The business of rural healthcare in Kentucky


Adam Blackwell

Adam Blackwell

Administrators in rural healthcare face many challenges as rural healthcare has many unique characteristics. Small rural providers do not have the same resources as large facilities or systems which leave many tasks to few individuals. The reimbursement mechanisms, operational challenges and future healthcare models for rural care are diverse and evolving.

Legacy issues like Medicare and Medicaid cost report completion, Managed Care negotiations, and complying with coding (soon to be ICD-10) are still important, but topics acutely important for rural providers recently include: reconciliation for Medicaid wrap supplemental payments, electronic health records incentives/penalty programs and associated hardship exceptions and physician contracting.

signThe recent Managed Medicaid payment situation has involved investing significant hours trying to match insufficient data to reach proper settlement. Analysis of recent data on this topic revealed entire months of Managed Medicaid data were missing from state audits. Some providers have questions concerning the KAR statute (907 KAR 3:015, 1:680, and 3:010) which mentions vaccines as being subject to settlement. The supplemental payment and settlement process seemed simple: submit volume monthly for interim payment and later settle on the rate that was owed. When settlement did not occur for 18 months or so, data problems were not known and errors compounded.

Incentive, penalty and hardship exception regulations for electronic medical record use are misunderstood by some providers. Administrators may encounter this program annually making efficient participation difficult. For much of the program’s existence, what to expect in future audits and how certain aspects would be treated by authorities was vague. Nuances can make practitioners newly eligible or make them more easily qualified for incentives, while other specifics impact patient volume which determines eligibility.

CMS (Center for Medicare and Medicaid Services) has allowed for hardship exceptions in certain circumstances to avoid Medicare payment penalties for non-compliance. Physicians who re-assign their incentives will receive a Kentucky tax form for the incentive amount, but there is a possibility they may not owe the tax.  Professional tax advice should be sought in resolving every particular case.  Treatment of grant or incentive dollars such as these is one area of more recent relevance to practitioner contracts.

Contracts should clarify understanding about tenure and compensation, but also the job responsibilities, call schedules, circumstances and methods for separation, reasons for termination and who has to obtain liability coverage, amongst other topics. Establishing a solid contract is the first step in communicating expectations and establishing a functional, healthy and professional relationship and is something neither side should oppose. Physician contracts are evolving away from a simple salary and moving toward a base salary with performance bonuses where practitioners receive a percentage of revenue produced.

Physician Survey

Dean Dorton’s recent survey highlights some characteristics of employed physicians.  The employment contract can also feature Employee Forgivable Loans for sign-on bonuses and student debt assistance. Under these arrangements a bonus is actually a loan and if the tenure does not extend beyond the forgiveness period of the loan then part or the entire bonus is owed back, with interest. The owner of the rural physician recruiting process should be well-versed in government grant programs, loan forgiveness programs and private options to help new practitioners handle student debt. Rural providers have an opportunity to be more personal in the recruitment process and gain a strategic advantage if they fully comprehend physician contracts and can offer competitive features.


Certainly there are often opportunities for financial operation improvement in rural healthcare. Organizational classification can have a large impact financially; this simply refers to the structure of the organizations classification such as Rural Health Clinic, Federally Qualified Health Center or being provider-based under one of these classifications or for a hospital to be a Rural Referral Center or Critical Access Hospital. Owners should be familiar with all the options as some options allow a practice to bill differently, to be reimbursed differently (often being cost-based) or be eligible for different grant or incentives programs in various ways. It is important to note that the ability to offer employees certain debt-loan forgiveness or assistance opportunities vary by classification as well. In addition to advantageous practice types, ownership trends and networks are evolving.

Hospitals and systems are acquiring independent facilities or other hospitals and systems. In response to recent trends concerning continuum of care, medical homes, and accountable care networks, hospitals and health systems are employing practitioners. The future state of shared medical data and total accountability for quality are also contributing to the trend. CMS has clearly indicated that large portions of future payment will be tied to quality and readmissions. Primary care and post-acute care have thus become more strategically important to acute care revenue streams and therefore there is increased interest in these areas by large players in industry.

–Adam Blackwell is associate director of Healthcare Consulting Services at Dean Dorton Allen Ford.