Camille Baxter:
Hello and welcome to Healthcare Insider, a sponsored content podcast series from Modern Healthcare Custom Media. I'm your host, Camille Baxter. And today we are speaking with Jim Kendrick, President and Chief Executive Officer of Community Hospital Corporation. Jim is a nationally recognized leader of community hospitals with more than 20 years of leadership experience in not-for-profit and for-profit healthcare. Before we dive in, we'd like to thank the sponsor of this episode, Community Hospital Corporation, also known as CHC. CHC offers practical solutions that help community hospitals enhance efficiencies, improve quality, and strengthen financial stability. And most importantly, CHC helps preserve and protect community healthcare. Today we are talking to Jim about the current challenges community hospitals face and innovative approaches they can take towards sustainability. Jim, thanks so much for being here today.
Jim Kendrick:
Camille, thank you for the opportunity to be here. I'm looking forward to the conversation.
Camille Baxter:
I know we have a lot of listeners who lead community hospitals, so your insights are going to be very appreciated. Tell us a little about your time in healthcare.
Jim Kendrick:
So I've grown up in this industry. In the intro, we said 20 years. I think I'm probably pushing a little more than 30 now, but from an industry perspective, it's a fascinating industry because it's always changing. And the reality is, it's such a needed aspect in everyone's life, so we always have to find ways to make sure that we're preserving it. That's one of the things that drew me to this career is the opportunity to serve, the opportunity to be providing services for communities that if they're not there, it has great impact on people's lives. It also has great economic impact on communities and their ability to grow and thrive. When businesses are looking to go to a community, they want to know that it has good schools, has good healthcare. So those are things that are essential. And I think the role that our company plays is trying to make sure that we help maintain as much healthcare for rural communities as possible.
Camille Baxter:
Tell us about the current healthcare environment and how it's affecting community hospitals.
Jim Kendrick:
So community hospitals, specifically in the rural areas, are really struggling right now. If you look at the national standards or national statistics, they'll tell you that 50% of all American hospitals are actually in the red. They're losing money. And if you're in a rural hospital, many times you don't have a balance sheet to offset that. I mean, if you have a balance sheet, you can weather the storm, get on the other side, things may change. But when you have 50% of American hospitals losing money, and many of those hospitals that don't have a balance sheet to sustain those negative losses, we're in a critical state. Now, some of the bigger drivers, and this is not news to anyone that's in the industry, but labor costs have gone through the roof. Many hospitals are facing 20, 25% increase in their labor cost. And when you have a hospital that had a margin of sub 2% previously, when you add a expense category like that of 20% or greater, it's not sustainable.
So as an industry, we're going to have to find new ways to structure our delivery structure for care to make sure that people are being cared for, and also that we're able to keep the doors open and be a sustainable organization. So labor shortages probably, a longer answer than you wanted for that, but that's probably the number one driver for most organizations out there right now. The reimbursement models continue to be a challenge. The shift in the reimbursement models, things like Medicare Advantage plans and the shift to those plans and the ability to get those plans to approve care, reimburse care, pay for care timely, those are critical issues. And then also we've had some great resources through the pandemic, like the American Rescue Plan Act, that was very valuable tool, gave us resources and dollars to help, but most of those major dollars are gone now.
There's still some grant dollars that are out there that organizations can draw on and try to structure the opportunity to get help with. For the most part, we're having to find a way to operate under a new paradigm. And then also the government for the first time in over 25 years has rolled out a new structure for hospitals, and that's the Rural Emergency Hospital designation that was passed by the federal government at the end of the year. And many states have begun adopting it throughout the first part of the year. And not all states have, but the ones that have adopted that model. And it's a model where it's not going to be a organization or a community's first choice because it's a reduction in services, but that reduction in services comes in the inpatient category.
So a small rural hospital can go to the rural emergency hospital designation. They will have to cease doing inpatient admissions, inpatient care, inpatient surgeries, but they're able to still provide that emergency room care, they're still able to provide outpatient surgeries and many of the other services. And with that model, there's some additional funding that comes along. You get 105% opposed to the 100% of the reimbursement rate. For many of the government programs, you have a monthly stipend that comes in to help you sustain your care. But again, that's not a model that anyone wants to go to. It's a model of sustainability. If you're faced with closure and your option is, Hey, I can still provide this level of service for my community, then it may be a good model. But even in that, there's some challenges. If you have a strong 340B plan, it may not be the plan model for you. There's a lot of caveats in that. That's a little bit of a rambling answer to get started.
Camille Baxter:
That really is a lot to focus on. In order to respond to these challenges, community hospitals are implementing innovative delivery models. What are they?
Jim Kendrick:
So hospitals are going to have to find a new way to deliver the services that we provide. Again, we talked earlier about the fact that healthcare is always changing and organizations have to adapt to that change and make sure that we have a model. The Rural Emergency Hospital is just one example of a path where that new path could be followed. But hospitals are going to have to look at things like shared services with other hospitals. You have duplication of cost over three hospitals, and you can have a shared services model so that that's cost can be spread over three or four hospitals in the area. Then that may work. Now assist hospitals are already part of a system. They may already have that benefit, but there are a lot of freestanding independent hospitals out there that don't have that benefit. Those are one of the things that we try to do is bring those shared services type structures to the table so you don't have to have the full infrastructure and the expense load.
Everyone will say this, but it's such a true statement. We have to find a way to make sure that people are practicing at the top of their license. You don't want a nurse that you're having to pay 20%, 25% more for that you paid two years ago having to do things that aren't required of her license because if you take 20% of her time that's doing non-licensed activities and you have five nurses, well then there's an FTE for you that you could have doing other things. And many times you can replace those costs with lower cost providers to meet those non-licensed needs. So practicing at the top of your license is always going to be something we're having to focus on.
And also just the evolution of where healthcare's going. Telemedicine is going to continue to change how we receive our care. Pre-pandemic, more Americans than not would say, "No, I don't do a audio or a video meeting with my doctor," but probably over 50% of Americans have now since the pandemic.
And that's got to evolve in our reimbursement structure as well, because the reimbursement structure is not necessarily aligned with the advancements in technology, but telemedicine is going to continue to grow. And how that looks going forward will be a paradigm shift for a lot of organizations. And also trying to make sure that we have the infrastructure to make sure we get reimbursed for it. But things like hospital at home, when people hear those words, they think that's terrifying. But in all reality, you think about some of the times that people have been in a hospital, what is it that they're actually needing from a caregiver? And if you can provide the bulk of that in a home environment at a much lower cost, but still have that licensed provider through a home health agency or a direct employee from the hospital, have monitoring equipment, have all the things in place, you may find, again, a new way to deliver that care to someone that's never been thought of before.
And again, it's all going to be about structuring it so that the federal government will reimburse for it because the federal government is by far our largest payer in all settings.
Camille Baxter:
You mentioned earlier, Jim, the Rural Emergency Hospital designation. I'd like to drill into that a little further. What are the potential impacts of REH for community hospitals?
Jim Kendrick:
Well, it's a significant change in the way the community has been able to get care in the past. One of the benefits, and it was seen very strongly during the pandemic, and that is if you need a hospital and you have a hospital in your community and you can go there and get admitted and receive the care that you need, then you're not having to drive that extra 45 minutes to a larger city or having to arrange for a hotel because the opportunity to have your family close is always something people want more in their hospital environment. So not being able to do that is one of the big drawbacks because we won't be able to have inpatient if we are a Rural Emergency Hospital. Again for the last 30 years, you could be one of two hospitals. You could be pay for service, PPS, or you could be a critical access.
Now this is a new designation and it's just now rolling out. It's got a lot of pieces that are going to have to continue to evolve with it. There are a lot of piece places that say, "Oh, I would do that, but I can't because of A, B, and C." Those are all legitimate things because the additional reimbursement and the additional payments that you get by going to a rural emergency hospital can be offset by the loss of revenue in other categories like 340B programs and things of that nature. So I think it will continue to evolve. But again, I think an important message is it's not something that people are wanting to do. A hospital doesn't want to not be able to have a patient be admitted if they can be cared for in that community, they want to be able to care for in that community.
But if you go to this designation, then you can no longer have that inpatient environment. Now, one important thing to note is you can go back. So if you go to this designation and you are able to stabilize your financial position, the market addresses some of the key issues we're facing with labor cost, restructuring of our delivery model or anything of that nature causes a shift in our ability to be able to produce enough of a sustainable bottom line, then we can shift back. So that's one of the positive aspects of it is once you go to a Rural Emergency Hospital, if you want to go back to a full service hospital later date, you can do that.
Camille Baxter:
Let's close out with final thoughts from you on innovation. What other opportunities for innovation do you see for community hospitals?
Jim Kendrick:
Well, again, I'll state the fact that healthcare is a business that's always facing constant change. It has always faced constant change. My company was formed 27 years ago because a group of not-for-profit hospitals came together and said, we need a opportunity to provide resources to these rural community hospitals that are facing challenges. That was 27 years ago. We're still facing challenges, they're just different challenges. And at the end of the day, we're trying to make sure that care is provided for these communities. And the fact that we're going to have to change our delivery model is something that people have to get their mind around because it can't be the same way we've always provided care. Because right now, the same way we've always provided care produces less revenue than the expenses necessary to take care of that business. So therefore, you're not sustainable unless you have something that's giving you something to make up that shortfall. So that change in delivery model is going to be important.
And we touched on some of those areas. Maybe it's the Rural Emergency Hospital designation. Maybe it's forming a district where you get a tax-based support. Maybe it's having a relationship with other hospitals so you can offset some of your expenses. It's a variety of ways that we're going to have to just continue to evolve and make sure we're providing care. But one of the key components that people need to keep in mind is that in many cases, rural hospitals are safety net hospitals. People have a good understanding of safety net hospitals in large metropolitan areas. They know this hospital's going to take care of people, it's going to be there for them. It's our safety net hospital. But in the rural hospital market, every rural hospital is a safety net hospital because if that hospital's not there and someone's having to be transported an extra 30 minutes, 45 minutes, it can be a life or death situation.
And another major component of that is education. We have to start doing a better job of educating our communities, our local government groups, our county commissioners, our city managers, our city mayors. Because at the end of the day, if a hospital is gone from a rural community, it has significant impact. It's going to have economic impact because people are going to consider other markets to go put their business because you don't have the healthcare services that they think that they need for their employees. You're going to have to have things like ambulance services, EMS services, cost are going to go through the roof for local EMS providers in a county or a city if that local hospital's not there because someone's still going to call 911 and need care. When they get picked up, there's just not somewhere close to take them. So we're going to have to continue to evolve the way we look at things and educate people to our challenges.
This is not an issue of, "Hey, you just need to do a better job." I've spoken to community people and they say, "I'm a capitalist, and if the hospital can't produce enough money to survive, then maybe it doesn't need to survive." Well, my opinion on that is, it's a little shortsighted. When your loved one in the middle of the night has having an emergency, and you need to call 911, you want someone licensed, a practitioner, a nurse, a doctor that's there as soon as possible to give them that care that they need, get them stabilized, and they may still get transferred onto a larger market, but at least they'll be stabilized first. And I'm a little passionate about the fact that we have a industry with a segment of rural hospitals in America that's at risk, and people need to understand what that risk and those consequences are if we don't do something to sustain them.
Camille Baxter:
Jim, thanks so much for speaking with us with your almost 30 years of experience and talking about the key issues rural hospitals are facing.
Jim Kendrick:
Camille, thank you so much for the opportunity. I think it's important to get this message out about what we're trying to do, what we need to do as an industry, and also the importance that our community hospital serves. So thank you so much for the opportunity to speak today.
Camille Baxter:
This has been a sponsored episode of Healthcare Insider, created in collaboration with Community Hospital Corporation. For more information about them, please visit communityhospitalcorp.com. I'm your host, Camille Baxter. Look for more episodes of Healthcare Insider under the multimedia tab at modernhealthcare.com or subscribe to your preferred pod catcher. Thanks for listening.
