Rural Alabama hospitals add services to stay afloat

When Jo Fitz-Gerald was diagnosed with Stage 3 breast cancer, the Demopolis, Alabama-resident expected to drive more than an hour to Tuscaloosa for surgery and treatment. 

Instead, the 83-year-old grandmother of 12 only had to travel about seven minutes to Whitfield Regional Hospital—a rural hospital in her hometown that had been on the verge of closing several years ago. She was Whitfield’s first mastectomy patient in about 20 years, thanks to Marengo County residents who voted for a property tax increase and a clinical affiliation with University of Alabama at Birmingham Medicine. 

“I thank everyone who voted for that,” said Fitz-Gerald, whose cancer is receding after several weeks of daily radiation treatment at Whitfield. “It will and it has saved lives. I know quite a few people—including one of my sons—who we would’ve lost if it hadn’t been here.”

Rural hospitals often cut services to remain viable. But some operators in Alabama have been adding services to boost revenue. 

Whitfield, like most rural hospitals in the state, had been losing money—about $20 million from 2008 to 2018. About 84% of Alabama’s rural hospitals were operating in the red prior to the COVID-19 pandemic.

Less profitable services like obstetrics were carved out of Demopolis, hollowing the rural health safety net. Many small communities across the country face similar care gaps.

But Whitfield is incrementally bringing services back. In addition to its new breast cancer clinic and imaging services, it is contracting with a cardiology group, and the hospital added a pain physician, eye surgeon, anesthesiologist and gastrointestinal doctor to its rotation. 

“The death knell of rural hospitals is when they cut services, they lose money because patients can’t get what they need,” said Dr. Eric Wallace, who leads UAB’s telemedicine efforts. “For years, people have been saying that rural hospitals just need to be a free-standing emergency room. What has been underscored with COVID-19 is that we can’t stand to lose even one hospital bed.” 

When services are cut, specialists leave. An economic ripple effect is felt throughout the community. UAB Medicine, an academic medical center that often runs near or at capacity, has been partnering with rural providers to keep more patients in their communities and reserve UAB’s resources for the sickest patients.

UAB specialists provide video consultations with nine rural hospitals, including Whitfield, to guide treatment for patients with severe kidney problems, patients with lung disease and those who suffered a stroke, among other critical care. It also plans to set up telecardiologist and telehospitalist programs. 

“It has been a game-changer for one of the most underserved areas in the country,” Whitfield CEO Doug Brewer said.

Whitfield, which has 99 licensed beds, was operating at an average daily census of between 12 and 20 before the pandemic. That has jumped to about 51 patients, Brewer said.

Its case mix—which measures patient acuity—has increased from 0.8 to as high as 2.3 as Whitfield treats and is reimbursed for more complex care. That has increased access and created the opportunity to add ancillary services like wound care and infusion centers, Brewer said. Next year, the hospital is bringing back obstetric services it cut in 2013, due to financial pressures. 

“People who have Blue Cross used to drive out of the market for care. But now they are starting to come to us,” he said, adding that the hospital is adding “snap-on services.” About 17% of the community is diabetic and many would have to drive an hour every day to get dialysis. 

Bibb Medical Center in Centreville, Alabama, has adopted a similar philosophy. While Bibb doesn’t provide general surgery, it hired a local ophthalmologist and surgeon to provide cataract surgeries. It uses clinicians and their teams across multiple service lines to boost productivity and lower overhead, said Joseph Marchant, CEO of Bibb. 

Bibb has swing beds that allows it to provide either acute or skilled-nursing care. It proactively reached out to hospice companies that now send patients to Bibb when they are at capacity. Bibb also added a walk-in clinic in its emergency department to redirect low-acuity patients. 

“You have to be a Swiss Army knife in rural Alabama,” Marchant said. “Each time we add another service, it makes us more efficient. But it’s not a get-rich-quick thing.”

New models

Although some rural Alabama hospitals are more financially stable, the vast majority still operate in the red. 

About one-fourth of the approximately 1,800 U.S. rural hospitals are vulnerable to closure, Chartis Center for Rural Health research shows. Hospitals in states that didn’t expand Medicaid, like Alabama, are more exposed. The median operating margin of rural hospitals in non-expansion states was negative 0.3% in 2019, compared with 0.8% for hospitals in states that expanded Medicaid. 

“We predict a lot of vulnerability in Alabama,” said Michael Topchik, national leader for Chartis. “The critical-access hospital program was protective, but so was Medicaid expansion.” 

Alabama has the fewest critical-access hospitals per capita in the country, a Modern Healthcare analysis revealed. It has fewer than 0.1 critical-access hospitals per 100,000 residents. Montana, South Dakota and North Dakota have the most at more than four per capita. 

Lawmakers formed the critical-access model in 1997. The Centers for Medicare and Medicaid Services pays hospitals with fewer than 25 beds and at least 35 miles apart from another hospital 101% of their reasonable costs. But the program has had limited success, policy experts said. 

“The current CAH model is not efficient and has led to oversupply of bed capacity and suboptimal care quality in many rural areas, without improving rural hospitals’ financial viability,” said Ge Bai, an accounting professor at Johns Hopkins University, noting that about half of rural residents bypassed their local critical-access hospitals to receive care in a more distant hospital. “The Rural Emergency Hospital model has the potential to fundamentally address the low occupancy rates and improve care delivery efficiency in rural areas.”

The 35-mile rule precluded many hospitals from receiving the critical-access designation. 

“The reason we didn’t have as many was because the reimbursement for our payer mix didn’t make critical-access hospitals a viable model,” said Danne Howard, deputy director of the Alabama Hospital Association. “We are among the lowest when it comes to reimbursement in the nation, in particular Medicare.”

Alabama was among the bottom ranks for Medicare wage index reimbursement, which pays hospitals based on the hourly wages of their service areas. It disproportionately impacted rural areas where the cost of living was lower. 

Congress tweaked the wage index formula to boost pay for markets among the bottom quartile. But that only made a small dent, Howard said, noting that the state didn’t expand Medicaid. Many rural providers have seen their bad debt and charity care climb as a result.

“We are exploring how to bolster rural hospitals, not repurpose them,” Howard said. “Had our rural hospitals not been able to care for who they could during the pandemic, our urban hospitals wouldn’t have been able to take on that volume.”

Congress recently passed a new operating model for rural hospitals, although industry observers warn that it could widen rural America’s access gaps.

Critical-access and rural hospitals with fewer than 50 beds can convert to the new Rural Emergency Hospital status. It aims to buoy rural hospitals with very low inpatient volumes, which averaged around 38% in 2016, according to Modern Healthcare’s research. 

They would replace all their inpatient care. Instead, they would offer outpatient services, including around-the-clock emergency care, observation, nursing facility services and ambulances. Starting in 2023, those hospitals would receive a Medicare outpatient rate that is 5% higher than what full-service hospitals receive, in addition to monthly facility payments. 

“One of big problems with that program is it doesn’t allow for operation of swing beds,” said Brock Slabach, chief operations officer of the National Rural Health Association. “That has been a valuable program in many rural communities, so hospitals will have to seriously look to see if that would make sense.”

If hospitals can forgo their inpatient beds, the Rural Emergency Hospital model could be viable, said Robert Monroe, general counsel at the healthcare consulting firm Advis. 

“You want to find gaps that exist in your locality,” he said. “Then you can turn to local employers to do bundled service plans—there is a scope of creativity that doesn’t have a lot of limit.” 

A lot of rural hospitals have the payer mix to qualify for the 340B drug discount program, for instance, experts said, who also noted a widespread need for behavioral health services. 

Cutting services has an immediate impact on a hospital’s income. But it’s hard to measure the hit to morale, the loss of the community’s trust and other negative ripple effects over the long term, said Eric Shell, a principal at the consultancy Stroudwater Associates.

“So many rural hospitals don’t lead with the abundance mindset; they’d rather focus on cuts,” he said. “You can’t cut anymore in the state of Alabama.” 

Efficiency vs. surge capacity

Excluding the pandemic, many rural hospitals’ occupancy rates remain dangerously low. But COVID-19 illustrated the importance of having surge capacity, industry observers said. 

Nearly two-thirds of rural hospitals do not have intensive-care beds, according to data from Chartis. Even if they do have capacity, more than two-thirds of rural residents bypass their local hospital for low-acuity care, research shows. 

“A lot of these facilities are one physician retirement away from of not being viable,” said Jeff Goldsmith, president and founder of the healthcare consultancy Health Futures. 

About 21 rural hospitals closed over the past two years, according to data from the University of North Carolina. There have been 138 closures since 2010. 

Hospitals in non-metro areas, as defined by CMS, only had 1.3 ICU beds per hospital, according to Modern Healthcare’s analysis of Medicare cost reports. There are nearly 21 per hospital on average in metro areas. 

But when COVID-19 hit last March, Whitfield was prepared, thanks to its clinical affiliation with UAB. Area hospitals without telehealth infrastructure for critical care and nephrology sent patients to Whitfield, rather than a tertiary hospital bed. 

“(Alabama) was out of ICU beds for about two and a half months straight, which is when we became a referral center for tertiary care,” Brewer said. 

“If we didn’t have that, lots more people would’ve died,” UAB’s Wallace said. 

Demopolis is one of the poorest communities in the country with one of the highest rates of chronic disease. 

About half of the patients who come through the ED had acute renal failure and, prior to 2018, had to be transferred. Patients may have to wait longer for an ambulance as a result, and more money would be unnecessarily funneled into the healthcare system. 

Fewer patients are treated at night, which makes it harder to afford a hospitalist to staff the ED. A single UAB hospitalist could serve 15 rural hospitals, reducing overhead expenses. 

“Whitfield is a prime example of how we can change rural healthcare,” Wallace said. “Some rural hospitals say I could keep more patients here if we had an echocardiogram. Now the hospital has the money to pay for an echo and echo tech and generate the business case. If more rural hospitals can’t stabilize financially and we have another COVID surge, we are up a creek.” 

Hospitals have had to pay their staff more to remain competitive, and those costs aren’t going away, said Don Lilly, chief network and affiliates officer at UAB Medicine. 

“If hospitals don’t have new revenue sources, I don’t know how some of the smaller facilities are going to make it,” he said.