Thomas Gounley

TGOUNLEY@NEWS-LEADER.COM

Twice this year, OCH Health System owner and CEO Paul Taylor thought he had avoided the crisis.

Last fall, the Centers for Medicare and Medicaid Services, a federal agency, began asking questions about the inpatient volume at the health system's Ozarks Community Hospital in Springfield. Then the agency told Taylor that, based on his responses, it would terminate the agreement allowing the facility to be paid by Medicare.

The move, scheduled to be effective Feb. 4, would have forced hospital operations to stop immediately. Negotiations ensued between CMS and OCH. Then, a week before the deadline, CMS wrote Taylor and said it was "rescinding our decision to terminate."

The relief didn't last long. By March, inspectors were back at the Springfield hospital, again asking about inpatient volume. Taylor was told the agreement would be terminated effective June 20. He submitted more "plans of correction" — formal pledges to make changes.

On May 23, CMS again wrote Taylor and said the June termination was "suspended," pending further review.

"I'm literally celebrating with my people, saying, finally we're out of the woods," Taylor recalled last month.

That celebration, too, was cut short. In mid-July, an email arrived from CMS. OCH did not meet the federal definition of a hospital, the agency said, which "requires a facility to be primarily engaged in providing inpatient services." There was nothing in the notice inviting plans of correction.

Termination was to take place Aug. 1 — and this date would stick.

Why did a federal agency change its mind about closing OCH? The two sides disagree

On July 18, Taylor sent a memo to OCH staff, and then to the media. Inpatient admissions were ceasing immediately. The surgery department and emergency room would close July 29. Two hundred people would be laid off.

In addition to the immediate effect on those employees, experts say the hospital's closure also raises concerns for similar facilities around the country.

Days after sending the memo, Taylor said the hospital's demise appears to have been unknowingly set into motion by an industry push toward outpatient work, and subsequent CMS scrutiny that prompted the closure of the hospital's geriatric psychiatry program in 2013.

Even with those factors, however, the hospital would likely still be operating if Missouri had voted to expand Medicaid under the Affordable Care Act, Taylor said. The state's Republican-dominated legislature, however, has shown no interest in doing so.

In separate interviews, leaders of the Missouri Hospital Association and the National Rural Health Association said a key component of the federal definition of a hospital is too vague and called on CMS to clarify it.

The current situation, they said, leaves small hospitals in the dark about how they can avoid Ozarks Community Hospital's fate.

“This is the type of issue that has the potential to have a significant impact on rural America," National Rural Health Association CEO Alan Morgan said.

Ozarks Community Hospital to lay off 200, blaming federal government decision

Hospital opened 16 years ago

The hospital facility at 2828 N. National Ave. was named Doctors Hospital of Springfield when it opened in January 2000 and became known as Ozarks Community Hospital in 2008. For years, that name referred to the entire health system, but it has recently been replaced with the OCH Health System moniker, with Ozarks Community Hospital referring only to the Springfield hospital.

OCH Health System also operates a hospital in Gravette, Arkansas, and numerous clinic facilities around Gravette and southwest Missouri.

When it opened, Taylor said, the Springfield hospital had 45 beds, but never more than 16 to 20 inpatients. So the health system looked to add a new operation, one that would fill beds while meeting a community need. In 2001, it opened a 10-bed unit for geriatric psychiatry patients — individuals aged 65 and older who typically came from nursing homes after exhibiting violent or aggressive behavior.

For the next decade, the geriatric psychiatry unit would provide the bulk of OCH's inpatient admissions, Taylor said. The unit's 10 beds would typically be full at any given time, and then there would be an additional five to 10 inpatients.

In 2009, the Dartmouth Institute for Health Policy and Clinical Practice listed OCH's Springfield hospital as the least expensive hospital in the country for Medicare patients. Taylor cites that today as evidence the facility was providing efficient care.

Taylor said OCH's Springfield hospital was gradually affected by a push within the health care industry to do more work on an outpatient basis, since it is typically less costly than inpatient care.

Herb Kuhn, CEO of the Missouri Hospital Association, said that the outpatient push is in some ways a natural evolution aided by scientific and technological advances. Select procedures that used to require multiple nights in a hospital now can result in a patient leaving the same day they came in.

About 20 years ago, Kuhn said, the average rural hospital provided about 80 percent of its services on an inpatient basis, with the other 20 percent outpatient. Today, those figures are basically the opposite.

All payers — both governmental and private insurance plans — have pushed to move care to an outpatient basis, OCH spokeswoman Andrea Harp said. But CMS, which administers Medicare and Medicaid reimbursement for the federal government, was a major player.

As a result of the push, Taylor said, the count of non-geriatric psychiatry inpatients at the Springfield gradually dropped to three or four. At the same time, the system began aggressively expanding clinic operations around the region, as it sought to address what it saw as another need in the local market: primary care for Medicaid patients and the uninsured.

"We went from a small hospital that had a dozen or so patients in the hospital maybe to a pretty large clinic organization that was taking care of a lot of Medicaid patients," Taylor said.

'A protest and a cry for help'

The next key factor in OCH's current predicament, Taylor said, was CMS' Recovery Audit Program.

CMS' website says the program's mission is to identify and correct instances in which Medicare overpays or underpays for services. Taylor said program staff also were authorized to review whether the service was justified.

"For the most part, for hospitals, the determination was, if you had treated a patient on an inpatient basis, they would review that stay and say, you could've taken care of that patient on an outpatient basis," he said.

At first, Taylor said, the program didn't impact OCH very much, because the system had so few inpatient admissions to review. But then, in 2013, "they attacked my geri-psych program," Taylor said — saying the work didn't need to be done on an inpatient basis.

While OCH could — and did — appeal that determination, for the time being the ruling meant the health system wasn't paid by Medicare for its geriatric psychiatry patients. Taylor sent a letter to congressional leaders in June 2013, saying he was "writing both as a protest and a cry for help."

"OCH will win the inevitable appeal but we may not still be here to enjoy the victory — and if that sounds melodramatic, it is at least certain our [geriatric psychiatry] service will not still be here," he wrote.

Kuhn confirmed that other facilities in the state have faced challenges because of the Recovery Audit Program and said there have been efforts at a federal level to reform it.

“It has been so problematic, with so many claims being denied,” he said, adding that the many subsequent appeals meant hospitals could wait two years to hear a final decision.

OCH did win the appeals, Taylor said. But it was too late for the geriatric psychiatry unit, which OCH closed in August 2013.

"Now you take a hospital that had about 16 patients in the hospital, and now you've got a hospital with about six patients," Taylor said.

'We fought hard to get Medicaid expansion'

Taylor said there is "no doubt in my mind" that Ozarks Community Hospital would not be closing if Missouri had expanded Medicaid.

"If they'd expanded Medicaid, I would have been able to fight back against Medicare, against CMS, and we wouldn't be standing here," Taylor said.

In recent years, Taylor said, about 40 percent of the patients showing up at his emergency room have been uninsured. Many of them would have been covered by Medicaid under the expansion.

"If I was getting paid for many of those patients, which I would have been had they expanded Medicaid, I would have had the revenue to perhaps continue to support my inpatient program," he said.

"We fought hard to get Medicaid expansion," Taylor continued. "I went all over the southwestern corner of the state trying to explain why it was so important that Medicaid be expanded."

By 2015, Taylor said, "the only patients being admitted to my hospital were patients following surgical cases, where they needed to be in the hospital a few days. ..."

"Had I continued to pay internists and psychiatrists and other folks to be available for the few inpatients we had, it would have bankrupted us."

'What's the standard?'

Taylor said inspectors with the Healthcare Facilities Accreditation Program asked about Ozarks Community Hospital's inpatient numbers as they wrapped up an inspection last October.

He said he believes CMS may have been trying to crack down on "small specialty hospitals that are really ambulatory surgery centers," sometimes focusing on performing profitable procedures without providing other, more costly, medical care a community needs.

"We're not that, but we believe we got caught up in that dragnet," Taylor said.

Taylor said he's not sure why CMS twice reversed plans to terminate OCH's Medicare agreement earlier in 2016 — first in February, then in June. During the entire time he was providing inpatient numbers to CMS, Taylor said, he was unable to get the agency to define what it means for a hospital to be "primarily engaged" in inpatient services — core wording within the federal definition.

"How can they enforce this rule against me when they can't even explain to me what the rule means?" Taylor asked.

When the News-Leader asked CMS about the wording, spokesperson Michael Fierberg responded: "There is no hard and fast rule about 'primarily engaged,' per se. But the wording means that providing inpatient services must be the PRIMARY way that the facility renders medical care. In this case, it is not."

Fierberg said "what matters is the relationship between the number of inpatient admissions for this facility contrasted to the number of people served as outpatients." But he didn't state what the required ratio is.

National Rural Health Association's Morgan, told of CMS' response, called it a "mistake" and said the agency "should’ve had a hard and fast rule on the front end of this.” He said rural hospitals appear most likely to be affected by how CMS interprets the definition, since those hospitals generally have a low patient volume and serve a population that is disproportionately elderly and low-income.

“These types of ambiguities just are not workable for rural providers,” Morgan said, although he added he was "optimistic that CMS will do the right thing" in the long term.

Kuhn, who was the No. 2-ranking CMS official during the Bush administration before becoming head of the Missouri Hospital Association, said the agency he once helped lead needs to explain its thinking on this particular decision

“It does seem to be a puzzling standard," he said.

A second CMS spokesperson subsequently told the News-Leader that rural hospitals are actually the reason the agency won't give a hard definition.

"CMS has not communicated a fixed standard or quantitative definition of 'primarily engaged' in the delivery of inpatient services due to the potential for unintended consequences to rural hospitals," spokesperson Julie Brookhart said. "CMS interprets primarily engaged on a case-by-case basis, relying on investigation findings, the capabilities and resources available to the hospital, the needs of the community it serves, and other relevant data."

Morgan and Kuhn said they thought OCH might be the first hospital in the nation to be terminated for not being "primarily engaged." Brookhart, however, said at least five other hospitals — in Arizona, Texas, West Virginia, and Michigan — have been in the same position since 2009. None of those terminations, however, appear to have attracted significant media attention.

'I want to prove that we were doing nothing wrong'

Taylor said he received an email from CMS on July 12 telling him the facility's agreement would be terminated effective Aug. 1.

Originally, he said, the agency told him it planned to publish formal notice of the decision on July 25, and Taylor figured he had some time to try to work to prevent it. But notice was ultimately published in the News-Leader on July 16. Brookhart said CMS is required to publish notice 15 days prior to termination.

By the time public notice was made, Taylor realized that he could request his hospital license from the state be suspended for up to 180 days if he gave two weeks notice. He already planned to appeal CMS, he said, and there's a chance he could get a ruling on his appeal within the 180-day period and simply request his license be activated again.

Democratic Sen. Claire McCaskill wrote to CMS on July 15, asking the agency to allow the hospital's Medicare agreement to continue until there's a final ruling on OCH's appeal. The next week, Sen. Roy Blunt and Rep. Billy Long, both Republicans, sent a joint letter requesting the same.

CMS, however, stayed firm. The Springfield hospital's emergency room and surgery department closed in late July. Those are the two components, along with inpatient admissions, that require a hospital license.

OCH Health System's clinics throughout the region — including those at 2828 N. National Ave. — remain open and accepting Medicare and Medicaid.

Taylor said he expects them to serve more patients in 2016 than last year. The clinics, however, will be paid less by Medicare for providing the same services because the clinics are no longer affiliated with a hospital.

"When you don't have the hospital providing overhead support for those clinics, it's a lot harder to keep them open," Taylor said. "Medicare revenue declines by 40 percent."

Taylor said he doesn't think OCH's 25-bed Gravette hospital will come under the same scrutiny because it is typically full, and because it's the only hospital in the city of 3,200 near Bentonville.

Even if OCH's appeal is successful, Taylor said he doesn't know whether Ozarks Community Hospital will be able to reopen. The system, he said, just might not have the necessary financial resources.

Taylor, however, said appealing still makes sense — because he wants to be vindicated.

"I'm going to win on appeal even if there's no way I can reopen the hospital, because I want to prove that we were doing nothing wrong."