By Rose Hoban
Even as lawmakers in Washington, D.C. debate the fate of President Barack Obama’s signature Affordable Care Act, a hospital in rural North Carolina filed for Chapter 11 bankruptcy.
The 102-bed Morehead Memorial Hospital, located in the Rockingham County community of Eden, made the announcement Tuesday, informing staff at a morning meeting before releasing announcements to the public.
According to hospital spokeswoman Myla Barnhardt, the 700 or so members of the staff took the news well, in particular, because leaders told staffers that no layoffs were planned.
Chapter 11 bankruptcy gives organizations time to reorganize, unlike other kinds of procedures that compel organizations to liquidate assets to pay off creditors.
“They’ve been so positive and I was just going through some Facebook posts,” Barnhardt said, “and a lot of people have shared the articles that have been in the print publications. I’ve looked down at the comments from staff and they feel good about the hospital taking this step.”
According to IRS filings, the hospital has been either breaking even or losing money for several years. In the 2013 fiscal year, the hospital had $100 million in revenue but still lost about $5 million, drawing on a $9 million fund balance to pay outstanding bills.
In the 2014 fiscal year, Morehead broke even, but last year, Barnhardt reported the hospital had $74 million in revenue, and $6 million more than that in expenses, which would have swamped any remaining fund balance.
But Barnhardt remained upbeat. She said the hospital had hired New York strategic consulting firm Hammond, Hamlin and Camp to work with them with the ultimate goal of creating a partnership.
“For a patient coming to the hospital and the staff working here, they really shouldn’t notice a change,” she said.
Dominoes
The past few years have not been kind to rural hospitals in North Carolina: In 2013, Blowing Rock Hospital converted to a rehabilitation facility, in 2014, it was 49-bed Pungo Hospital at the opposite end of the state that shuttered, and the following year, Yadkin Valley Community Hospital was abruptly closed by the management company running the facility and Franklin Hospital in Louisburg ceased operations.
“Rural hospitals across the country are facing, in general, financial pressure,” said Mark Holmes, who heads the Sheps Center for Health Policy Research at UNC Chapel Hill and is an economist who focuses on rural health care.
Holmes tracks rural hospital closures across the country and noted that hospitals in states stretching from Virginia to Texas have struggled more, and tended to be less profitable.
“A number of factors facing rural hospitals are outside their control, population trends, with rural communities tending to have more older people, competition in the direction in how health care is delivered,” Holmes said. He also noted that because of the poverty of surrounding communities, rural hospitals are likely to have more government payers.
49 percent of Morehead’s patients were on Medicare, the program that pays for seniors and some people with disabilities and Medicaid patients made up another 16 percent of patients. Both of those programs pay less than commercial insurance, the kind that usually comes with having a job, and only a quarter of the patients had that type of insurance.
The rest of Morehead’s patients last year were uninsured, Barnhardt said.
Victim of economics
Morehead is one of many hospitals in the state that’s hired an outside management organization to run things, in this case, Charlotte-based Novant has been providing leadership at the hospital for a few years.
But this arrangement didn’t come with an infusion of cash from Novant, said Barnhardt. In fact, Novant is one of the organizations to whom the hospital owes money.
It benefits larger hospitals in nearby cities to make sure it’s smaller neighbors are solvent, said Bill Atkinson, who ran WakeMed Hospital in Raleigh for a decade. Without the smaller hospitals addressing the primary care needs of a community, he said those patients then wait for care and then small problems turn into bigger problems that are more expensive to fix.
“It’s not good for the patient, it’s not a smart way to do health care,” Atkinson said.
Atkinson, who started his career in Rockingham County, noted that the economy there has lost major industries such as textiles and cigarette manufacturing. More recently, a MillerCoors plant closed there, which resulted in about 113 Eden residents losing their jobs, along with another 400 from surrounding communities.
“I think it’s a victim of its surrounding economics versus the institution itself,” he said.
Atkinson also pointed to the fact that North Carolina had not expanded the Medicaid program, which might have reduced the number of non-paying patients, a sentiment echoed by Julie Henry, from the North Carolina Hospital Association.
“It’s a rural hospital, we’re in a non-expansion state, we know that in an average rural hospital in North Carolina, 70 percent are Medicaid or Medicare or uninsured,” she said.
Eden resident and North Carolina Senate president Pro Tempore Phil Berger, in a statement, instead pinned the hospital’s problems on regulatory burdens created by the Affordable Care Act.
Holmes said that, while most of the rural hospitals that have closed in recent years have been in states that didn’t expand Medicaid, it’s not completely clear that having Medicaid expansion would have made a huge difference.
“It does cut down on uncompensated care in general, however, the effect on profitability is rather small,” he said. “But for some hospitals, a half percentage point is the difference between life and death.”
“It’s a financially challenging situation for any hospital to be in, and then the rural facilities don’t have the additional services that some of our more urban hospitals have to offset those losses,” Henry said.
Those economics have lead other rural hospitals in the state to make some tough decisions: Angel Hospital in the far western town of Franklin recently decided to stop offering maternity care, and Anson Hospital has converted itself into a 24-hour multi-specialty clinic that refers more critical patients to a larger hospital 30 minutes away.
“The questions become how do smaller, rural hospitals provide the services that their community needs, and how do they afford it,” Henry said.
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