St. Mark’s New Rural Emergency Hospital Designation and What That Entails

This is a recurring column sharing public information and insight on St Mark’s Medical Center, the needs for health care in Fayette County, and a path forward, researched by La Grange’s Sam Wilson.

In 2019, the Texas Department of Health and Human Services list of general and special hospitals (updated 3/1/2023) shows St. Mark’s Medical Center (SMMC) as providing, general hospital, surgery services, emergency department, diagnostic Xray, lab services, and obstetrics with 55 medical/surgical beds, four intensive/critical unit care beds, two postpartum beds, four labor and delivery, recovery and postpartum beds for a total of 65 beds. It is generally known in Fayette County that the hospital was bult as a 65-bed hospital when it first appeared on the tax rolls (2012). The American Hospital Directory website reports that SMMC is a 38-bed not-for-profit hospital. The number of beds is significant as it impacts how a hospital is classified. Apparently, while built as a 65-bed hospital, for some time it has been actually operating at a reduced number of beds in the 38 to 45-bed range.

Critical Access Hospitals (CAH), are a Centers of Medicare and Medicaid (CMS) category under rural hospitals for those hospitals that are more then 35 miles from the nearest hospital, with no more than 25 inpatient beds, who maintain an average length of stay less than 96 hours, and furnish 24/7 emergency care services. SMMC does not and has not qualified as a CAH. It has been a rural short term acute care hospital.

However, as of January 1, 2023, CMS offers a new rural hospital designation called the Rural Emergency Hospital (REH). According to the Rural Health Information Hub, requirements to qualify as a REH include providing 24-hour emergency services, with laboratory services identified in the Critical Access Hospital Conditions of Participation ((CAHCP), consistent with the needs of the patient population, with diagnostic radiologic services, and a pharmacy or drug storage area. REHs cannot exceed an average length of stay of 24 hours per patient. An REH must also have a transfer agreement with at least one Medicare-certified hospital designated as a level I or level II trauma center to ensure that patients can receive any emergency medical care not available at the REH. St. David’s Medical Center in Austin can fill that condition.

This designation was established to support access to outpatient medical services and reduce health disparities in areas that may not be able to sustain a full-service hospital. St. Mark’s Medical Center has qualified for this designation and as of February 18, 2023, has transitioned its operations to this designation continuing to provide the following services: 24x7 emergency services, observation, laboratory, imaging and X-ray, mammography, nuclear medicine, pharmacy, physical and occupational therapy, respiratory therapy, cardiac rehabilitation, the cardiovascular imaging center, wound care, and sleep study.

REHs are allowed to provide additional outpatient services, including behavioral health, radiology, laboratory, and outpatient rehabilitation. An REH may also establish a separate, distinct unit licensed as a Skilled Nursing Facility (SNF) to provide post-REH or post-hospital services. REHs can also serve as an originating site for telehealth services. The SMMC website states they will discontinue the following services: inpatient services, surgical services, swing bed (post-acute skilled rehab care), the orthopedic clinic, ambulatory care, and speech therapy.

The benefits of an REH include two significant elements. First, Medicare will reimburse patient services at the Outpatient Prospective Payment System (OPPS) rate plus 5% for all outpatient department services provided to Medicare patients. That suggests that the hospital should be able to make a 5% profit margin on Medicare services, assuming they control their cost and provide these services efficiently.

Second, SMMC will receive $272,866 per month in 2023. This additional payment will increase each year by the same percentage as the hospital market basket increase. This amount is paid to every REH designated hospital regardless of size or number of patient days. It is a flat fee paid monthly. This equates to $3,274,392 in additional revenue over the 105% Medicare reimbursement rate, annually. For a REH designated hospital with projected revenues, exclusive of this facility payment, projected in the $8 to $9 million range, an additional $3.3 million a year is significant and represents a potential 36 percent increase in gross revenues.

It is difficult to project the SMMC financial impact from this change (without detailed financial statements which are not made public.) However, making a few high-level assumptions based on 990 reported revenues and expenses, and the publicly stated staffing reduction to roughly 80 full time equivalent (FTE) positions, it is reasonable to expect annual revenues to be approaching $9 million, exclusive of the REH facility payment. Corresponding expenses, maintaining the current mortgage debt and building occupancy cost, might be $7.2 million, leaving a profit margin of $1.8 million. Adding in the REH facility payment of $3.3 million, SMMC should realize a profit margin after management expenses of approximately $5.1 million annually, 41% of gross revenues. This of course does reflect a corresponding pro rata reduction in management fees paid.

The question is, will the citizens of Fayette and Lee County continue to patronize SMMC under this operating model? High level rules of thumb for hospital need suggest two to three beds per 1,000 population served. The populations of Lee and Fayette County, the capture area for SMMC, would therefore theoretically support an 85- to 125-bed hospital - profitably. Yet SMMC has stumbled for many years. As a 24/7 emergency care facility that must maintain an average length of stay of 24 hours or less, will patients patronize SMMC?

With types of hospitals including the REH designation better understood, the next article will look into The Community Health Needs Assessment prepared by CHC for St. Mark’s Medical center and what that says about the need for healthcare and a hospital serving the citizens of Lee and Fayette County.