown that Americans pay more for health care but have poorer health outcomes than people in other wealthy nations.

Currently, most healthcare providers in the US use a fee-for-service model. In this model, healthcare providers charge for each service they provide, ranging from a doctor’s examination to an X-ray to different lab tests during a single visit.

Scanlon said the fee-for-service model potentially incentivizes providing extensive and sometimes unnecessary care rather than focusing on patient outcomes.

In the Pennsylvania Rural Health Model, participating hospitals worked with the state’s Rural Health Redesign Center to develop a fixed budget for all six years of the project. This is a ‘global budget’ process where, instead of billing and paying for every individual service rendered, the hospital receives the amount specified in its budget and uses those funds to provide care to each person the hospital serves.

The hospitals’ revenues come from the same insurance companies and governmental sources, but in lieu of varying payments based on services rendered, the hospitals receive a consistent payment each month. If the budgets are well-constructed, the hospitals will be able to provide for their communities’ medical needs while generating profits through efficiency.

By reviewing primary documentation and interviewing 20 participating stakeholders, the researchers examined the challenges and lessons learned during the development and launch of the Pennsylvania Rural Health Model.

According to the researchers, one of the lessons learned was that change is slow and gradual, so timelines for transitions must be realistic.

The researchers also concluded that participating hospitals need a ‘champion’ in the system who embraces the vision of the new model and educates others about its value.

More data collection and study will be required before the full impact and potential of this new model is truly understood, said the researchers.

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