When the tiny hospital can't survive: Free-standing EDs with primary care seen as new rural model

When Stewart-Webster Hospital in Richland, Ga., closed its doors early last year, anxiety spread rapidly throughout the rural town of 1,500 residents.

The critical-access hospital—one of the town's largest employers that had been around for more than six decades—could no longer overcome the financial problems that many rural facilities face: high unemployment in the community, high rates of uninsured and underinsured patients, and declining reimbursements from government payers.

“It was really a shock,” said Adolph McLendon, 75, the mayor of Richland who has gotten medical care at Stewart-Webster. Now many patients head 35 miles northwest to Columbus, Ga., if they need emergency or inpatient healthcare services.

Georgia is no stranger to these types of hospital closures. Four rural hospitals in the state have closed in the past two years, and several more either have closed or significantly reduced services since 2001. Nationwide, more than two dozen rural hospitals have shut down since 2013.

For people in rural areas, a closed hospital means they have to travel farther, sometimes hours, for care. And that could mean life or death in situations such as cardiac arrest, car accidents, workplace injuries and other emergencies.

But Georgia—where Republican elected officials have rejected expanding Medicaid, which hospital leaders say would help the finances of rural facilities—has proposed a regulatory change that some observers think could help rural hospitals across the country. In March, Gov. Nathan Deal said financially struggling rural hospitals can offer fewer inpatient services and still keep their hospital licenses. In essence, they can convert into free-standing emergency departments that stabilize and transfer patients to bigger hospitals. Under Deal's proposal, these rural facilities also could offer other basic services such as labor and delivery.

Free-standing EDs have the potential to give rural populations access to care in areas where hospitals close. But many experts say that approach needs to be part of a broader solution that mixes emergency care with beefed-up primary and preventive care. Federal and state governments, they say, also need to address how these new types of rural facilities will be funded, since money will be essential to attract and retain physicians, nurses and midlevel providers.

Brock Slabach, a senior vice president at the National Rural Health Association, said the financial sustainability of free-standing rural EDs in Georgia as outlined by Deal would be low. “Emergency departments would be nice for access, but that doesn't provide (insurance) coverage,” Slabach said. “These rural communities are still going to be having problems of paying for these services. We need to try to find a way to expand coverage to these poor populations in a way that's not going to be called Obamacare.”

Rural healthcare got a boost in 1946 when Congress passed the Hospital Survey and Construction Act, more commonly known as the Hill-Burton Act. That law provided billions of dollars in federal grants to build not-for-profit and public hospitals and other healthcare facilities. It was the federal government's first major foray into healthcare, expanding the nation's supply of hospitals by almost 34%. The growth was particularly large among poorer, rural areas in southern states.

“It was a postwar, expansionary mode for the healthcare system,” said Ira Moscovice, a health policy professor at the University of Minnesota. “People felt we needed greater access.”

But since then, many Hill-Burton facilities have become antiquated, needing major cash infusions to update design and implement new technologies such as electronic health records. Their typically low daily census makes it difficult to earn sustainable margins. As a result, stand-alone rural hospitals often turn to bigger, better-funded health systems that can make the needed investments. Many that haven't attracted a partner are struggling to survive. The average operating margin at critical-access hospitals is 0.7%, according to the latest data compiled by the Flex Monitoring Team, a university-based consortium that tracks rural hospitals.

Larger health systems, however, have become pickier about which rural facilities to absorb. They want to build networks of providers that can demonstrate strong measures of quality of care. Critical-access hospitals and other rural providers often have below-average quality scores, if they post quality data at all, studies have shown.

“My concern is rural hospitals and the communities they serve are going be left out of (accountable care networks) unless they can document they provide high-quality care at a low cost,” said Moscovice, who also is director of the University of Minnesota's Rural Health Research Center.

Every year, hospitals close for various reasons. Local residents fear for the healthcare ramifications as well as the economic ones, since hospitals are often the major employers and business drivers in their communities. Observers predict that a growing number of rural hospitals are likely to close as patients increasingly receive care in ambulatory settings. But the result may not be catastrophic if an alternative delivery system is established.

“If you have a mindset, 'We have to have a hospital, we've got to have inpatient care,' that's where I think everyone gets hung up,” said Jeff Hoffman, a senior healthcare partner at consultancy Kurt Salmon. “Instead, we need local access to emergency care, to diagnostic and treatment care, and we need access to specialists through some linkage.”

The concept of free-standing EDs began to take hold in the 1970s. Originally, free-standing EDs were designed to increase access to emergency care in rural and underserved regions. But the recent surge in free-standing EDs across the country is not in those areas.

Most of the nation's free-standing EDs—about 400 to 500, and growing—are affiliated with a hospital or health system, serving as a feeder for patients needing inpatient care. The EDs usually are within 20 miles of a full-service hospital. More recently, for-profit ED companies have been building in affluent suburbs, targeting privately insured patients who see the EDs as more convenient than making an appointment with a primary-care physician.

First Choice Emergency Room, a for-profit chain that is part of publicly traded Adeptus Health, announced a dozen new free-standing ED openings between July and the beginning of September. All were in mostly well-to-do suburban areas of Texas and Colorado. Adeptus Health officials weren't available to comment.

Moscovice said that for most new, independent free-standing EDs, “Rural is not their market.” They are not addressing the broader national issue of providing care in rural, underserved communities, he added.

Slabach said that while free-standing EDs could help rural residents in states such as Georgia, they don't address the underlying socio-economic issues. The demographics will still be the same, with many people lacking health insurance or having bare-bones coverage and thus unable to pay the high bills associated with free-standing EDs.

He noted that free-standing EDs, if affiliated with a hospital, often charge a copayment as well as facility fees. But in Georgia, where the governor is encouraging them, free-standing EDs would not be able to bill facility fees under Medicare or Medicaid since they would no longer be classified as hospitals. That would make their operations difficult to maintain without some type of subsidy. The state health department says no hospitals have applied for this new status so far.

Part of the financial problem for rural hospitals is the lack of Medicaid expansion in Georgia and other states. Twenty-three Republican-led states, mostly in the South and intermountain West, have rejected the healthcare reform law's expansion of the program to adults with incomes under 138% of the federal poverty level. That has left rural hospitals in those states with continuing high rates of uncompensated care—a factor cited in some of the recent hospital closures.

Experts say free-standing EDs still may be beneficial. They could be a valuable stopgap that stabilizes patients before sending them to better-equipped hospitals, as long as well-trained ED physicians are available on site, said Dr. Michael Granovsky, an emergency physician who directs coding courses for the American College of Emergency Physicians.

But other lower-cost options such as urgent-care centers also should be considered for these rural communities, said Alan Ayers, a vice president for Concentra, Humana's urgent-care subsidiary.

Like free-standing EDs, however, urgent-care centers often cherry-pick their locations based on socio-economics and rates of commercially insured residents, according to statistics from 2012. Only 11% of urgent-care centers are in rural areas.

For urgent-care centers and free-standing EDs to survive in underserved rural areas, Ayers argues the “operating model will need to adapt.” They will have to use midlevel clinicians including physician assistants and nurse practitioners, reduce operating hours, and offer other high-volume services such as primary care and occupational medicine. That could help rural facilities offset the typically high fixed costs, Ayers said.

Perhaps the most feasible solution for rural areas is a hybrid model, mixing lower-level emergency care with primary-care services. An example is Carolinas HealthCare System Anson in Wadesboro, N.C., a town of 5,800.

In 2012, Carolinas HealthCare System—a large system based in Charlotte, N.C., with $4.7 billion in annual revenue—decided to overhaul Anson Community Hospital, a Hill-Burton facility with 125 staffed acute-care and nursing beds. The system spent $20 million and downsized the hospital's inpatient capacity from 30 beds to 15. The new facility, which opened in July, offers 24/7 emergency care in addition to the limited number of acute beds. Carolinas officials said Anson's major innovation and attraction is that it uses a patient-centered medical home model, offering residents access to primary-care providers with the help of a patient navigator.

That's what rural Americans most need, experts say. Hospitals and EDs may not need to be as ubiquitous as they once were, but preventive-care providers ought to be. “What it really boils down to is, we need access to primary care in those communities,” Moscovice said.

Back in Richland, McLendon said he and community members are trying to come up with a plan to bring healthcare back into the area. Richland is in Stewart County, which ranked 158th out of Georgia's 159 counties for health outcomes, according to a 2014 study.

He estimates the town will need at least $15 million to build a new hospital, as well as overcome certificate-of-need hurdles. That's a long shot, he concedes. He would be satisfied with a facility that provides some emergency treatment and preventive-care services, which would take pressure off the town's primary-care doctor. “I'm determined to do something,” McLendon said.

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