By Ashley Fredde and Rose Hoban
FirstHealth of the Carolinas provides proof that small, rural hospital systems can be excellent.
The system, based in the Sandhills, has four hospitals and nearly 100 clinics covering 13 North Carolina counties and two in South Carolina. Despite its relatively small size, FirstHealth has racked up awards for quality and high marks for patient satisfaction — ranking in the top 10 percent nationwide for outstanding patient experience for the past 18 years, based on Healthgrades survey data, and landing in Fortune’s Top 100 hospitals eight times.
But officials at the system are worried. FirstHealth Chief Strategy Officer Amy Graham and Chief Financial Officer Autumn McFann painted a grim picture for lawmakers at this week’s meeting of the Joint Legislative Oversight Committee for Health and Human Services.
“Roughly half of rural hospitals across the country are operating in red, which is not sustainable. Access to inpatient care continues to decline in rural counties,” McFann said. She noted that, like many rural hospitals, FirstHealth has a large number of government payer sources — Medicare, Medicaid and TRICARE, a health care program for military personnel, retirees and their families. More than three-quarters of FirstHealth’s patients are on these programs, which typically pay less than commercial insurance.
“We’ve been operating historically with about a 3 percent operating margin — that’s actually a relatively thin margin,” McFann continued. “It has allowed us to reinvest those funds back into our workforce or in our infrastructure, facilities, and keep up with the latest technologies.”
McFann and Graham say the climb for the hospital system is getting steeper, with margins that they believe will shrink. Financial projections provided to lawmakers by the leadership duo show the system’s operating margin declining in the coming years. They project it will slip into the red by 2032 as cuts tied to the One Big Beautiful Bill Act (the 2025 federal budget bill often referred to as H.R. 1) carve hundreds of millions from Medicaid funding across the country.
“H.R. 1 doesn’t just affect our finances, but it affects what services that are going to remain locally,” McFann said. “It may unintentionally accelerate rural service line closures, like OB services, oncology services, which are extremely important. Behavioral health and possibly even emergency services.”
Those challenges are forecast to only get more profound in coming years. North Carolina is projecting a deficit of at least 12,500 nurses by 2033, on top of a dearth of physicians — particularly those practicing in rural areas.
Rural hospital systems like FirstHealth of the Carolinas can struggle to recruit nurses and physicians from an already limited pipeline. In recent years, the General Assembly has directed funding into health care education and training with hopes of not only funneling more workers into the industry, but also directing them to the rural and underserved parts of the state.
“At a time when hospitals in North Carolina, especially rural hospitals like us, are under these significant pressures, the policy choices you make can either stabilize care or it could unintentionally accelerate its decline. Our ask is that you would avoid any policies that would exacerbate our financial risk, such as Medicaid rate cuts,” McFann told lawmakers.
Need for nurses
At the same committee hearing, Katherine Restrepo Martin, the University of North Carolina System’s vice president for health affairs, outlined for lawmakers how the system has been using money for nursing education.
In the 2023 state budget, the General Assembly appropriated $40 million to the UNC System “to support the development and expansion of courses that lead to a degree in healthcare-related fields.”
Since then, Martin said, $29 million of that allocation has been awarded to the system’s 12 nursing programs through a competitive process that rewards them for graduating more students, “because the nursing shortage is really … among the most severe when it comes to various health professions in the landscape.”
There’s plenty of student demand to study nursing, Martin added, but there have not been enough faculty to teach larger classes nor seats in the programs, particularly those granting bachelor’s degrees.
“When you look at incoming juniors and seniors for class sizes, and one in three or one in four qualified applicants are turned away simply because of capacity issues,” Martin said.
One limitation has been the relatively low salaries paid to nursing faculty. With advanced degrees and experience, they can work in hospitals — sometimes for twice the money.
There’s an issue of providing enough hands-on training opportunities, another place where nursing mentors, preceptors and the training sites themselves — critical as they are to the training process — have been underpaid.
“It’s a competitive race out there with all these various health professionals and the required training programs, clinical training hours to graduate on time,” Martin said. “This is another barrier to expansion, as far as just finding more clinical placements to place their students.”
Other obstacles to getting more people with nursing degrees out into the workforce have been the financial strain and academic challenges for students and a need for more support to overcome those obstacles. A variety of other reasons can keep students from progressing toward graduation, Martin said, including things like deaths in the family, housing issues or illness. The system is looking at how to provide more financial aid, scholarships, tutors and other support measures to help keep students on track.
One success is at UNC Greensboro, Martin explained, which will be increasing its enrollment from 330 nursing students per year to 880. Part of the increase will be because the campus will let first-year students enroll in the program instead of making them wait until their junior year as many universities offering a bachelor of science in nursing, or BSN, degree traditionally have done. This way, they’ll be able to start taking nursing courses their sophomore year, Martin said.
But not everyone is convinced that expanding four-year programs is the right solution to an immediate shortage.
“What do we get for a four-year nurse that we don’t get with a two-year nurse?” asked Rep. Hugh Blackwell (R-Valdese). “Have we got things backwards if we, faced with an urgent need, pick the solution that takes the longest to provide us with the nurses we need?”
Martin responded that community colleges, which host a number of two-year associate degree nursing programs, also received funding from the General Assembly to bolster that educational and training pipeline.
Rural workforce challenges
McFann, FirstHealth’s financial officer, praised the UNC System’s emphasis on nursing education, noting that nursing staffing is the most challenging and largest issue they have. It’s hard to find health care professionals in rural parts of the state; of FirstHealth’s 1,544 RN positions, 243 are vacant.
“We rely on contract labor, which increases our cost structure,” McFann told lawmakers, estimating that approximately 10 percent of their nursing staff fell into that category.
Pay for travel nurses and contract nurses is often higher than what’s paid to permanent staff, creating a vicious cycle of trying to keep up with market rates.
“These workforce challenges may become even more difficult as reduced margins from H.R. 1 is really going to limit our ability to offer competitive compensation,” she added.
As challenging as it is to find nurses, finding physicians is even more difficult. There’s a growing national shortage of doctors too.
“This is even more challenging … in rural markets, where we have a higher cost to recruit and to retain those physicians,” McFann said.
Many of the patients in those markets are older and have more severe needs, McFann said. They’re on Medicare and Medicaid, and the reimbursement rates for those federal services don’t “reflect the actual cost to provide … care” and make staffing more challenging, McFann added.
Is there a doctor in the house?
In their remarks to lawmakers, FirstHealth leadership was adamant about maintaining the quality of care provided to patients despite narrowing margins. Yet care, at any level, is hard to provide without physicians.
It’s not that there aren’t physicians in North Carolina. The state’s overall physician workforce grew to 28,709 by 2024, a 24.5 percent increase since 2014, according to the Sheps Center. The main challenge is in distribution; the majority of those physicians are concentrated in urban centers.
About 74 of North Carolina’s 100 counties have a shortage of primary care providers, with a ratio of greater than 1,500 residents per primary care provider, according to NCDHHS.
Source: North Carolina Health Professions Data System, Program on Health Workforce Research and Policy, Cecil G. Sheps Center for Health Services Research Credit: Cecil G. Sheps Center for Health Services Research
“When we look at the primary care physician population that’s actually practicing in rural areas, it’s very low. And that’s largely because residency training is largely financed by the federal government, and the way that funding flows to states doesn’t necessarily go directly to rural hospitals that could be in a position to train those residents,” Martin explained.
In 2017, 69 percent of residents got their training at UNC Chapel Hill/UNC Hospitals, Wake Forest Baptist Medical Center or Duke University Medical Center, according to North Carolina Institute of Medicine.
“The data is clear that physicians are two to five times more likely to practice in rural areas if they do a significant or just a little bit of portion of training in rural areas,” Martin said.
Part of the issue, Martin said, is the varying definitions of what rural truly is, which can create barriers in accessing federal funding for residency programs. To help alleviate this, the General Assembly created the University of North Carolina System’s Rural Residency Medical Education and Training Fund to help promote rural residency programs.
The fund, which has since become a grant system, offers $8 million annually to help hospitals start, maintain and expand programs. The grant focuses on specialties desperately needed in rural areas: family medicine, pediatrics, OBGYN, psychiatry, internal medicine and general surgery.
The program and its progress was applauded by Rep. Grant Campbell (R-Kannapolis) and Rep. Tim Reeder (R-Ayden) — the General Assembly’s two physicians.
“I think this is a good example of the state actually identifying a need, investing money into it, studying the outcome. We spend a lot of money up here, and so the fact that we’ve done this in a systematic way with outcomes is really important,” Reeder said.
But to preserve those outcomes in rural areas you have to preserve the health systems that create or help house them.
“Policy decisions that you make today will determine, number one, whether rural hospitals like FirstHealth remain independent, or in the case of more vulnerable hospitals, whether they survive,” McFann told lawmakers. “And number two, whether our rural communities in North Carolina thrive or whether they decline, because, frankly, when a hospital is harmed, a community is harmed.”
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No closures, but a major upgrade to maternity services that was nearing announcement for Pinehurst’s main campus was shelved last summer when the State reduced funding. And word is circulating that the rates of compensation for FirstHealth doctors will be decreased, which isn’t helping physician retention nor recruitment.