COVID-19 federal aid has kept NC’s rural hospitals afloat, for now.

By Liora Engel-Smith

Federal support to rural hospitals helped some of the state’s most cash-strapped facilities through the first phases of the coronavirus pandemic, but advocates say providers will likely need more support down the line.

Through the federal coronavirus aid package known as the CARES Act, hospitals got money for care and testing of uninsured people for coronavirus, but urban hospitals, which generally have a larger share of coronavirus patients, got the bulk of that aid, according to Brock Slabach, senior vice president for member services at the National Rural Health Association.

To stabilize both rural and urban hospitals, the CARES Act also allocated one-time payouts based on patient revenue. That payout, too, favored larger, urban hospitals. To address that disparity, two other smaller funds, one for specifically rural hospitals, the other for safety-net facilities were set aside for rural and smaller hospitals.

Even with dedicated funds for rural hospitals, North Carolina’s urban hospitals — generally bigger and more stable — got the bulk of coronavirus federal aid, an NC Health News analysis shows. Urban facilities received almost double the amount, upwards of $460 million as of June 23, data from the U.S. Department of Health and Human Services shows, while rural hospitals got an estimated $260 million. Roughly $99 million went to hospital systems, including Atrium, which filed one application for all their hospitals.

The federal payout was a lifeline, and particularly crucial for rural facilities that struggled financially before the pandemic, said Shakeerah McCoy, director of rural health innovation at the North Carolina Healthcare Foundation. Most rural hospitals were already low on cash before the coronavirus crisis, with a significant portion of smaller facilities having less than 30 days of cash on hand according to an analysis from University of North Carolina’s Cecil G. Sheps Center for Health Services Research.

Suspending elective surgeries in the first phase of the pandemic created an unanticipated budget shortfall that could have been catastrophic to some of the state’s weakest hospitals, McCoy said.

“[CARES Act funding] really saved these hospitals,” she added. “Because many of them were on the brinks of financial ruin.”

COVID care mostly in urban areas

Elective surgeries are a major source of revenue for all hospitals, but rural facilities tend to have less financial cushion than their urban counterparts, so the loss of revenue there can be particularly devastating. In the first phases of the coronavirus pandemic, when patients stayed away from emergency departments, many rural hospitals also saw a 50 percent decrease in their emergency department visits, said Nick Galvez, rural hospital program manager at the North Carolina Office of Rural Health. At the same time, hospitals were preparing for a possible patient surge by purchasing supplies such as masks, gloves and gowns.

The massive surge never came because of stay-at-home restrictions and other social distancing measures, but urban hospitals saw more coronavirus patients, which offset some of the lost revenue from pausing elective surgeries, according to Slabach, of the National Rural Health Association. Rural hospitals, he added, didn’t see as many coronavirus patients.

Preparations for the surge proceeded nevertheless, with cash-strapped rural hospitals competing with larger systems for limited supplies with prices soaring amidst a worldwide shortage. The combination of these pressures magnified the pressures many rural hospitals already faced.

“It was more or less a domino effect in the fact that with these hospitals, with their [patient] volume already being low, [COVID-19] just made it all the worse,” McCoy said.

Hospitals strained

Federal aid helped some rural facilities make up for the losses they incurred, but it didn’t totally protect them from financial strain. The first CARES Act payout came in mid-April, and most of it went to larger hospitals, Slabach said, followed by a round of aid focused on rural hospitals the following month.

In North Carolina, where many rural hospitals were already feeling the financial pressure of canceled elective procedures beginning on March 23, signs of financial strain began showing in March and April, before they received funds to stabilize them.

Vidant Health, a hospital system with several rural facilities in eastern North Carolina, laid off 191 employees in March. Following these cuts, Moody’s downgraded Vidant’s credit rating, citing staffing challenges, weaker margins and the impact of COVID-19 in its decision.

Quorum Health, which operates a rural facility in Martin County, filed in April for Chapter 11 bankruptcy to restructure its debt. The company indicated that it will continue to operate the rural hospitals throughout the two-month bankruptcy process, according to an April Securities and Exchange Commission filing.

“Like hospitals around the country, Martin General Hospital is facing unprecedented challenges as a result of the COVID-19 pandemic,” wrote John Jacobson, who heads Martin General Hospital, adding that lining up resources and supplies to prepare for the pandemic, coupled with a decrease in revenue has resulted in “a significant economic burden that will take time to overcome.”

That same month, Wake Forest Baptist Health, which has facilities in Forsyth, Davie and Wilkes counties, announced 16-week furloughs and other cuts, also due to coronavirus pressures.

The health system lost $1.3 million from operations in the quarter that ended March 31, 2020, compared with a $7.4 million positive margin in the third quarter of last year. In its financial statement, Wake Forest attributed the shortfall to reductions in-patient volumes because of suspended elective surgeries.

More signs of strain may be on the horizon, said George Pink, senior research fellow at the Sheps Center.

As coronavirus hospitalizations in the state continue to tick upward, it is possible that hospitals would again have to delay some procedures again, affecting their bottom line. With financial data typically delayed by a few months as hospital systems release their quarterly and yearly earnings reports, it may be months before a clear picture emerges.

The CARES Act aid, Pink said, bought rural hospitals an average of eight to12 weeks depending on their financial circumstances before the pandemic. Some hospital operators have already used all their aid, he said, while others have reserves that would last them weeks or even months.

Ultimately, he said, the fate of rural hospitals in the age of coronavirus depends on the trajectory of the disease in the state and the degree of future government aid.

A surge oncoming?

Despite the shortfalls they endured in early spring, no rural hospitals have closed in North Carolina, according to the Sheps Center, likely because CARES Act funds offset some of the losses.

With some regions in the state predicted to run out of hospital beds by late summer or early fall, pressure on some rural facilities may again increase, especially if elective surgeries have to be suspended again.

As long as surgeries can continue, said Cody Hand, senior vice president of advocacy and policy at the North Carolina Healthcare Association, most providers in the state will likely recover from the revenue loss they incurred in the spring.

“But if we find ourselves in a situation where we don’t have enough staff to continue elective procedures, then we’ll need another infusion,” he said.

Read all of our joint coverage with The Charlotte Ledger here.