In this third part of a three-part series, North Carolina Health News looks at the challenges facing rural hospitals and what it means for small communities when the local hospital merges with a larger hospital system.

Today’s story looks at the evolving model of health care delivery in rural counties and what benefits rural counties derive from keeping a hospital in town.

By Rose Hoban, with reporting by Brenda Porter-Rockwell

In Anson County, a new kind of hospital is taking shape.

The old, 52-bed inpatient hospital in Wadesboro, built in the 1950s, is going the way of fee-for-service reimbursement for medical care. In its place, a new, single-story building is under construction.

But the biggest difference between the old and the new hospitals? There will be fewer than half the number of inpatient beds in the new facility.

Anson Community Hospital has been licensed for 125 beds, but according to Gail Rosenberg, vice-president for externals affairs at Carolinas HealthCare System, which runs the hospital, they had not used that capacity in years.

“We closed the operations on one floor because the census had declined considerably,” Rosenberg said, “and the census continued to decline.

Now the census is so low at that facility, but the need for outpatient services is considerable. So rather than reinvest capital in a facility that was no longer what the community needed, Carolinas HealthCare System and community leaders have designed a different model for Anson County.”

“We knew the old hospital was in need of upgrading and would require significant capital investment,” said Anson County Manager Lawrence Gatewood.

Gatewood pointed out that his county has only about 27,000 residents; many of them are uninsured and about a quarter are eligible for Medicaid. The county has high rates of obesity, diabetes, heart disease and other chronic conditions.

So when Carolinas HealthCare System came to the Anson County Board of Commissioners and proposed building a new facility that focused on outpatient care, the county jumped aboard.

In the new facility, due to be completed in 2014, the majority of hospital services will be done in a freestanding emergency department, with outpatient clinics for follow-up and ongoing care. Many who need beds will be in a nursing home facility on the same campus.

Many rural communities are in similar situations. What’s very often needed is not a new hospital, per se, but a new way of thinking about delivering health care in a world in which the payment structure is going to be dramatically different.

Meanwhile, these counties still need the jobs and infrastructure that a local health care facility provides.

Artist's rendering of the new Carolinas HealthCare facility in Anson County.
Artist’s rendering of the new Carolinas HealthCare facility in Anson County. Image courtesy Carolinas HealthCare.

Rethinking the model

All these changes are of the sort Kevin Schulman likes to see happening. Schulman is a health economist at Duke’s Fuqua School of Business. Schulman said the model that’s financed hospital care and made hospitals into economic drivers for small communities in decades past is changing – fast – and hospitals need to change or whither.

What might really be needed, he said, is a rethinking of how to organize rural health care.

“It’s critical to decouple the needs of communities from the needs of a particular hospital, a particular facility,” Schulman said. He said in the past the thinking was what was good for the hospital was good for the community.

But now, many rural hospitals struggle to stay afloat, in no small part because many rural counties are poorer and have a less favorable payor mix, with more Medicaid and Medicare recipients — who pay only a percentage of the cost of care – more uninsured patients and fewer patients who have well-reimbursed commercial insurance coverage.

According to statistics compiled by the N.C. Hospital Association, rural hospitals have an average of 75.4 percent Medicaid, Medicare and uninsured patients and only 21.8 percent commercially insured patients. For urban hospitals in the state, only 68.2 percent of payers are Medicaid, Medicare and uninsured and 28.5 percent are commercially insured.

“These businesses are very leveraged and they’re very fixed cost heavy,” Schulman said, “and so they’re vulnerable to even small changes in reimbursement.”

But Schulman said now is the time to be creative. That could be by allowing some rural hospitals to close, replacing them with beefed-up emergency medical systems, like what’s happening in Anson Country. Or it could be by doing more telehealth, or creating a “EMS system on steroids,” or having rural hospitals specialize in only one or two critical local needs while referring the rest to the best place for care, rather than expecting the hospital on Main Street to do it all.

“What are the resources we can afford to put in place to meet the needs of rural communities?” Schulman wondered aloud. “The only thing we know going forward is that needs will increase, with the aging population and the continued existence of vulnerable groups.”

Click on image to open a PDF of all the health systems in North Carolina.
Click on image to open a PDF of all the health systems in North Carolina. Graphic courtesy NC Hospital Association

But those economics remain difficult, even when the hospital managers are embracing cutting-edge models of care delivery.

“One of the best little hospitals in the west is the hospital in Bryson City,” said Steve Crane, a primary-care physician who is also trained as an economist. He heads the primary-care service for the Asheville-based Mission Health and spends a lot of time traveling the western part of the state.

Crane was singing the praises of MedWest-Swain Hospital, also run by Carolinas HealthCare System, one of Crane’s competitors in the west. MedWest runs small hospitals in Swain, Haywood and Macon counties.

“There are few or no inpatient beds,” he said. “What they primarily do is, they have a thriving, busy outpatient network, with office practices right on campus and an urgent care, emergency department where patients are stabilized and transferred.”

Crane described a facility where specialists come out to see patients a few days each week, and the physicians who are there full-time have the support of telehealth services.

“It’s not a full-service hospital, but the community does have round-the-clock medical care,” Crane said.

Even in the rural areas, they can still support the acute medical needs of a population, and it’s far easier to do that in a network than alone.”

But the story could have an unforeseen ending: MedWest lost $600,000 in the last quarter due in part to a 2 percent cut in Medicare reimbursements that came as a result of sequestration.

Now several of MedWest’s hospitals are considering spinning off on their own. <>

Keeping the jobs, changing the culture

Part of what has to happen is for rural communities to embrace the change that’s happening around them said Schulman, Crane and others.

“We realized the old hospital, the old model couldn’t continue,” said Gatewood, the Anson County manager.

He said his board of county commissioners was happy when Carolinas HealthCare System representatives showed up and talked about building a new facility utilizing a newer model of care. And with large tertiary-care hospitals in Union County, 20 minutes away, and Charlotte, an hour away, people in the community were willing to get on board with the arrangement.

But outright acquisition is not the only way for hospitals to gain some financial security. For example, Pardee Hospital, in Henderson County, signed a management agreement with UNC Health Care, while retaining its independence.

“Pardee is not for sale,” said CEO Jay Kirby. “It is owned by Henderson County and operated by an 11-member board appointed by the county commissioners. We have found that to be very beneficial.”

The management agreement, Kirby said, gives them “stronger bench strength” in terms of group purchasing.

For other community hospitals, that not’s enough.

“Our board felt that a management agreement was not the way to go,” said Bob Singletary, CEO of Maria Parham Hospital in Vance County. “They felt like they needed someone who had more ‘skin in the game,’ if you will.”

Sometimes the intransigence of the old-guard hospital board can get in the way,” said Crane.

“Having grown up in a little town, I understand small-town chips on the shoulder,” he said. “I mean, some ‘suit’ from the big city comes and tells you how to run your hospital – it can rub people the wrong way.

Especially if you have boards where the members have been there for 20 years or so, and they’re typically still thinking in the past. Potential partners come in to talk about new ways of doing things, but all the board wants to know is. ‘What are you going to do for us?’”

Crane said the situation is different in every town, and sometimes a hospital board really embraces change.

“Sometimes you get lucky and it’s a great mix,” he said.

Jeff Spade of the Hospital Association’s NC Center for Rural Health said that’s been the case in Caldwell County, where the hospital board recruited someone to coach the board in new management techniques.

“Where I’ve seen major change is when the board gets engaged in the change,” he said. “You do see boards making those kinds of adjustments and improvements to lead their organizations in the right direction.”

Health care is going to change, whether we want it to or not,” Spade said.

Broader considerations

No matter what local patients and boards might think about their hospital’s new corporate partners, many people may find themselves holding back on the criticism when they consider the employment conditions in their small towns.

According to the state Employment Security Commission, the local hospital is one of the top 10 employers in at least 75 North Carolina counties, many of them rural. In the majority of those counties, the hospital is one of the top two or three employers, often jockeying for number one with the local school district.

Another consideration is that mergers also sometimes mean additional investment in the community. As part of its merger agreement with Alamance Regional Hospital, Cone Health System will invest in a $54-million community fund designed to support health-related programs and services in the community, with an emphasis on low-income residents.

Health care analysts say the biggest community benefit to mergers, acquisitions and affiliations is that communities still have a hospital downtown, creating jobs, once the ink is dried.

“That’s not a trivial consequence,” said George Pink, a health economist at the Chapel Hill-based N.C. Rural Health Research and Policy Analysis Center.

And it’s important to note that many merger agreements have promised no layoffs or employee firings at the smaller hospitals for at least a year.

“If you lose an employer like that, it has a negative multiplier effect,” said Crane.

“Those folks leave town, the nurses, and the technicians move away to find new jobs, and suddenly you’ve not only lost the hospital, but a huge core of your economic base.”

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Brenda Porter-Rockwell's experience spans more than a decade of writing, reporting and managing publications (for- and non-profit businesses and public relations agencies) on topics ranging from local...