Health Care

Study: More rural Kansas hospitals at risk of closing

Mercy Hospital in Independence, Kan., has closed, joining dozens of rural hospitals around the country that have not been able to withstand recent financial and demographic challenges.
Mercy Hospital in Independence, Kan., has closed, joining dozens of rural hospitals around the country that have not been able to withstand recent financial and demographic challenges. New York Times

Mercy Hospital in Independence closed earlier this month, eliminating 190 jobs and leaving residents in this southeast Kansas town with a 20-minute drive to the nearest hospital emergency room.

Some warn that Independence is not an isolated case.

A national study shows that 17 other rural hospitals in Kansas are at risk of closing.

The study, published by iVantage Health Analytics, a for-profit research group based in Maine, does not identify the hospitals by name out of fear it would worsen the hospitals’ financial problems.

But Brock Slabach, senior vice president of the National Rural Health Association, headquartered in Leawood, says the bigger issue is not which hospitals could close, but the problems that face all rural hospitals, even those not currently designated as at risk.

“Just because they’re not high risk doesn’t mean they don’t have difficulty operating,” he said. “We don’t want to see the ones in the middle slide into the high-risk category.”

In the past decade, 56 rural hospitals have closed across the country and 283 are on the brink of closing, according to the iVantage study, which uses both public and private hospital data to analyze 66 financial metrics to determine if a hospital is in trouble.

But Kansas could be on the brink of a national change in the rural hospital industry. The Kansas Hospital Association started an experiment for a new way to pay rural hospitals. Even if the experiment works, the design requires federal approval – a time-consuming feat that could come too late for some hospitals.

The hospitals often drive much of the town’s economy and job market, said Dennis Shelby, CEO of Wilson Medical Center in Neodesha and a member of the state Rural Health Visioning Technical Advisory Group.

“When a rural community loses their hospital, then that kind of sets up a chain reaction,” he said.

Shelby said hospitals are often a top employer in a small town. About 190 jobs were lost when the Independence hospital closed.

Furthermore, Shelby said employers and residents look at a town’s health care, school system and quality of life when searching for a place to settle.

Three reasons at play

Experts see three primary issues facing rural hospitals – the aging population in rural communities, the state’s decision not to expand Medicaid and federal cuts to the amount hospitals are paid by Medicare.

▪ Rural demographics: Over the years, rural populations have shrunk and their residents have aged. That creates a pool of older, sicker and often poorer patients. In addition, many health care providers in rural areas are close to retirement.

Michael Topchik, senior vice president of iVantage and author of the at-risk hospital study, said rural hospitals can’t reinvest like well-managed hospitals that keep costs low and turn a profit to reinvest in itself.

“You need to be in the black to invest in the new technology, hire the best people, fix the roof on the hospital,” he said. “The world marches forward. Can your hospital keep pace?”

▪ Non-expansion of Medicaid, the federal and state program that offers health insurance to poor and disabled residents: In general, states that didn’t expand Medicaid, like Kansas, have higher risk of hospital closures than states that did expand Medicaid, according to the study.

It’s because hospitals have to absorb losses from patients who can’t afford to pay for medical care that would otherwise would have been covered by Medicaid.

Compounding the problem is the fact that the federal government reduced Medicaid reimbursement rates through the Affordable Care Act, also called Obamacare, with the intention that all states would expand Medicaid eligibility to cover more low-income residents. A Supreme Court decision then allowed each state to dictate its expansion. Kansas is one of 19 states that currently has not expanded Medicaid.

States that did not expand Medicaid had double the share of at-risk hospitals as states that did expand Medicaid – 16.6 percent of rural hospitals in states that did not expand Medicaid compared with 8.3 percent in states that did.

“There needs to be a recognition that rural hospitals are highly vulnerable for policy decisions and changes that we have seen in the way health care is thought of and delivered,” Topchik said.

The closure of Mercy Hospital in Independence widened interest in Medicaid expansion among politicians who previously opposed it. But the Independence closure didn’t sway Gov. Sam Brownback. His office recently called Medicaid expansion “morally reprehensible” and said that alone would not have ensured the long-term stability of the hospital.

The Kansas Hospital Association homepage displays a running count of how much federal money the state has missed out on because of its decision not to expand Medicaid. The count topped $786 million as of Tuesday morning.

A coalition of hospitals is making a push again next year to get the state to expand Medicaid.

▪ Federal cuts in Medicare, the federal health care program for those 65 and older: The federal government cut some Medicare reimbursements by 2 percent in 2013 as part of many budget cuts known as the sequester to save money.

Two percent cuts might seem inconsequential, but Slabach, of the National Rural Health Association, said it could break the bank for rural hospitals that tend to have older patients and walk the line between black and red budgets.

“If 80 percent of your revenue comes from Medicare, that’s a big deal,” he said.

The iVantage study shows that more than half of rural critical access hospitals – which offer round-the-clock emergency services – work on negative operating margins.

“No matter how you measure it, rural hospitals are in dire financial situation and have razor thin margins – if they have one,” he said. “So very small cuts that a larger hospital can weather, they (rural hospitals) cannot weather themselves.”

Political misunderstanding

Topchik, author of the iVantage study, said he thinks recent moves to lower reimbursement rates for critical access hospitals stems from a political misunderstanding of the role of those hospitals.

“Everywhere you look there’s an instinct to wring savings out of the (Medicare) program,” he said. “On the appearance that that’s corporate welfare.”

Critical access hospitals receive special reimbursement rates for providing emergency care in an area that otherwise could not financially support a hospital. In Kansas, critical access hospitals receive 101 percent Medicare reimbursement for services.

But the 101 percent can be a misleading number. Medicare negotiates for some of the cheapest prices in health care, so the 101 percent doesn’t necessarily cover the full cost of the service, it just mean it pays 1 percent over what Medicare would otherwise pay at a traditional hospital.

“Critical access hospitals are not a welfare program,” he said.

Slabach, of the rural health association, gave an example of a small-town in Texas he visited that faces hospital closure if the town decides not to raise its taxes in support of the hospital.

“People think this is a fantasy,” he said. “But it’s not – this is real.”

He said some of the community members don’t believe the hospital will close and don’t believe the tax hike and closure are related.

“If you don’t have money, you don’t have money,” he said, adding: “This is a reality.”

Slabach offered another example of a rural hospital that closed in Nevada. Now, he said, the nearest hospital is 100 miles away.

“We can’t let markets determine what hospitals are going stay open all the time,” Slabach said.

The Independence hospital was classified as rural by the Kansas Hospital Association, but it offered more services than a critical access hospital. It had 80 licensed acute beds, beds to treat severe short-term conditions, according to the association. Now, the nearest hospital for patients is the Wilson Medical Center, a critical access hospital, about 20 minutes away.

Potential solutions

A national bill called the Save Rural Hospitals Act is up for debate in Washington, D.C. The bill would restore the 2 percent cut to Medicare reimbursements and would also create a new hospital model for rural areas.

The Kansas Hospital Association is testing a version of the new hospital model in Kansas that would allow rural hospitals to be paid and classified in a different way. The new kind of hospital is being referred to as a primary health center and includes a 12-hour emergency room and a 24-hour emergency facility.

Five hospitals are participating in a paper test of the plan. Each hospital tracks data as if it were a primary health center and the hospital association studies if the system would work in the real world. The data is just a paper test, so none of the hospitals get paid based off those metrics.

But even if the Kansas study works, the state could not start the new funding model on its own. The federal government would have to approve it.

Slabach said there’s a big difference between rural and urban hospital closures. When an urban hospital closes, he said, other companies will often buy it. But rural hospitals don’t attract buyers and would likely sit closed for good.

“The answer is not just to close the hospitals,” he said. “We need to find a way to transform them. We need to do it more methodically. We can’t let the market just close the facilities because the more fragile ones could be the more vital ones.”

Reach Gabriella Dunn at 316-268-6400 or Follow her on Twitter: @gabriella_dunn.

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