The Michigan budget deal reached late last year restored roughly $25 million to rural hospitals, halting the financial axe that was about to come down on its 70 rural hospitals. Losing those funds would have cut budgets to the bone: northern Michigan-based Munson Healthcare System (Munson) stood to lose over $5 million, a large sum considering Munson barely cleared $1.5 million as reported in its last IRS Form 990 filing. Putting those dollars back into rural hospitals, together with a 7% increase in Medicaid outpatient rates for all hospitals, provides a chance to develop some long-term fixes for survival.
Financial pressures could force as many as one in five rural hospitals to close in the U.S. And since 2010, data shows that over 100 rural hospitals have already closed.
Problems with rural healthcare delivery have been decades in the making, and rural hospitals in Michigan aren’t unique. An analysis released last year by healthcare consulting firm Navigant, indicates financial pressures could force as many as one in five rural hospitals to close in the U.S. And since 2010, data shows that over 100 rural hospitals have already closed.
Vital access to care
Rural hospitals serve areas of low population density, and they provide crucial access to local care. In Michigan’s Upper Peninsula, for example, the Dickinson County Healthcare System serves Iron Mountain area residents, with bigger hospitals an hour-and-a-half away in either direction. “We need our hospital in our area,” said Dickinson County Healthcare Board Chair Margaret Minerick, in a Bridge Magazine interview. But fixed costs, including diagnostic tools (think MRI scanners) and 24-hour emergency rooms, coupled with relatively low usage for in-patient hospital beds, make it a strain to keep the doors open for many rural hospitals.
“A hospital closure is a frightening thing for a small town,” said Patti Davis, president of the Oklahoma Hospital Association in a report published by Gatehouse Media. “It places lives in jeopardy and has a domino effect on the community. Healthcare professionals leave, pharmacies can’t stay open, nursing homes have to close and residents are forced to rely on ambulances to take them to the next closest facility in their most vulnerable hours.” This snowball effect goes beyond medical care: new businesses are unlikely to select an area without a hospital. Attracting and retaining workers becomes a tough sell without this essential service.
The health and economic well-being of nearly 60 million people living in rural communities is heavily intertwined with its hospitals. In Michigan, $3 billion makes its way into local economies from direct and indirect jobs created by Critical Access Hospitals.
Critical economic impact
The health and economic well-being of nearly 60 million people living in rural communities is heavily intertwined with its hospitals. In Michigan, $3 billion makes its way into local economies from direct and indirect jobs created by Critical Access Hospitals, a federal designation held by 37 rural hospitals in Michigan that have fewer than 25 inpatient beds and are located at least 35 miles from another hospital. The Navigant study suggests that as many as 150,000 jobs could be eliminated in 430 hospitals across 43 states in rural America.
Financial causes of rural crisis
Fixed costs are only part of the difficult financial landscape for rural hospitals. Rural patients have higher rates of chronic disease, and also trend older compared to metro areas. These populations can experience long and expensive periods of medical care, including hospitalizations. In percentage terms, poverty and unemployment rates in rural areas are higher than in metro areas. This translates into a larger proportion of uninsured and under-insured patients. When patients can’t afford to pay their medical bills, hospitals often have to assume the cost – called uncompensated care – and it hits their bottom line hard.
High deductible plans and plans with serious gaps in coverage are sometimes the only insurance a person who does not qualify for Medicaid yet is low-income can afford – until they actually need coverage. Medical bills mount quickly, and once insurance doesn’t pay, uncompensated care skyrockets for hospitals and bankruptcy looms for individuals. Worse yet, people go without care until their conditions require massive intervention or cannot be addressed at all.
States that have expanded Medicaid coverage under the Affordable Care Act (ACA) have been better positioned to avoid rural hospital closures than those not participating in the expansion, according to a number of studies. Kansas, a state that rejected Medicaid expansion, has almost twice the rate of hospitals operating at a loss than the national average.
Hospitals have responded to the financial pressures in number of ways.
Hospital mergers have increased,with larger systems acquiring smaller ones. The results have been mixed. Some hospitals have improved financial performance after merging, though reductions in patient services were also likely to be part of the merged environment, according to a recent article in Health Affairs. Merged systems consolidated and actually provided fewer onsite diagnostic imaging technologies and obstetric and primary care services.
Job and wage cuts have occurred at both merged and non-affiliated rural hospitals. The Dickinson County Healthcare System imposed pension cuts and whittled its workforce by over 100 employees as patient counts continually fell since 2017. Chippewa County War Memorial Hospital in Sault Ste. Marie reduced employee pay by 10% in 2014 and again in 2018. About 80 jobs were cut as losses mounted, though 2019 revenues showed a slight uptick at the Sault Ste. Marie facility, which, for now, remains independent.
Curtailing essential specialized medical services has been noted with concern by the Centers for Medicare & Medicaid Services (CMS), particularly in the area of maternal health. Nearly half of all rural counties in the U.S. go without obstetric and gynecologic services, resulting in a majority of rural women having to drive at least 30 minutes to obtain these services, and 10% having to drive 100 miles or more. Obstetric wards have closed in three rural Michigan hospitals in the last 18 months, with a total of 11 having shut down labor and delivery services since 2008.
Staff recruitment struggles
Financial pressures are exacerbated by another vexing problem for rural hospitals’ survival: attracting and retaining medical professionals, specialists in particular. Long on-call hours, and travel between facilities that can be hours apart isn’t appealing to anyone, though that’s precisely what’s required of specialists in a rural setting. When the doctor is in only a day or two per week, health outcomes suffer as well. Preventable hospitalizations, more emergency room visits, and even higher mortality rates disproportionately occur in rural areas, and lack of specialty care is cited as a cause. Data from the Centers for Disease Control and Prevention (CDC) shows that 57 percent of deaths from chronic lower respiratory disease in rural areas were preventable, compared with only 13 percent preventable deaths for those with the same condition in urban areas.
But finding specialty doctors isn’t easy. Sault St. Marie hospital CEO David Jahn, interviewed in a Bridge Magazine story about rural hospitals in crisis, said they’ve been trying to replace one of two staff orthopedic surgeons for over two years, as well as a staff urologist who’s been gone for nearly a year. Specialty care isn’t just critical to health outcomes; it also represents a significant portion of hospital revenues. The orthopedic surgeons Jahn referred to account for 10 to 15 percent of hospital revenues.
Currently, only 11 percent of the nation’s physicians practice in rural communities, even though roughly 20 percent of our nation lives there. Medical students who grew up in a rural environment are more likely to practice there, but they represented less than 5 percent of incoming medical students in 2017. Ideas to ramp up the volume of rural medical practices have included getting medical schools to add a rural care component, and forgiving medical school debt when a medical professional practices in a rural area. The CMS has implemented changes allowing physician assistants (PAs) and radiologist assistants (RAs) to practice more broadly under physician supervision. Changes in telehealth and communication technology are also being expanded under CMS guidance.
Seeking a cure
Addressing the rural healthcare crisis is obviously important for the millions of patients and the communities that depend upon these vital services. Progress is possible with the right mix of funding and policy changes, though there are many moving parts within the healthcare landscape that must be coordinated. In broader terms, how we handle this crisis may provide valuable lessons as we debate the larger healthcare picture in America.
