As rural hospitals struggle, solutions sought to preserve healthcare access

On March 31, for-profit Parkway Regional Hospital in Fulton closed its doors after more than two decades of business in southwestern Kentucky. Rural Fulton County's only hospital employed nearly 200 and accounted for as much as 18% of the town's tax base.

But inpatient admissions had plummeted 50% over the past four years and Community Health Systems, which owned the 70-bed facility, decided it was no longer economically viable. “Our wheels haven't stopped turning since the day they announced that the hospital was closing,” said Cubb Stokes, Fulton's city manager. “We have been having almost daily meetings with some type of healthcare provider.”

Parkway was far from alone among rural hospitals struggling to survive. Less than a year before, Nicholas County Hospital, an 18-bed facility in Carlisle in north-central Kentucky, shut its doors, citing “insurmountable” financial challenges. A report issued in March by Kentucky's auditor of public accounts found that 15 of the 44 rural hospitals analyzed were in “poor” financial health. Those facilities served more than 250,000 Kentuckians in fiscal 2013, with about 60% of those patients enrolled in Medicare or Medicaid.

Nationwide, 51 rural hospitals have closed since 2010, according to the North Carolina Rural Health Research Program at the University of North Carolina at Chapel Hill. The number of annual closures has increased each year during that period, with 16 rural hospitals shutting down last year. Southern states have been disproportionately affected by the spike, with nearly two-thirds of the closed facilities located in that region. Texas has lost 10 rural hospitals in the past five years, while Alabama and Georgia each have lost five.

The National Rural Health Association has identified 283 more rural hospitals across the country that are in danger of going under—more than 10% of all such facilities. The group found that the financial conditions of the hospitals just hanging on are similar to facilities that already have closed. More than a third of rural hospitals operated at a deficit in 2013, according to the association.

Many rural hospitals “have been struggling on the cusp for a long time,” said Mark Holmes, director of the North Carolina Rural Health Research Program.

In June, Adam O'Neal, the mayor of Belhaven, N.C., plans to lead a walk from his town of 2,000 to Washington to raise awareness about the plight of rural hospitals. He hopes to attract participants from all 50 states for the nearly 300-mile journey. O'Neal garnered national media attention last year when he made the same trek after the sole hospital in Belhaven was shut down by not-for-profit Vidant Health. “To think that in our country, our government is going to sit back and watch 283 hospitals close blew my mind,” O'Neal said.

His view is not universally shared. Experts say some rural facilities are not providing high-quality care and that rural communities would be better served by coordinating care with larger regional facilities and providing targeted outpatient and emergency care through innovative approaches.

Rural hospitals have disproportionately struggled with empty beds in recent years. In 2013, rural hospitals with fewer than 100 beds had an occupancy rate of only 37%, dropping 5.6% since 2006, according to the Medicare Payment Advisory Commission. That compared with a 63% occupancy rate for urban facilities.

The financial problems plaguing rural hospitals have many causes. The unwillingness so far of 21 states, disproportionately in the South, to expand Medicaid to low-income adults under the Affordable Care Act is a major factor, said Terry Hill, a senior policy adviser at the National Rural Health Resource Center. Roughly three-quarters of the 51 rural hospital closures nationally since 2010 have been in states that didn't expand Medicaid.

An analysis by Deutsche Bank found that among the investor-owned hospital chains that it tracks, from July 2013 to July 2014 uninsured discharges declined 50% at hospitals in Medicaid-expansion states compared with a 16% drop in non-expansion states.

“You're going to see a predominance of closures in the next year or so in those states that have not expanded their Medicaid eligibility,” Hill said.

Another dynamic is reductions in Medicare payment rates. In particular, the budget sequester cuts Congress passed in 2013 reducing rates by 2% across the board have caused problems. That's because most rural facilities already were operating on thin margins and they typically have a larger share of Medicare enrollees in their patient mix than other hospitals.

Rural providers are also wary of the movement toward risk-based payment models for Medicare. They fret that they don't have the expertise or resources to meet the demands of emerging models such as accountable care organizations and bundled-payment initiatives.

“The vision for the healthcare system of tomorrow is one that requires scale and networks and coordination, and it's going to be challenging to free-standing community hospitals, especially those in rural areas,” said Eric Zimmerman, a principal with McDermottPlus Consulting, which lobbies on behalf of rural hospitals in Washington, D.C.

Kim Moore, president of the United Methodist Health Ministry Fund, a Kansas-based charitable foundation, said many rural hospitals have been resistant to change. “Rural America has been schooled to believe that change equals loss,” Moore said.

Other challenges that rural hospitals face are inherent in being rural. Because they are smaller facilities, they typically can't take advantage of economies of scale that can reduce costs. In addition, attracting top talent is challenging in rural communities, which means they often must pay more to land healthcare professionals. They also tend to have a disproportionate share of patients who are on Medicare or Medicaid or are uninsured.

Some states have taken steps to try and reverse the trend. In February, a committee appointed by Georgia Gov. Nathan Deal proposed to make larger regional hospitals communication hubs that direct patients in a rural network to the most appropriate places for care. It also would offer more ambulances and school clinics set up with teleconferencing capabilities to access medical experts. The idea is to offer relief to rural facilities that have a hard time offering the full range of costly medical services.

Not all rural hospitals are struggling, however. The 35-bed North Sunflower Medical Center in Ruleville, Miss., achieved a 33% operating margin in fiscal 2014 on $68 million in operating revenue. The independent hospital saw its revenue increase 9.5% from fiscal 2013 and its clinic volume grow 42.8%.

Joanie Perkins, the hospital's chief development officer, said her facility has been innovative in attracting both patients and grant funding. It has expanded the hours at its rural clinics so patients can be seen in the most cost-effective setting. Its clinicians go into schools in some of the state's poorest areas to vaccinate children. It contracts with nursing homes to provide dental care. It has a telehealth program in place with the University of Mississippi Medical Center in Jackson. And it formed a partnership with General Electric Co. to provide tablet computers to diabetic patients so doctors can remotely monitor their blood sugar.

In 2010, the hospital built an $8.6 million wellness center, including a fitness center. People who join the gym for $20 a month have a personal trainer assigned to them. “Our patients like us and use us again,” Perkins said.

Some members of Congress are paying attention to rural hospitals' struggles. Sen. Chuck Grassley (R-Iowa) is working on legislation designed to provide greater financial security to rural hospitals. Grassley's office said he isn't ready to divulge specific details of the plan, but it will involve establishing a new Medicare payment track for rural facilities that provide only emergency and outpatient care.

That's a strategy already being tested by some rural hospital operators. Last October, Novant Health announced it was reducing inpatient beds for acute care at Franklin Medical Center, in Louisburg, N.C., from 70 to two. The reason was that 65 beds were empty on an average day and the facility was on pace to lose $6.1 million in 2014.

Brock Slabach, the National Rural Health Association's senior vice president for member services, sees a need for a new Medicare payment model that will better serve rural hospitals. Those payment systems were established in the 1980s and 1990s and “may not be suitable for the environment we find ourselves in today,” Slabach said.

Any such changes will come too late for Parkway Regional Hospital. Residents of Fulton County now have to travel at least 15 miles and cross the Tennessee border to access most medical services.

Stokes, Fulton's city manager, is worried about the added cost of transporting prisoners from the Fulton County Detention Center in the county seat of Hickman to the nearest hospital. The jail is now the biggest economic engine in the county. “If we don't provide that jail with medical facilities, then those prisoners will be shipped out to other prisons in the state and it will be a tremendous economic blow to the county,” he said.

But he expresses confidence that his rural community will get past the hospital's closing. “We've been just tremendously pleased with the outpouring of support that we've gotten,” he said. “We'll survive this.”

—with Beth Kutscher