Rethinking partnerships

‘More independent rural hospitals will seek some type of affiliation with a larger hospital.’

By Alex Kacik

More than 40% of the country’s rural hospitals that have been operating in the red as they try to manage care for a declining population that is often older, sicker and poorer than their urban counterparts.

The city of Greenville, Ala., purchased L.V. Stabler Memorial Hospital in November 2017, but it needed help from the community and the University of Alabama Birmingham to keep it open.

Quorum Health sold the 74-bed facility for a discounted price of $2.8 million. The move restored local decision-making, said Greenville Mayor Dexter McClendon, who also chairs the hospital’s board of trustees.

Residents of Greenville, population 8,100, voted to support a half-cent sales tax increase that helped pay for the loan used to buy the hospital and will provide the community hospital $825,000 a year through 2032. Still, L.V. Stabler needs a major restructuring to rectify its $2.5 million operating loss in 2017, stemming from declining admissions and growing expenses.

Partnering with the University of Alabama Birmingham was like landing a five-star recruit, McClendon said.

“Without UAB and the sales tax, we would’ve closed,” he said.

L.V. Stabler could be the poster child for many rural hospitals—44% of rural facilities across the nation are operating in the red as they try to manage care for a shrinking population that is often older, sicker and poorer than their urban counterparts, according to analysis from the Chartis Center for Rural Health.

Independent government-owned hospitals, many of which are in rural areas, had an average annual operating margin of negative 16.6% and a $15.8 million operating loss in 2016 compared with a negative 7.9% operating margin and $8.4 million operating loss for their system-owned peers, according to a white paper from Healthcare Management Partners, Waller Lansden Dortch & Davis, and Taggart, Rimes & Graham that analyzed more than 70,000 Medicare cost reports. Those in the mid-South region—Alabama, Arkansas, Mississippi, Tennessee and Texas—are far worse, reporting a negative 41.9% operating margin and a $26.6 million operating loss.

Independent critical-access hospitals in the mid-South, which have fewer than 25 beds and are at least 35 miles away from another hospital, averaged a negative 20.3% operating margin and a $3 million operating loss.

“Southern states with a higher share of the aging population combined with lower incomes—that’s where you see more chronic cases of obesity and lifestyle challenges,” said Bret Schroeder, partner of PA Consulting Group. “Providers in these rural communities experience the most pain.”


More than 70% of all government-owned hospitals reported an operating loss in 2015 and 2016, researchers found.

Government ownership requires a level of public accountability and scrutiny that often set hospitals’ even further back, the white paper said. Reimbursement levels also favor urban and system-owned hospitals. Bundled purchases, centralized administrative functions and access to better technology help system-owned hospitals drive costs down, one of the most valuable metrics in the industry’s changing payment paradigm.

Left out

The situation is magnified in states that did not expand Medicaid coverage, like Alabama.

Rural hospitals in those states had higher rates of uncompensated care as a percentage of revenue than hospitals in expansion states, according to a 2015 study published in Health Affairs.

“It’s a heck of a challenge keeping a hospital open in a town of 8,100, especially when our governor did not take the Medicaid money,” McClendon said. “For a county like us, it almost shot our legs out from under us and nearly made it impossible.”

“It’s a heck of a challenge keeping a hospital open in a town of 8,100, especially when our governor did not take the Medicaid money. For a county like us, it almost shot our legs out from under us and nearly made it impossible.”

Dexter McClendon
Greenville Mayor

Payers compound the problem, said Farrell Turner, president-elect of the Alabama Rural Health Association. They often will perform an internal audit and take back money that was doled out two years ago, he said.

“Payers are just beating us up,” Turner said. “Payers are constantly changing the rules and small rural hospitals, physicians and clinics in those communities don’t have a lot of resources to stay up to date.”

Twelve hospitals in the state have closed since 2011, six were in rural areas, according to the Alabama Hospital Association. The median rural hospital in Alabama operated at a negative 12.2% margin in 2016 and 88% were losing money. Charitable donations dropped by a quarter. Nearly two-thirds reported an increase in uninsured patients while nearly half reported an increase in Medicaid beneficiaries. Nearly three-quarters experienced a increase in emergency department visits. Half reported a drop in inpatient admissions.

“Access to care in the Black Belt of Alabama is already lacking; we can’t afford to lose anything more,” said Danne Howard, the hospital association’s chief policy officer.

Without the right partnerships in place, maintaining a rural hospital is often a losing battle.

UAB started to partner with rural hospitals about eight years ago as a way to protect referral sources, but it has evolved into much more, said Don Lilly, senior vice president of clinical network development and director at UAB Health System.

The largest health system in the state partners with medical providers in Anniston, Alexander City, Bessemer, Camden, Demopolis, Florence, Greenville, Mobile and Montgomery.

UAB recently purchased property in Hoover that will be converted into a 39,000-square-foot medical facility to house primary care, OB/GYN, oral surgery and other specialties.

The university system also operates neighborhood clinics in Hoover, Leeds, Inverness and Gardendale, where a free-standing ED and medical office are under construction.

It also has 40 physicians planted in different markets around the state. In addition to a telestroke program it recently rolled out in Demopolis, it has a teleradiology service that 18 hospitals use and a cancer network with 12 centers in Alabama and surrounding states.

“Rural hospitals’ survival and their ultimate effectiveness benefit everybody, including payers,” Lilly said. “Keeping patients in local markets and out of higher-end tertiary facilities saves money and improves quality.”

“Rural hospitals’ survival and their ultimate effectiveness benefit everybody, including payers.”

Don Lilly
Senior vice president
clinical network development and director at UAB Health System

UAB Hospital’s 1,157 beds have been nearly full for two years, he added.

The health system is working with local jurisdictions to recruit family medicine doctors to boost primary care, pre-natal, and labor and delivery services in Alabama.

The 99-bed Bryan Whitfield Hospital in Demopolis—a town with a population of 8,000 about 60 miles south of Tuscaloosa—staffs about 57 beds and runs at around 60% occupancy. The hospital closed its labor and delivery unit in 2014.

About 45% of rural communities do not have a hospital with dedicated maternity care. Nearly 1 in 10 rural counties lost their hospital-based obstetrics programs from 2004 to 2014, according to research published in Health Affairs in September.

“I understand first and foremost that not every county in every state can have a hospital—the financial challenges we face are astronomical,” said Arthur Evans, CEO of Bryan Whitfield Hospital. “Given that however, each county has to assess what their healthcare needs are, whether they require a hospital, an emergency room, ambulatory or other services.”

One of main issues is that Alabama has the lowest Medicare reimbursement rates in the country, Howard said. Alabama hospitals are reimbursed significantly below the national average, primarily due to a formula implemented in the 1980s known as the Medicare wage index that weights other states like California higher based in part on cost of living, according to the Alabama Hospital Association.

“That’s why rural hospitals can’t make capital equipment purchases, they have to freeze wages, eliminate service lines and stop delivering babies,” Howard said. “They are looking into telemedicine and mergers, but the fact is without adequate reimbursement, rural hospitals aren’t appealing to larger systems.”

That’s partly why UAB is driving change on the legislative front, university executives said.

Bill of health

UAB lobbied for state legislation that would create a resource center for rural hospitals.

To be housed at UAB, the center would help fund rural public hospitals in Alabama improve revenue cycle, purchasing and supply chain functions, strategic planning, insurance and cost reporting, coding, recruitment, and compliance. It would also provide funding for administrative residents to work in rural hospitals. Signed into law in March, the program has not yet been funded.

It’s also proposing legislation that would implement a global budgeting model for rural hospitals. A board would perform a needs assessment for each community, which would shape a statewide budget. Local, regional and state authorities would agree on specific amount of revenue for the upcoming fiscal year, regardless of the volume of services. The bill was shelved in April, but Alabama has been selected as one of five states to participate in a state policy academy on global budgeting for rural hospitals.

“They wouldn’t have to worry about doing what they can to keep the doors open, they would be able to do what’s right,” said Will Ferniany, CEO of UAB Health System.

It creates true statewide health planning in areas that don’t have a collective measurement of what services are needed or redundant, Lilly said.

UAB will try to work out the kinks in a pilot program that will test the global budgeting model in two to three areas of the state.

“It takes away the financial risk,” Lilly said.

UAB will continue to build out its telemedicine network. Bryan Whitfield Hospital launched a telemedicine-equipped stroke center in late April with the help of UAB.

“Telehealth is something that will push us to next level," Evans said. "Transportation is a major issue all the time. We can do these services cheaper here than in an urban facility, which may be overburdened, and patients are happier seeing their local doctors.”

Staying connected

Providers are using telemedicine to not only increase access to specialists, but also train physicians in rural areas.

MD Anderson Cancer Center in Houston teamed up with providers in the Rio Grande Valley in Texas to identify the early stages of cervical cancer. MD Anderson uses Project ECHO’s (Extension for Community Healthcare Outcomes) telehealth technology to mentor non-gynecology doctors and discuss their de-identified cases.

Since the program’s implementation four years ago, the cancer center has helped screen more than 16,000 women and perform 200 procedures to eliminate early-stage cervical cancer.

“We teach local providers who aren’t specialists to do specialty care, which is critical because Texas has some of the highest rates of cervix cancer in the country,” said Dr. Kathleen Schmeler, an associate professor at MD Anderson.

Specialists from MD Anderson, the University of Texas Medical Branch and the University of Texas Rio Grande Valley coordinate virtual visits with rural providers in the Rio Grande Valley twice a month. The 1-hour sessions include a 15-minute didactic so they can get continuing medical education credits, which are tough to secure in underserved areas, Schmeler said.

It also offers some hands-on training courses to teach colposcopies, cervical biopsies and loop electrosurgical excisions with providers in Harlingen, Laredo and Sherman.

“We need to help increase access, which is a problem in these underserved areas,” Schmeler said. “They need to get screened locally with a nurse they trust rather than traveling to Houston.”

Many won’t travel at all because they are undocumented, she added.

The cancer center also helped the University of Texas Medical Branch start a school-based HPV vaccination pilot program in Rio Grande City to help prevent cervical cancer.

“We need to demonopolize and democratize knowledge and get it out of an academic medical center and get it to communities that need the support and can share specialty knowledge,” Schmeler said.

“We need to demonopolize and democratize knowledge and get it out of an academic medical center and get it to communities that need the support and can share specialty knowledge.”

Dr. Kathleen Schmeler
Associate professor
MD Anderson Cancer Center

St. Louis-based Mercy health system implemented a telehospitalist program that’s eased the workload of physicians in rural hospitals, said Diana Smalley, regional president of west communities for Mercy.

Hospitalists in Mercy’s urban markets assist rural medical teams with 24/7 backup and video consultation, allowing physicians to maintain a better work-life balance, Smalley said.

Specialists are notoriously hard to attract and keep in rural communities. But if they are, through debt forgiveness incentive programs for instance, they’re often retained on a temporary basis, which can be costly.

“If we can become less dependent on specialty services in rural markets and focus on primary care and emergent services for diagnosis and initial treatment, we are all better off in the long run,” Smalley said.

Mercy created a community paramedic program in Ada, Okla., where practitioners travel to the homes of about 1,000 emergency department “frequent fliers” and enroll them in a virtual care program. They identify what consumers need in their homes to improve their health and provide them with an iPad and other tools to monitor their blood pressure, glucose levels and other vitals.

In one case, a man kept coming to one of Mercy’s rural EDs because he had trouble breathing. One of the nurses overheard him saying that he was so uncomfortable lying flat to sleep, but didn’t have enough money for an adjustable bed.

Mercy paid for a reclining bed and his number of ED appearances dropped dramatically, Smalley said.

But without the backing of a bigger system, more hospitals, both urban and rural, will inevitably close their doors as demand for inpatient care decreases along with length of stay, Smalley said. It’s a natural byproduct of preventive care, she said.

“I think the overall the state of rural healthcare is somewhat precarious,” Smalley said. “These hospitals are somewhat isolated from a larger healthcare system, so there is not a consistent approach on how to deal with some of the challenges they are facing. More independent rural hospitals will seek some type of affiliation with a larger hospital.”

Team effort


Pharmacists are also helping fill the healthcare services void in rural areas.

Deines Pharmacy in Beatrice, Neb., operates in a town of about 12,000 people 40 miles south of Lincoln, alongside one of the larger critical-access hospitals in the country, Beatrice Community Hospital.

The pharmacy resembles an urgent-care clinic, which Beatrice lacks. Deines Pharmacy has done more strep throat, flu, cholesterol and other point-of-care testing to keep people out of the ED, which aligns with payers’ push to deliver care in lower-cost settings.

People typicaly see their primary-care providers about three times a year while they visit their pharmacy 35 times a year, said Mitch Deines, co-owner of the pharmacy.

“They trust us,” said Deines, who also serves on the Beatrice Community Hospital board. “We are accessible. Then we need to form a closer partnership with the physicians, which improves care.”

Previously, hospitals would get defensive when pharmacies would encroach on their turf and potential reimbursement, Deines said. Now, with the focus on preventive medicine, hospitals champion and promote these types of programs, he said. That shift is taking place across the healthcare industry.

Deines Pharmacy is part of a national clinically integrated network of pharmacists that started in North Carolina. The Community Pharmacy Enhanced Services Network works with insurers to identify ways to better coordinate care for consumers with chronic conditions.

The pharmacy also participates in a pharmacist e-care plan through a pilot project with the Centers for Disease Control and Prevention. Every time pharmacists give a flu shot, they send that data to a statewide network that is integrated with electronic health records, helping to reduce unnecessary care, Deines said.

“We have to close that loop somehow,” he said. “It’s a thought shift for providers. As things get tougher, physicians are looking at us as part of the team.”

The Alabama Hospital Association is also working with Blue Cross and Blue Shield of Alabama to reimburse rural hospitals for imaging and diagnostic services at the same rate as outpatient facilities. While it’s a discounted rate, that could increase access and provide some business for rural providers, Howard said.


As for L.V. Stabler Hospital in Greenville, Ala., more changes are coming.

Administrators will probably change the name of the hospital to mark a fresh start, McClendon said.

McClendon hosts a radio show after each city council meeting to keep Greenville residents informed. He also speaks at chamber of commerce events.

Public officials and healthcare executives have a responsibility to keep a running dialogue with the community, McClendon said.

“We do not need to try to be everything to everyone,” he said. “We need to figure out what you need to do that fits our community.”

Editors: Matthew Weinstock, Paul Barr and Aurora Aguilar | Copy editors: David May and Julie A. Johnson | Joanne Kim contributed to this project