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With Hospitals in Critical Condition, Can Rural America Survive?

The worrisome state of rural health care has led many to wonder.

After 45 years of providing health care in rural western Missouri, Sac-Osage Hospital is being sold piece by piece.
They may be the only places that provide health care for a hundred miles, and they may be the main source of local livelihoods. But rural hospitals are very much an endangered species. Nearly 30 percent of the nation’s 2,000 or so rural hospitals are likely to close in the next two years.

Rural hospitals have faced closure crises before, particularly in the late 1980s. This time around, however, the threats run deeper and are more challenging. While some states are taking steps to save hospitals operating in rural areas, there are growing barriers to the financial sustainability of these institutions. The decline and possible fall of rural hospitals mirror an existential question: Can rural areas themselves survive?

The present crisis got underway in 2010, according to Alan Morgan, chief executive of the National Rural Health Association (NRHA). After a decade of almost no rural hospital closures, 74 rural hospitals across the country have since shut their doors. In 2013, more than one-third of rural hospitals were operating at a deficit, according to NRHA.

A cause of the crisis can be traced back in large measure to the Affordable Care Act (ACA). The health reform law increased access to care in all states, but it also upended the overall health-care system by encouraging a move away from a traditional fee-for-service model. As that happens, critical-access hospitals -- hospitals in rural areas that have no more than 25 inpatient beds but provide emergency care -- are hurt. Critical-access hospitals were created in response to the rural hospital closure crisis in the late 1980s and have been reimbursed 101 percent of each service a Medicare patient uses in the hospital. The system is entirely reliant on fee-for-service, so a move away from that model could potentially spell devastating consequences for the future. “People often describe the program as a leaky life raft,” says Tim Putnam, president of Margaret Mary Hospital, a critical-access hospital in Indiana.

That isn’t the only leak. With the new law came new regulations and mandates. Hospitals have to adopt electronic health records and new forms of reporting, or face penalty fees for not complying with new initiatives. These regulations tightened finances for many hospitals, but especially rural ones which operate with a much smaller and less flexible financial base. Adding to the fiscal pressures, the ACA made at least eight reimbursement cuts for care provided to Medicare patients. 

But the rural hospitals that suffered the most were those in states that didn’t take up the ACA’s provision to expand Medicaid coverage at the federal government’s cost. In Kansas, for instance, the state hospital association has told lawmakers that the state’s failure to expand Medicaid is having dire consequences. One hospital, for example, would receive about $1.6 million more in one year if the state expanded its Medicaid coverage. 

Indeed, ACA regulations are not entirely to blame. In many cases the law simply exacerbated issues that were already there, such as the difficulty of retaining physicians in rural areas, or young people from rural towns moving into urban areas, or low Medicaid and Medicare reimbursement rates, which have been further exacerbated by a 2 percent across-the-board cut on Medicare payments as part of Congress’ sequestration. “All of these things,” Morgan says, “have created a perfect storm for rural, already vulnerable hospitals.”


Previously, there was no real way to keep tabs on rural hospital closures unless the National Organization of State Offices of Rural Health reported them. So when Morgan and his team at NRHA wanted to know where this trend was heading, they teamed up with the Sheps Center for Health Services Research at the University of North Carolina and iVantage, a health analytics firm. The goal was to identify rural hospital closures when they happen and collect a snapshot of how many rural hospitals are struggling and where they are.

In their research, iVantage found 210 hospitals that were the “most vulnerable,” meaning they could potentially close tomorrow. Another 463 hospitals were simply labeled as “at risk,” meaning they could close at any point in the next couple of years. The firm looked at factors that include financial stability, population health and health outcomes. The majority of these vulnerable hospitals are nonprofit facilities, although government-owned and private hospitals are also well-represented.

While no particular rural area of the country is safe from hospital closures, Morgan notes that “if you pull up a map of where conditions like diabetes, hypertension, obesity are most prevalent, those are the areas that have seen the most rural hospitals close.” In effect, he’s referring to the southeast corner of the country, where those chronic conditions are dishearteningly prevalent.

Georgia has been especially hard hit by the closure crisis. More than half of its rural hospitals are classified as at risk, and five of them have closed in the past five years. Another 18 are predicted to close in the coming years. Medicaid expansion there could be seen as a quick fix, at least in the short term, but it isn’t on the table. State employees aren’t even allowed to advocate publicly for it.

Instead, Gov. Nathan Deal signed into law a tax credit bill that gives individuals and businesses a chance to donate to rural hospitals in exchange for a state income tax credit. Individuals contributing to rural health care can apply for 70 percent of the amount of the contribution, or $2,500, whichever is less. Businesses donating can receive 70 percent of the amount they contribute, or 75 percent of their state income tax liability, whichever is less. Estimates suggest that over the next three years, up to $300 million could be disbursed among the state’s rural hospitals.

In 2014, Deal also created the Rural Hospital Stabilization Committee to explore different ways to keep rural hospitals open. The committee decided to try a “hub-and-spoke” model of care in four pilot sites across the state. In the pilot areas, the “hub” is the local hospital, and the spokes are other health systems: local federally qualified health centers, health departments, private physicians and telemedicine providers. The idea is to transfer people whenever possible to the “spokes” to relieve some of the financial pressure of providing costly specialized care on rural hospitals and their emergency departments. The program kicked off last year.


A sign hangs at the emergency entrance of a now-closed hospital in rural Belhaven, N.C. (AP)

Michael Topchik, senior vice president of iVantage, isn’t convinced that a hub-and-spoke model will do much of anything to help save rural hospitals. “When you employ a hub-and-spoke model, you’re just shipping the cost of care to other health systems in the area,” he says.

Each of the four pilot sites received grant money to implement a program they felt would best serve the health needs of their own community. The funds were set to expire in June, but were recently extended to the end of the year to see how well these programs actually work, reports Patsy Whaley, the director of Georgia’s State Office of Rural Health. “One goal that’s been really uniform among the sites is the expansion of telemedicine, especially in schools and federally qualified health clinics,” she says. “It’s remarkable, especially in the school setting. Some of these children haven’t seen a doctor in two or three years.”

Although issues of Internet access and reimbursement hover over it, telemedicine has emerged as a beacon of hope. The need to embrace it is important to the future of rural health care and the people who live in rural areas. “It’s just so cost-effective for the patient,” says Charles Owens, an associate professor at Georgia Southern University’s College of Public Health, adding that by using telemedicine within school settings, “we’re normalizing it for our next generation.”

Louisiana, a state where 58 percent of rural hospitals are considered vulnerable, hasn’t seen any close so far. In 2013, state lawmakers took action by setting up the Louisiana Hospital Stabilization Fund. It allows hospitals to pool their money, which then qualifies them for additional matching Medicaid funds from the federal government. The fund encourages hospitals to accept Medicaid patients while giving them an additional revenue source. It’s a key reason the state hasn’t had any rural hospital closures, Topchik says.

This spring, newly elected Gov. John Bel Edwards signed an executive order to expand Medicaid eligibility under the ACA, a reversal of the policy of former Gov. Bobby Jindal. The expansion should help rural hospitals’ bottom line by decreasing the percentage of patients who can’t pay for care and increasing the percentage of those whose hospital bills can now be covered by Medicaid.

Beyond expanding Medicaid and telemedicine options, another potential solution to help stem the tide of closures is hospital consolidation. At least 121 rural hospitals were bought by larger, urban-based chains between 2005-2012. The results, however, have been mixed.

The positive news is that many rural hospitals that are part of a merger have access to capital, something they hadn’t had. That capital, says George Pink, deputy director for the North Carolina Rural Health Research and Policy Analysis Center at the University of North Carolina, “can be used for quality improvement projects that otherwise would have never gotten done.” 

Pink also notes a downside. “I have heard that some of the larger hospital chains don’t understand the realities of rural America, and there’s a misunderstanding of local culture. So there’s two sides of it.” In addition, patients often face higher costs when their local hospital is bought up by a larger chain.


(David Kidd)

What is most worrisome about the current closure crisis isn’t that it’s happening, but that there’s no end in sight. For rural health workers and advocates, the predicament has created a greater existential question: Without access to health care, can rural communities continue to exist? Or, as Morgan puts it, “Will rural life even be an option going forward? It’s a big question we’ve been ask-ing ourselves.” 

There isn’t an easy answer, but many health experts say it’s up to a particular community, county and state to decide what works for their population. There won’t be a one-size-fits-all fix. “The hospitals need to be having conversations with local health departments and the federally qualified health clinics to figure out the best way to deliver care in their community,” says Owens, the Georgia Southern University professor. He noted that based on an evaluation of need in the community, a hospital in Mississippi recently closed its ER and replaced it with a nonemergency inpatient clinic. “That’s something for people to think about,” he says. “Are there service lines in your community that could be cut?”

Conversations around cutting services such as an ER aren’t easy ones to have, especially in areas where residents may have died unnecessarily because a hospital ceased offering a particular service or because it closed entirely. While experts say it’s tough to study the correlation between deaths and disease in areas that have been hit with hospital closures, “when you talk to the people left behind, there are a lot of stories there,” says Putnam, the president of an Indiana hospital. He mentions one particular anecdote: A child choked to death after the parents drove to the nearest ER only to find that the hospital had just closed.

On the federal level, Rep. Sam Graves of Missouri and Rep. Dave Loebsack of Iowa introduced the Save Rural Hospitals Act last July. The bill, which cites iVantage’s research findings, proposes eliminating Medicare cuts, providing grant funding to keep rural hospital doors open and delaying the penalty 

fees for failing to make meaningful use of electronic health records. The NHRA has come out in support of the bill. Another similar bill -- the Rural Emergency Acute Care Hospital Act -- was introduced by senators Chuck Grassley of Iowa and Cory Gardner of Colorado last year. Neither bill has made it out of committee. 

As more laws, initiatives and programs are proposed to stabilize the situation on the local level, rural health experts think federal regulators and policymakers need to be more sensitive to the reality of rural health care and the impact of some of the more burdensome regulations on a community hospital serving 4,000 people. 

“Rural health is all about population health. That’s great when you look at the shifts that Medicaid is making,” Putnam says, adding one addendum. “The future is great for the hospitals who can survive this.” 

*Source of Infographic: iVantage Health

Mattie covers all things health for Governing.

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