Report Finds Almost 700 Hospitals at Risk of Shutting Down

Sixty-eight rural hospitals have closed since January 2010. Hundreds more may be on the brink, including more than a third of critical access hospitals.

By Taylor Sisk

As has been widely reported in recent months, rural hospitals throughout the country face some daunting challenges. Now a new report helps put the extent of this issue into perspective.

According to the study, iVantage Health Analytics’ “2016 Rural Relevance: Vulnerability to Value” report, released last month, 673 of 2,078 rural hospitals are “vulnerable or at risk for closure.” Of those 673 hospitals, 210 were found to be most vulnerable, with 463 more deemed to be less so but still very much at risk.

Two-thirds of those 673 are critical access hospitals, small hospitals with fewer than 25 beds serving communities more than 35 miles from the next nearest hospital. This means 35 percent of all hospitals serving the majority of the nation’s most remote communities are in precarious positions.

North Carolina has 51 rural hospitals, 20 of which are critical access. According to iVantage’s data, 16 of those are vulnerable. (iVantage doesn’t share individual hospital performance ratings.)

The repercussions

The North Carolina Rural Health Research Program reports that 71 rural hospitals have closed throughout the country since January 2010. Southern states have had a disproportionately high share of these closures.

The life-and-death threat of rural hospital closures is debatable, but there are, unquestionably, quality-of-life repercussions. These include the termination, or at least disruption, of longtime patient/provider relationships; access issues due to greater distances to care; and the need to think strategically about the community’s ongoing health care needs and, in most cases, to find partners to meet those needs.

Then there’s the effect on the local economy.

Health economist Mark Holmes. Photo courtesy of the UNC Gillings School of Global Public Health

“In many rural counties, the hospital is one of the two largest employers,” said Mark Holmes, co-director of the Program on Healthcare Economics and Finance at UNC’s Cecil G. Sheps Center for Health Services Research. “Efforts to shore up rural hospitals are efforts to conduct rural economic development.”

Should those 16 North Carolina rural hospitals iVantage classified as vulnerable shut down, the report states, 3,436 health care jobs – and some 4,000 more throughout these communities – would potentially be lost.

The potential loss to the state’s economy would be $9.6 billion over 10 years.

Most in need, most vulnerable

iVantage assigned strength ratings using 71 measures in nine categories, including market share, cost, quality, outcomes, patient perspective and financial stability.

According to the report, “some of the most financially vulnerable hospitals serve some of the most vulnerable populations. Thus, if rural hospitals continue to erode, some of our most vulnerable residents will be most impacted.”

In other words, communities that can least afford to lose access to health care will lose it.

Signs supporting Pungo Hospital dot the roadsides near Belhaven, a small coastal town. Belhaven’s single stoplight is visible in the distance in this 2014 photo. Photo credit: Hyun Namkoong

The research indicates that 671 rural hospitals serve communities in the bottom fourth of iVantage’s Health Disparities Index. The index is determined by applying county-level scores that comprise 12 equally weighted measures that include adult obesity, diabetes screening and smoking rates, and the availability of primary care, mental health and dental providers.

Also included are child poverty rates, unemployment, percentage of uninsured, housing concerns, graduation rates and Medicare spend per beneficiary.

‘Increasingly difficult’

“All hospitals in our state are challenged by declining payments for government-sponsored health care, narrow network health plans and increasing out-of-pocket costs for privately insured patients,” said North Carolina Hospital Association spokeswoman Julie Henry.

Henry cited federal sequestration, bad-debt reimbursement cuts, reductions in disproportionate share payments and the decision by some states not to expand Medicaid as allowed for under the Affordable Care Act as creating “significant downward pressure on rural hospital margins.”

“Key policies such as sequestration in early 2013 and bad-debt reimbursement alone represent hundreds of thousands of dollars off the typical bottom line to a rural hospital,” she said.

Between 2012 and 2015, the rate at which the federal government reimburses critical access hospitals for bad debt was reduced from 100 percent to 65 percent.

“The 35 percent cut for what had previously been seen as ‘charity care,’ largely for the uninsured, has been one of the key factors impacting the worsening financial performance of Critical Access Hospitals,” the iVantage report states.

This is especially evident, the authors write, in states that did not expand Medicaid as part of the ACA.

According to the N.C. Hospital Association’s “2013 State of the State” report, the average North Carolina hospital incurs a cost of more than $47,000 a day for uncompensated care.

Rural hospitals bear a relatively higher share of that care.

“As the [iVantage] study points out, rural hospitals face the additional burden of serving communities that are often older, sicker, poorer and less educated,” Henry said.

North Carolina’s rural hospitals, she said, “have been proactive in addressing cost and quality issues, seeking new models of care” and, often,“ aligning themselves with other providers to meet community needs.

“But the current climate makes it increasingly difficult for our state’s small and rural hospitals to stay financially viable.”

A major shift

The iVantage report underscores the fact that the nation’s health care industry is in the midst of a shift from volume to value.

“This transition means that all hospitals will be forced to chase the value curve, offering the best clinical care at the lowest possible cost,” the report states. “Finding opportunities for improvement in these early years is paramount to the success of the rural health safety net of the future.”

Last month, federal Department of Health and Human Services Sec. Sylvia Burwell announced a plan to accelerate the move to value-based reimbursement in Medicare payments. The plan calls for 85 percent of all hospital Medicare reimbursements to be tied to performance by 2016, and 90 percent by 2018.

Critical access hospitals now receive cost-based reimbursement from Medicare, which is typically these hospitals largest payer. But with competitor providers shifting to value-based programs, the iVantage report authors write that it will be “impossible to maintain these artificially supported/policy supported prices.”

iVantage calls the value-based reimbursement plan a “financial time bomb” for rural hospitals.

As the report indicates, value-based reimbursement policies create winners and losers. “Certain facilities that underperform compared to national benchmarks will likely forfeit significant amounts of Medicare revenue, while those dollars are used to compensate those facilities who excel.”

Bottom line: “The loss of [68] rural hospitals since 2010 is an alarming pace in the context of the last 30 years,” and the trend is accelerating.

[box style=”2″]This story was made possible by a grant from the Winston-Salem Foundation to examine issues in rural health in North Carolina. [/box]

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