COVID-19 adding to rural hospitals’ financial challenges

Some rural hospitals that were already struggling financially are “at the precipice” because of the COVID-19 pandemic, the Arkansas Center for Health Improvement’s health policy director said.

Craig Wilson said late last week that rural hospitals are seeing less volume as patients forego needed services. Even emergency departments are seeing a reduction in visits. Many have invested in outpatient clinics but aren’t seeing enough volume to compensate for the reduction.

Wilson said the pandemic could be followed by a surge of patients whose chronic disease needs have not been met in the short-term. But it won’t make up the difference.

“A lot of these hospitals are operating on very thin margins from month-to-month, days’ cash-on-hand, and they’re at the precipice,” he said.

The pandemic has affected the bottom lines of both rural and urban hospitals. An interim financial impact study conducted by the Arkansas Hospital Association among nearly 80 hospital members found business disruption in March and April accounted for $271.08 million in revenue losses. Based on estimates, even with a return of some medical procedures, the hospital respondents estimated an additional $473.11 million in business interruption costs in May and June.

Those roughly 80 hospitals spent another $34.85 million on COVID-19 adjustments including capital costs for equipment, supplies such as PPE and tests, pay for furloughed workers, quarantined staff and more security and housekeeping.

Even with money through congressional funding relief and state assistance, the AHA projected up to a $615 million net loss through the end of June for its hospitals.

Jodianne Tritt, AHA executive vice president, said rural hospitals actually did better under the federal $2 trillion CARES Act than mid-sized and larger ones. Also not faring well under the law were specialty hospitals, rehabilitation providers and behavioral health facilities.

“While the smallest of the smalls probably did OK – they’re still not out of the woods, but they did OK – those larger hospitals need some relief,” she said.

The challenges related to the COVID-19 coronavirus are just the latest facing rural and other hospitals.

Tritt said over the last several years, more than half the state’s hospitals have seen a decrease in patient revenue in total operating margins. Payments from insurance companies have been static or declined.

“When you add a pandemic on top of that, then you put yourself in a real strained situation to be able to keep your doors open,” she said.

She said hospitals won’t close their doors immediately, but instead will eliminate services. Less than 40 in Arkansas now offer maternity, labor and delivery care.

While 52 rural hospitals closed between January 2010 and November 2019 in surrounding states, only one closed in Arkansas – DeQueen Medical Center, which shut its doors last May. Those numbers come from the Arkansas Center for Health Improvement using information from the North Carolina Rural Health Research Program. Crittenden Regional Hospital, an urban facility, also closed in 2014.

Wilson said Arkansas’ decision to participate in the Affordable Care Act’s Medicaid expansion, which provides private health insurance to a quarter million Arkansans, strengthened rural hospitals’ finances.

But many have aging facilities and lack expensive equipment that urban hospitals have. They don’t have the volume to justify investing in an expensive MRI. And they aren’t equipped to do the most profitable medical procedures like orthopedics and elective surgeries.

Wilson said health care providers like others are having to scale up on new technologies including telemedicine to deliver services in ways that were feasible a year ago but are quickly becoming the norm. That’s particularly true in the delivery of behavioral health services.

“That was certainly being done through telemedicine. It may now almost exclusively be done through telemedicine,” Wilson said.

But Wilson said many rural hospitals will struggle to afford the technical equipment they need to offer telemedicine. Urban hospitals are in a better position to make the transition.

Rural hospitals can do little about one of their persistent challenges. Arkansas is seeing a migration of residents out of rural counties.

A 2019 report by the University of Arkansas Cooperative Extension Service found that the state’s population grew 2.8% between 2010 and 2017, but the population of rural regions fell 2.5%. Populations declined in 52 counties, 50 of them rural, along with two urban counties, Crittenden (West Memphis) and Jefferson (Pine Bluff). Phillips County (Helena-West Helena) had the most population decline at 14%. Of the 17 counties with population declines of 6% or more, 14 were in the Delta or in southern Arkansas.

Of the state’s 13 urban counties, Benton County (Bentonville) showed the largest population increase at 20%. Of the six other counties showing at least 6% growth, five were urban: Washington (Fayetteville); Faulkner (Conway); Saline (Benton); Lonoke (Cabot); and Craighead (Jonesboro). The one rural county growing at least 6% was Greene (Paragould), located north of Craighead.

Wilson said rural hospitals are hamstrung by government regulations that make it difficult for them to change with the times. Many of their patients are covered by Medicare and Medicaid, which offer lower reimbursement rates than private insurance does. Hospitals can receive additional funding by being designated as critical access hospitals if they have no more than 25 acute care beds and are located more than 35 miles from another hospital. But much of health care is now performed on an outpatient basis.

“They were built to be able to have inpatient volume, and as that’s declined over the years, the business model has become stale,” he said.

Wilson said the pandemic will expedite the consolidation of health care providers and increase the reach of large systems in the state. Rural hospitals will become more of a triage unit that also offers therapies and services. If you’re going to spend long in a hospital bed, increasingly, you’ll do it in a city.

He said discussions have occurred at the federal level and were emerging at the state level before the pandemic about how to provide critical access hospitals with more flexibility so they can innovate and change their business model.

“At some point, we’re going to have to give communities the flexibility to right-size for their community. (That) may mean just a standalone emergency department for stabilization and for treatment of urgent needs, but if someone needs to be admitted, they can be transported in an expedient way to a hospital that can handle that,” Wilson said.