INTRO COMMENTS: Hello and welcome to Modern Healthcare’s Next Up, the podcast for emerging healthcare leaders. My name is Kadesha Smith. I'm your host, and I’m also the CEO of CareContent, a digital strategy agency for healthcare organizations.
Today, we are talking about one of the major crises facing rural communities: the closure of rural hospitals.
There are more than 1,800 rural hospitals in the US — about 47% of them are operating in the red. As operating margins decline, more than 450 of these hospitals are financially unstable. And within the last decade, more than 120 hospitals have shut their doors.
That means 44 million Americans who live in rural communities may not have the medical care they need. In rural areas, there is an average of 13 physicians for every 10,000 people. In urban areas, it’s compared to 31 physicians for every 10,000 people.
Leaders at rural hospitals must get creative to stay afloat. Often, that takes a new set of eyes. However, rural hospitals struggle to recruit new leaders. Young doctors are enticed by the higher salaries and the larger growth opportunities at urban hospitals.
Retaining CEOs is also a challenge, with drop-off rates exceeding 20% — or even reaching 30% — in many communities. Whenever the top leader departs, this can lead to other staff leaving and overall instability.
The open CEO positions do create opportunities for aspiring leaders who do not want the competition of the bigger markets or who want to directly impact patients who are at risk of losing their access to care.
So today, we are talking with Alex Kacik, a Modern Healthcare reporter who has dedicated much of his work to covering the issues facing rural hospitals and the communities they serve. We’ll be discussing the specific challenges these hospitals are facing, and how new leaders can use innovation and creativity to keep these hospitals up and running.
SPONSOR MESSAGE: Before we hear from Alex Kacik, I’d like to acknowledge Masimo, the sponsor of this episode.
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MODERN HEALTHCARE: Now, let’s dive into our conversation with Alex Kacik about rural hospitals.
MODERN HEALTHCARE: Hello, Alex. How are you?
ALEX KACIK: I'm doing well. Thank you.
MODERN HEALTHCARE: Good, good, good. So, we're here to talk about rural health, how they have to get creative — especially during the COVID-19 pandemic — to stay viable, to stay open. So, before we dive into questions, I just wanted to share a few data points to shape our discussion.
First, after affiliating with major health systems we know that rural hospitals see an improved operating margin, but reduced patient services, such as imaging and obstetrics. We also know that some of the most common indicators for low margins and risks of closure include the ownership model. Rural, standalone hospitals are the most at risk, with 16.5% having lost money on an operating basis from 2012 to 2017. And that's compared with 42% of their counterparts in urban areas. And we also know the risk of closure is occupancy rates. In 2017, the median occupancy rate in rural hospitals was only about 32.4%, even though there's a general consensus that 70 to 85% occupancy is ideal for being profitable. Physicians are most likely to choose to practice in rural areas if they come from that area themselves, but less than 5% of incoming medical students in 2017 were from a rural community. My first question is, this may be obvious, but can you paint a picture of the risks our health system faces when rural hospitals are struggling or, worse, they're closing?
ALEX KACIK: Well, rural hospitals are often the economic bedrock of these local communities. They're typically the biggest employer, they generate a lot of ancillary economic activity. So, they're a crucial part of these communities, not only for what they represent but for the economic stimulus they bring. But within the healthcare continuum, they play an important role in that, you know, trauma services are needed sometimes. If you're in a rural part of Alabama or New Mexico, these are the only places to go to if you had a car crash, if you had some sort of emergency. You don't want to be traveling 30, 40, 50 miles to your nearest hospital. Obviously, it significantly reduces your chance of survival and hurts outcomes.
But they also provide a bit of a safety lever for bigger tertiary and quaternary hospitals where they'll take on a lot of the lower acuity of care, and that frees these bigger hospitals up to do the more complicated services. So, not only do they provide, you know, an important foundation for these communities, but they are an essential cog in the broader healthcare system as well.
MODERN HEALTHCARE: And for someone who is considering pursuing hospital leadership and might be an ideal fit for a rural setting, what are some of the major challenges that they might expect to face?
ALEX KACIK: It's just hard to get folks to want to move to some of these areas. If they want to be — if they want to stay in the area, that's one thing. They're homegrown, they know the area. But to get certain specialists into these rural communities is typically very hard, and especially when you know you have a dearth of primary care physicians, as well, which are an important piece of the modern medicine that's being embraced through the Affordable Care Act, where you're trying to do more preventative care. A lot of times, you know, there aren't the resources that can allow this type of care to take place, so recruitment is a huge issue.
You also face a myriad of issues related to, you know, waning Medicare reimbursement rates. You also have states that haven't expanded Medicaid. Hospitals and patients are incurring more bad debt, because, you know, they either go without insurance or they're under high deductible health plans, and they have to bear more of the cost. So, from a supply chain standpoint, you're not going to get the leverage you would get as if you were a bigger customer, a bigger hospital, that could bundle purchases. So, you have to have oversight into all these different issues and wear multiple hats if you're a leader of one of these rural hospitals.
MODERN HEALTHCARE: Based on just the years that you've been reporting on this, who's an ideal fit for leading a rural hospital? What type of characteristics do they have? What type of personality do they have?
ALEX KACIK: Well, they'd have to be pretty entrepreneurial. The successful ones that I've talked with have been able to adapt, which has been hard for the entire healthcare system. One of the hospitals I talked with a couple years ago — Guadalupe County Medical Hospital in Guadalupe, New Mexico — they were built as a result of an infusion of money through the Hill-Burton Act. And that created a lot of the funding that allowed these institutions to come about these smaller communities. But they were built, you know 50, 60, 70 years ago, in an ecosystem that's so much different than today. A lot of times, of Guadalupe County Hospital for instance, they had like 31 inpatient beds, but an average daily census of only a handful of patients, so their occupancy levels were well below 50%, which is never a good sign. They had to adapt, and they ended up reducing the number of their inpatient bed count to around 10 from 31. They doubled down on their primary care services, imaging, some dental, and other preventative care.
You have to be good with analytics and understanding, you know, what services are being used, and which ones aren't. That being said, consolidation of service lines is another common mitigation strategy to rural hospitals that aren't faring as well. It's always a balancing act. You always have to look at the trade offs and what you're trying to do and, often, you know, work closely with local leaders because they are such an important part of the local community
MODERN HEALTHCARE: So, it sounds like, you know, if you're going to be a leader in this setting, you have to be willing to make tough decisions quite a bit and not be afraid to prioritize.
ALEX KACIK: Indeed.
MODERN HEALTHCARE: So, you reported in a February 2020 Modern Healthcare article that, in states where they expanded Medicaid, providers are 62% less likely to close than those without the Medicaid expansion. Should leaders in non-expansion states become more active in policy change and advocacy?
ALEX KACIK: I'd say so. In Alabama, I talk with the hospital association there a lot, and they've been trying to make their case with their state representatives about expanding Medicaid. They said it really kind of shot them in the foot by when their governor decided not to do so. Just getting more people covered makes a more feasible financial picture out all these healthcare costs. They were also adamant about tweaking the Medicare wage index, which is a formula that's based on regional pay rates that determines their Medicare reimbursement rates. They said that that formula they use skews payment toward more urban areas. So, after a lot of advocating for policy change there, this CMS has started to roll out changes to tweak that formula. So, you know, during COVID-19, they've suspended sequestration, which is a 2% reduction in Medicare reimbursement rates over a set amount of years. So, you have issues like that, that are often coming to the forefront of these policy discussions from these states that have a lot of real operators.
Some states, too, don't have as many critical access hospital designations, which, if you do qualify for that, that increases your reimbursement Medicare reimbursement rates by a significant amount, but some providers that could qualify aren't necessarily getting that designation. So, you have to be aware of, not only that, but also all the supplemental funding. If you care for a disproportionate share of Medicaid patients, you know, that comes with additional funding. So, navigating these both state and federal resources to optimize reimbursement is critical.
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MODERN HEALTHCARE: And now, here are more thoughts from Modern Healthcare Reporter Alex Kacik.
MODERN HEALTHCARE: For some hospitals, they're joining together. They're becoming networks, they're becoming affiliated with major health systems. What are the pros and cons of creating networks versus becoming affiliated versus just remaining completely independent?
ALEX KACIK: It's been a continued goal of a lot of these standalone hospitals to try to find partners through some sort of merger or acquisition, but sometimes that can be a tough sell. Depending on the healthcare system they're looking to join with, you know, there's always risk associated with that type of integration process. So, you don't necessarily find a willing buyer right away. But the reason they're doing so many times is because of the aforementioned constraints when it comes to recruiting patients. A lot of times they have more resources and can offer better deals, higher salaries to doctors, specialists, nurses, even administrative staff. That goes a long way. Partnering or affiliating with a bigger institution can also help, where, University of Alabama Birmingham, for instance, has tried to work with a lot of the area providers, rural providers and shares some of its specialists with them. They send them over there like once a month maybe. So, that helps from a telemedicine standpoint. You could use some of their network infrastructure to try to improve some of the IT side of things. But also from the administrative and coding side, a lot of times these platforms and the systems they use aren't as advanced, so they could free up, from the administrative side, a lot of headaches that are typically plaguing these rural providers. From a supply chain standpoint, too, a lot of times they don't have the leverage with these vendors to negotiate better rates. So, especially during COVID-19, you know they're paying an even higher premium for PPE (personal protective equipment) like masks, given that they're not buying in bulk.
So, that's the reason they're looking for partners. Finding one is another issue, and COVID-19 has certainly thrown a lot of uncertainty into this.
MODERN HEALTHCARE: And that leads right into how COVID-19 has further threatens the future of rural hospitals. I mean, you've already mentioned that they don't have the buying power of hospitals in bigger areas. What are some ways that they are struggling, and then how are they weathering that storm?
ALEX KACIK: Not all rural communities have been hit by COVID-19 yet. It's been varied in terms of how much and where this has spread, but you typically don't have the number of intensive care beds, you don't have the respiratory therapists, other types of specialists that are needed for this type of disease. So, it doesn't take much to get overwhelmed by COVID-19. If there is a super spreading event, one 25-bed hospital in mid-March, in a small town in Indiana, they saw their census increase from like 15 patients at a time to about 28, so they almost doubled. And they had to purchase a handful of more ventilators to intubate patients. So,you worry about the capacity constraints of these rural areas, and how much they will be able to do, if they are hit.
MODERN HEALTHCARE: That's a great point, and I think if you're in an urban area, you don't think about that. I mean, we hear high numbers — thousands of patients a day, you know, testing positive and hospitals being inundated in urban areas. But, you think about a rural hospital, it would only take 10 people, and that would put them at capacity.
In a Modern Healthcare article previously, going back to Guadalupe County Hospital in New Mexico, you mentioned that they switched to a nonprofit corporate structure, and it was mainly a survival tactic. Is this a step that for-profit rural hospitals should consider?
ALEX KACIK: Changing that designation is pretty extreme. It takes a lot of groundwork and planning, and you had one administrator there that was kind of working behind the scenes prior to the collapse of this institution in the early 90s. So, I wouldn't say it's necessarily feasible for many to do, given that it requires a lot of regulatory expertise and planning. But, you know, they can look at paring down some service lines or maybe your inpatient bed count. As I said, Guadalupe County, you know, they reduced their inpatient bed count by over half. They have to look at, you know, what the emerging needs of the community are. If your community's being hit hard by substance abuse disorders, as we've seen with like the opioid epidemic, you look at trying to facilitate more treatment centers. So, it's really about, you know, meeting the needs of the current community rather than, you know, traditional what hospitals have been set up for, which has been more of a one-stop-shop. But that is not an efficient model, and granted, COVID has changed, and this public health emergency has changed, that outlook a bit on how many beds are needed for these emergency situations. It's really hard to be sustainable and to have these lower occupancy rates and have these relatively underutilized services, so.
But as I said to look at, you know, other designations you may be able to qualify for, like a critical access hospital or disproportionate share hospitals that serve high volumes of Medicaid patients. So, yeah, there are options, but you have to be relatively creative.
MODERN HEALTHCARE: Now, because this podcast focuses on up-and-coming leaders, what role does medical education, residency programs — what role does that play in a rural hospital's financial wellbeing? And how can they do more to make themselves appealing to young doctors and young administrators?
ALEX KACIK: Well, that's a really important point because a lot of this stems from the ability to get, you know, the right staff and leadership at these hospitals. You know, on the caregiver side, they've offered things like tuition reimbursement. So, some are saying, like, if we train you, you know, you've got to practice in this area for a few years and maybe give them even more of a stipend, or an investment if it's primary care or other high need type of practice. But from an administrative standpoint, you have to be always looking at, you know, what partnerships that you have, you know, with business schools and also nursing schools to see like what feeder programs you could set up to try to infuse your hospital with the staff. So, that's definitely a popular venue we're seeing today. We're seeing more academic medical center affiliations, so you're getting more of a pipeline of staff into your system. So, yeah, I think that will be an even bigger strategy going forward.
MODERN HEALTHCARE: Absolutely. Good. If you're a hospital in an urban area, and the rural hospital in a community outside of your catchment area closes, how does that affect you?
ALEX KACIK: Like I said, they kind of operate as a safety net. These rural hospitals will often deal with a lot of lower acuity care that isn't best suited for these bigger teaching hospitals that have all this specialized equipment and expertise and staff and resources. Keep these smaller institutions viable because, without them, you know, they're already operating these urban institutions at pretty high occupancy rates, and so, they're the ones often building new impatient towers, but, and then trying to expand their capacity. But without these smaller institutions, you know, they're going to see more and more patients come into their doors and, sometimes it's just for routine checkups, and that's not really their best use. So, you have this balance within the healthcare ecosystem.
That being said, some of the recent data from some of the studies that you've mentioned, Chartis came up with one, and Guidehouse came out with the other, you're talking about how much rural residents are bypassing their local provider. Many of them, even for lower acuity care, I think around 70%, are going to a bigger provider. I don't know if that's name recognition or what it is, but they'll need to find new ways to re-engage with the community, which probably plays into that leadership aspect we're talking about to try to understand, you know, what that gap is there.
How do you regain the trust of these local communities if it's not there? How do you ensure that they're trying to look to you first? Because, if they're going to closer provider, I mean, that's usually better for everybody. So, yeah, that'll be important going forward.
MODERN HEALTHCARE: How did you become interested in the rural healthcare landscape?
ALEX KACIK: Well, I thought it was interesting to try to document what role that these hospitals can play given that they are the biggest employer many times in these smaller towns and, as we see, I think we've seen like 120 or so, closures over the past decade, you know, what type of effect is that having on these communities in the modern healthcare landscape? We've specialized in data analysis looking at the numbers in terms of what the occupancy rates are and some of the financial metrics. But to be able to put a face and story behind the impact of our most local of healthcare systems, really helps humanize and contextualize these stories and brings more meaning to them, personally for me, when you can connect with someone who's worked there for 20 or 30 years and articulate what it means to have them close by.
MODERN HEALTHCARE: Wow. Good. Thank you so much for your insight on this.
ALEX KACIK: My pleasure.
OUTRO COMMENTS: Thank you, Alex. Rural hospitals may be facing closure, but they are fighting hard to stay alive and keep on providing care for their communities. We invite you to keep checking Modern Healthcare for more articles about the future of rural healthcare in the United States, especially throughout the current COVID-19 crisis.
Again, I’m your host, Kadesha Smith, CEO of CareContent. We help health systems reach their growth goals through digital strategy and content.
We’d again also like to thank this episode’s sponsor, Masimo.
For more information about healthcare leadership, go to modernhealthcare.com.
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