Hospitals are searching for money for residency slots, better reimbursements

Arkansas health care providers have put many of the challenges they faced during the COVID-19 pandemic behind them, but like a virus that adapts to new conditions, the hurdles facing hospitals and their systems remain resistant to an easy cure.

One of the most pressing issues hitting hospitals is a national physician shortage. Baby boomers are retiring, but Arkansas has been laying the foundation to meet rising demand through the addition of medical schools in the state. The University of Arkansas for Medical Sciences is the state’s legacy medical school and has been joined in recent years by Fort Smith-based Arkansas College of Osteopathic Medicine and the New York Institute College of Medicine in Jonesboro, which is affiliated with Arkansas State University. In late October, the Alice L. Walton School of Medicine (AWSOM) in Bentonville secured preliminary accreditation status and is on track to begin classes in July 2025.

While the state may be on the path to crank out scores of new doctors annually, placing those graduates in residency programs in-state remains a challenge and is crucial to keeping them here.

“Between one-third and one-half of Arkansas’ medical school graduates leave our state for residency training,” said Bo Ryall, Arkansas Hospital Association (AHA) CEO. Studies show that where medical students conduct residency greatly influences where they practice after they receive their education.

Ryall is complimentary of the momentum that has been building with new medical programs and legislative efforts to increase residency training.

“We applaud the efforts of the Arkansas Legislature in creating the Graduate Medical Education Residency Expansion Board in 2019 and Governor Sanders’ recent leadership in appointing the board and ensuring the planning grant program authorized by the original act has funding,” he said.

Ryall hopes that as the board’s work gets underway, there will be flexibility with the planning grant program that will fund residency slots.

“Given that our member hospitals have varying levels of experience in managing residency programs, it is essential that the planning grant program offer funding opportunities that cater to all stages of development. Whether a hospital requires start-up resources to establish a new residency program or is looking to expand an already successful and well-established program, the grant program must be flexible enough to support the full spectrum of needs,” said Ryall.

He noted that Congress has made progress on the issue of residency slots too. Under the Consolidated Appropriations Act of 2023, 200 new Medicare-supported graduate medical education slots are to be created in fiscal year 2026. Under the proposed distribution framework, teaching hospitals are expected to receive 10% of the slots, focusing on rural hospitals, hospitals in states with new medical schools, hospitals serving Health Professional Shortage Areas and more. Ryall said the AHA will advocate for Arkansas’ hospitals to be awarded as many slots as possible.

Chris Barber is the president and CEO of St. Bernards Healthcare in Jonesboro. He is also complimentary of the progress in medical residency slots in recent years, but observes that the needs are great.

“We’ve seen an increase in residencies throughout the state, but it’s not enough,” said Barber. “The challenge has been funding from the federal government with that piece. How do you secure funding to expand residency slots because there’s such a tremendous shortage of practitioners throughout the nation and then certainly in Arkansas? There are paths forward now with some rural residencies that are being explored. I’m hopeful and optimistic that you’ll see additional hospitals continue to build that out in various specialties.”

RURAL WAGE RECLASSIFICATION
Washington Regional Medical Center President and CEO Larry Shackelford, who also chairs the AHA, said a 2018 federal law that allowed for rural wage reclassification helped his system to more creatively address the residency challenge. In short, the 2018 change in classification lifted the Medicare cap on residencies and allowed funds to be used in different ways.

“Since that time, we have been able to start a brand-new internal medicine program. We have 16 new residents that are here now, and next year that service will be fully going with 24 residents,” said Shackelford. “We are working on ER residency. We’ve got our application that is pending right now. We think there will be probably 18 emergency residents when that program is fully going. We have an application for a neurology residency that is in process, and when that’s fully going, there will be eight. And then finally, we have added a rural track family practice. There are four residents now, and when that program is up and going, we think there will be 12.”

Shackelford hopes the upcoming legislative session will continue to seek creative solutions to the problem. He suggested that state-federal partnerships will be key to that path.

“What I would like when the new state legislative session begins is to continue to look for opportunities if there are groups and hospitals that want to expand what those training opportunities are to help fund to get those startup costs covered,” he said. “Once the programs are going, Medicare and the feds can help keep it moving forward.”

REIMBURSEMENT RATES
One of the longest-running challenges for health care providers centers around Medicaid, Medicare and private insurance reimbursement rates. Medicaid and Medicare are set at the federal level, with some flexibility on Medicaid at the state level. Private insurance reimbursement rates for services are negotiated between insurance companies and providers.

Barber said his health care system, which saw a 145% occupancy during the height of the pandemic, is still dealing with the after-effects of the worldwide plague.

“The costs have not come down. Medicaid and Medicare in particular have not really kept up with the inflationary costs. Basically, we get a net neutral increase, or it’s flat year-over-year at the state level, and we’re one of the lowest reimbursement states in the nation. So the funding just has not kept up,” said Barber.

He added that physicians are in even worse shape in some of their reimbursement plans.
“Hospitals are in the position where they have to support multiple physician practices because the economics don’t work in those situations. This is putting a strain on systems and the communities that we serve, and I’m concerned about rural hospitals that we see throughout the state. If you look at the most recent report, about 39% of them are in the red in the organization. So funding is important,” he said.

Ryall said Arkansas hospitals have been left out of any fee-for-service Medicaid rate increases for inpatient care since 2007. In that year, the daily rate rose from $675 to $850. Hospital fee-for-service outpatient rates last changed in 1992 and were actually decreased from the 1991 rates.

“Medicaid is only part of the reimbursement equation, though,” said Ryall. “Medicare and commercial insurance reimbursement are also unsustainable at current levels. As inflation has continued to increase, traditional Medicare payments have only increased about 2%, Medicaid has remained flat, and only a few commercial insurance plans have been open to negotiation.”

Ryall contends that without higher reimbursement rates, Arkansas hospitals will struggle to remain financially viable.

“When reimbursement cannot keep up with the cost of care, hospitals are forced to discontinue service lines or reduce specialty care. Currently, 50 of our state’s 75 counties do not have any hospitals with labor and delivery departments,” said Ryall.

“It is within the purview of both the state and the federal government, along with commercial insurance companies, to increase reimbursement to hospitals and health care providers. Ultimately, the true impact of these financial shortfalls is reduced access to care for patients in our state. When hospitals have more, they can do more to protect and promote the health of all Arkansans,” he added.

Shackelford said a problem with the federal reimbursement rate system is that states are indexed against each other. He has advocated for an additional boost to states that are below the index median when compared to other regions across the country.

“When there are indexes and you’re indexed to one another, then there’s no real progress that’s been made,” said Shackelford. “So don’t penalize those that are already being paid greater than the median, but maybe prop up those that aren’t. That is a tactic that I think would work, whether it’s a geographic practice index or a geographic wage index. That’s one of the things we’ve been advocating.”

Barber says he and his peers will continue to push Congress and the state legislature for more money and flexibility to address funding needs. While he’s mindful of the bottom line, he’s also keenly aware his business is promoting health and saving lives.

“Access to care is important and being able to have appropriate funding to continue to advance that — even though we embrace technology and do as much as we can — we need to have a presence in those rural communities to meet the needs of our population,” he said.