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  • Writer's pictureMel Snyder

COVID-19: Existential Threat to America’s Rural Hospital System

Updated: Sep 17, 2020

Some 57 million rural Americans depend on their hospital as an important source of care as well as a critical component of their area's economic and social fabric.[1] Before the current coronavirus crisis, 21-25% of those rural hospitals nationwide were at a high risk of closing.[2]

Today, the threat to those rural hospitals is exacerbated by the COVID-19 pandemic that shuttered big and small non-essential employers, throwing 30 million people onto the unemployment rolls – and severing many from the commercial health insurance that has kept many of the nation’s rural hospitals even close to solvent. 

Now, hospitals in states that refused Medicaid expansion under the Affordable Care Act face unprecedented existential risks. Of America’s 1,821 rural hospitals, 82% are considered highly essential to their communities. Moreover, additional analysis of migration patterns of patients who live in rural counties in six states shows a disturbing pattern: 

  •  76% of patients living in rural counties with a local hospital outmigrated for care (e.g., left their local area and hospital to receive care elsewhere), compared to 35% and 23% of suburban and urban patients, respectively.

  • 69% of the 2.3 million people in the coverage gap created when their states refused Medicaid expansion live in four states: Texas, Florida, Georgia and North Carolina. 

Ironically, Texas, Florida and Georgia – at this writing – have yet to see their COVID-19 case curve begin to flatten – but nevertheless are scheduled to begin relaxing their restrictions on sheltering in place in May. If computer simulations of relaxation of those restrictions are correct, their rural hospitals could be overwhelmed, without the personal protective equipment, ventilators and clinical support needed by a potential flood of very sick patients.

Out of the media spotlight, delayed COVID-19 impact threatens rural America

Since the escalation of the COVID-19 crisis, the national media has focused largely on the challenges of epicenter hospitals like those of New York and New Jersey. But even before the current pandemic, rural hospitals were in financial trouble. 

  • A loss of agricultural and manufacturing jobs has led to a corresponding degradation of the payer mix. Residents who remain in rural communities tend to be either very old or very young, and these communities often have higher rates of uninsured, Medicaid, and Medicare patients, leading to more uncompensated and under-compensated care. 

  • Medicare payment reductions are also a major factor, with the average rural hospital counting on Medicare for 46% of gross patient revenue. [3]

Faced with a likely deluge of COVID-19 patients needing intensive support, all U.S. hospitals have been forced to curtail elective procedures — revenue from which has been critical to survival of the most threatened rural hospitals. And when federal aid might sustain those threatened hospitals, failure of their state governments to approve Medicaid expansion denies their hospitals a financial lifeline.

The new Coronavirus Aid, Relief and Economic Security Act (CARES) Act allocates funds to all states by population, along with federal funding states ordinarily receive through Medicaid. However,

  • The Commonwealth Fund found that the 37 states that accepted Medicaid expansion will receive $1,755 in federal funding per state resident.

  • By comparison, nonexpansion states will receive just $1,198 per resident. Looking at states with similar populations, Kansas, which has not yet expanded, will receive $1,083 per state resident, compared to $1,436 per resident in its neighboring expansion state, Iowa.[4]

COVID-shutdown of elective surgery starves hungry rural hospitals

“Outpatient elective surgeries are a major part of our revenue,” explains Nathan Tudor, CEO of MidCoast Health System, which operates El Campo (TX) Memorial Hospital and Palacios Community Medical Center. Rural hospitals like El Campo have struggled under Medicare cuts in recent decades to stay open. There are 157 rural hospitals remaining in Texas, caring for an estimated 12 percent of the state’s population.

“The only thing that we’re able to do now, obviously, are emergent elective surgeries. It's having a tremendous impact on the financial strength of our hospital, because that’s such a big part of the business,” Mr Tudor reports.

COVID-19 testing tents at El Campo Memorial Hospital in El Campo, Texas Photo: Elizabeth Conley, Houston Chronicle / Staff photographer

El Campo Memorial Hospital has about 500 staff members, 49 licensed beds, including four intensive care unit beds and four ventilators. Tudor said that while surgical crews are working on a limited basis, they have been cross-trained to be able to work in emergency rooms, ICUs, and other in-patient services. On April 8, El Campo had 17 confirmed coronavirus cases in Wharton County, according to the Texas Department of State Health Services. By April 29, they had 36.[5]

Well before the COVID-19 threat, rural health care’s profitability had collapsed nationwide due to a combination of narrowing Medicare reimbursements, a larger share of patients lacking high-paying private insurance and the hollowing out of rural America. Given such pressures, more than 120 rural hospitals have been forced to close over the past decade.

Surviving hospitals in small-town America rely heavily on moneymakers such as elective surgeries, physical therapy and lab tests to make their razor-thin margins work. But, according to the Chicago-based Chartis Center for Rural Health, almost half of them still operate in the red.

“If we’re not able to address the short-term cash needs of rural hospitals, we’re going to see hundreds of rural hospitals close before this (COVID-19) crisis ends,” warned Alan Morgan, the head of the National Rural Health Association, which represents 21,000 health care providers and hospitals. “This is not hyperbole.”[6]

And so, the added financial hit from the coronavirus outbreak could be the final straw for many rural hospitals — exposing the complicated business dynamics at play within the United States’ critical public health infrastructure.

Most vulnerable: Hospitals in “Red States” that refused Medicaid expansion

For many rural hospitals, the impact of the coronavirus has been intensified as millions of those who depend on them lose their jobs and the health insurance linked to it. Rural hospitals in the 37 states (plus DC) that accepted Medicaid expansion under the Affordable Care Act are in a much stronger position than hospitals in the 14 that refused it.[7]

In those 37 states that accepted expansion, Medicaid covers workers when they lose their jobs and health insurance. 

  • But in nonexpansion states, millions of low-income parents and other adults will not qualify for coverage no matter how low their income. A recent study found that in states that have expanded Medicaid, the program covered 35.8% of all unemployed adults ages 19 to 64.

  • By comparison, in nonexpansion states, Medicaid reached only 16.4% of unemployed adults. As a result, the uninsured rate among the unemployed in nonexpansion states was nearly double the rate in expansion states (42.5% vs. 22.6%).[8]

Most troublesome for the states that refused Medicaid expansion is that many of their rural counties are home to meat-packing companies with an alarming incidence of COVID-19 infection:

Two of Texas' top three counties for coronavirus prevalence have major meat-packing plants. Shown are Tyson Foods workers at a poultry processing plant in Camilia, Ga., plant who were outfitted with protective masks, standing between new plastic dividers added to create separation.(The Associated Press / AP)

  • South Dakota: Smithfield Foods pork-processing plant in Sioux Falls, SD became the number one hotspot in the US, with a cluster of 644 confirmed cases among Smithfield employees and people who contracted it from them. In total, Smithfield-related infections account for 55% of the caseload in the state, which is far outpacing its far more populous Midwestern neighbor states in cases per capita. 

  • Texas: Ranked by prevalence of confirmed cases of the coronavirus, two of the top three Texas counties are home to huge meat processing plants: Moore County had 8.53 cases per 1,000 residents; Donley County, with 7.09 cases per 1,000; Sherman, with 3.27 and Roberts, with 2.26. For comparison, Harris County, the state’s most populous, had 1.16 cases per 1,000 people; and Dallas County, 1.07.

  • Georgia: 388 workers who have been sickened by COVID-19 represent about 2% of the estimated 16,500 people employed at 14 chicken processing plants across Georgia.

Miller County Hospital in southwestern Georgia is a hospital suffering from failure of its state legislature to accept Medicaid expansion.

This virus, and what it is causing for these hospitals, is the perfect storm that will close these hospitals at a time this country critically needs them,” said Robin Rau, CEO of Miller County Hospital.

“This (COVID-19) is going to be the death blow to them.”

Three years ago, Rau led Miller County Hospital back from a $6 million debt to profitability with an innovative addition of a 30-bed nursing addition specializing in ventilator-dependent residents most hospitals and nursing homes didn’t want. Nevertheless, the mandated suspension of elective procedures under COVID-19 regulations has cut off at least half of the hospital’s revenue.

In response, Ms Rau has had to eliminate all medical services that were not urgent. Other CEOs warned similar cuts at their hospitals mean they won’t make payroll in the coming weeks.[9]

“You go out and spend $20,000 on N95 masks. Or you keep that $20,000 so you can make payroll in two to three weeks,” laments Adam Willmann, president and CEO of Goodall-Witcher Healthcare, the hospital in Clifton, Texas – another state that refused Medicaid expansion.

As part of the Coronavirus Aid, Relief and Economic Security (CARES), the Department of Health and Human Services (HHS) claims to have deposited $30 billion in federal funding into the bank accounts of hospitals – allocated based on the total amount of Medicare reimbursements each received for services.

Don Lloyd, CEO of St. Claire Regional Medical Center, which serves eight counties in northeastern Kentucky, said the $3 million his institution received will almost cover just a single bi-weekly payroll of $3.2 million.

To save money, Lloyd cut off many vendors - the hospital now handles food service, cleaning and landscaping in-house. The cuts have even affected some information technology and informatics contracts. 

“It won’t be enough to get us through this summer, that’s for sure,” Lloyd said.

[7] Alabama, Florida, Georgia, Kansas, Mississippi, Missouri, North Carolina, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Wisconsin, Wyoming have refused Medicaid expansion.

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