Shutdown stories: Rural hospital feels the pain from loan freeze

The partial government shutdown, now on its 32nd day, has dried up a key cash flow for at least one rural hospital: a $3.2 million low-interest rural development loan from the U.S. Department of Agriculture.

In the case of the small not-for-profit medical center in Pecos, N.M., the shutdown's freeze of USDA funding also halted financing of a costly construction project when the official in charge of the loan went on furlough. The project, a 9,000-square-foot expansion to bring all its treatments into one building, is slated for an August completion.

The issue came to light in a Thursday letter from New Mexico Democratic Rep. Ben Ray Luján, whose district encompasses the affected Pecos Valley Medical Center's service area. Luján wrote to Agriculture Secretary Sonny Perdue asking for immediate help to resurrect the funds. The lawmaker was still in talks with the department as of Tuesday morning.

These low-interest USDA loans are attractive to rural hospitals, but they are also hard to get. They require high credit scores that often elude struggling providers.

Following the rules that govern these loans, Pecos Valley Medical Center had to secure interim financing from a local bank to pay the contractor each month. Once the project is complete, the USDA will pay off the bank loan and the hospital will then make its mortgage payments directly to the federal government.

But members of a specific team at USDA must sign off whenever the hospital draws funds from the local bank responsible for the interim loan. These officials have been furloughed for the duration of the shutdown as nonessential staff.

The contractor's $103,000 bill for December came due the first week of January. At first the hospital was able to buy time. But as the shutdown dragged on, breaking records as the longest in U.S. history, that changed, according to Pecos Valley Medical Center CEO Kevin Norris.

"Last Wednesday during a call with the contractor they were clear that if they weren't able to pay them, they would shut down yesterday," Norris told Modern Healthcare on Tuesday, referring to the Jan. 21 holiday honoring Dr. Martin Luther King Jr.

Norris and the contractor were able to work out a deal, and the hospital has one-week grace period to resolve the money question. By next Monday, Norris hopes that Luján can work something out with the USDA, or that the hospital can secure a line of credit. But neither option is guaranteed.

The line of credit would add substantial expense to the project, and so would even a temporary shutdown of the project.

"If they shut down, they will pull equipment and workers from the site," Norris said. "So when they do come back it will add cost to the project—it would be substantial for us, and we're not a huge clinic so we can't absorb this."

If the hospital is able to take out another loan, that's an extra 5% interest payment until the government re-opens.

"And so it continues to snowball," Norris said.

The hospital serves a 500-square-mile radius in a part of New Mexico that has been designated as an under-served region for medical and mental health treatment options, with a shortage of medical clinicians and 60% of residents living below the federal poverty line. It's also the area's sole provider of primary care.

When the partial shutdown was triggered on Dec. 21 amid a White House clash with congressional Democrats over border wall funding, Perdue detailed how the USDA's programs would be affected. The rundown does not specifically mention the rural development program, other than noting that the department wouldn't be able to provide for new loans and grants.

After the first week of the shutdown, according to Perdue's release, the USDA would have to stop processing farm loans and some farm payments—including direct payments, market assistance loans, market facilitation payments and disaster assistance programs.

Due to the furlough, a USDA spokesperson was not available to comment on the scope of the loan financing issue for rural providers. As of deadline it was not clear how many rural clinics and hospitals are seeing funds cut off.

But the loan program is significant: In 2017 the USDA invested in 97 rural healthcare projects covering about 2.5 million people. The loans are sizable. Ohio's Avita Health System secured $91 million in 2017 to convert a vacated section of shopping mall into a hospital with a focus on mental health and addiction treatment.

As of deadline, officials of the White House's Office of Management and Budget did not respond to a query about whether the officials responsible for these loans might get sent back to work at least temporarily to make the necessary authorizations.

Luján on Tuesday cast potential USDA action to approve the hospital's funds as a matter of fiscal prudence.

"The USDA is expecting to see the entirety of the loan repaid in full and the Pecos Valley Medical Center must complete their expansion project in order to return the federal investment," Luján said. "It is in USDA's best interest to protect the federal investment they have already made in PVMC and process the single remaining loan document needed to draw down the funding."