For cash-strapped rural hospitals, survival is uncertain

Dec 17, 2014

If you’ve ever lived in - or even visited - a small town, you know they can be pretty quaint. And Milan, Mo, population 1,881, is no exception.

Milan’s local hospital, Sullivan Country Memorial, has been around since 1953. Joe McCarty, a local resident and now patient in Sullivan’s long-term care unit, has lived in Milan almost his entire life – he’s turning 100 this year. Joe made his living as a cartoonist and up until just a few months ago he worked for the local newspaper.

Joe also happens to be one of the hospitals original board members. For nearly ten years after the end of WWII, Joe dedicated himself to the task of establishing Sullivan County’s first and only hospital.

“Oh my God, yes. Just meet and meet and run to Jeff City and Kansas City,” McCarty said “Ten years of it.”

But Sullivan County Memorial Hospital is not just a piece of 1950’s era, small town charm – it’s what is known as a “Critical Access Hospital.” And Sullivan CEO Jerry Dover argues that in today’s healthcare marketplace, these small rural hospitals offer a higher value of care for less.

“A patient comes to my hospital, to my ER, they see a doctor they’ve seen for the last 30 years,” Dover said. “That doctor knows their background; they know if they have COPD; they know all the medications they go on because they’ve seen this patient ongoing.”

What Dover describes is what people in the healthcare industry call “patient-centered care,” and there is some evidence this kind of personal care, developed over time with the same doctor or small medical team, is a more efficient, affordable way to deliver healthcare.

Rural hospitals also provide important lifesaving treatment in the rural communities they serve.

“Without the existence of this hospital, people are going to die,” Dover said.

According to Dover when a local boy was in an ATV accident, doctors at Sullivan had exactly four minutes to stabilize his airways – certainly not enough time to drive the almost 24 miles to the next closest hospital.

“I don’t care how fast you drive. We’re in rural Missouri. You have to dodge the deer and everything else here.” he said.

For these exact reasons public health professionals have been lobbying to keep these rural hospitals open for years. But running a hospital is an expensive business. And in many rural parts of the country, business has not been good.

To understand the financial situation Sullivan County Memorial Hospital is in, you have to understand how hospitals get paid for things. And to understand that you need to go back to 1966. During the early years of the government’s Medicare program, hospitals were paid for what they charged. Then in 1983, the government introduced the prospective payment system, or PPS. Under this new system, Medicare pays every hospital the same amount, which is a certain percent less than the cost of the service.

This switch sent a message to all healthcare providers – Medicare would no longer be the cash cow it once was. Larger hospitals started targeting more self-pay and commercial insurance patients to make up the difference. But small hospitals attract fewer patients and, especially in rural areas, a larger portion of the patients they do get are older, poorer, sicker and on Medicare.

“When the PPS system was implemented in 1983 it was never tested or designed to see what the impact would be on a small volume environment,” said Brock Slabach, senior vice-president for the National Rural Health Association. “From 1983 to 1997 we had 440 rural hospitals close.”

So in 1997 the government came up with the Critical Access Hospital program. Under this program, hospitals that meet certain criteria – those that are located at least 35 miles away from the next closest hospital and have no more than 25 acute care beds - receive a Medicare reimbursement rate of 101 percent of “reasonable costs.” It appeared as if small rural hospitals would finally be financially secure. Except Critical Access Hospital status came with its own set of problems.

“I don’t need 25 beds here today,” Dover said. “Do you know what my census is today? Zero.”

And if there are no patients, there’s no money. Right now Medicare pays Dover $1,467 for each day a patient stays in his acute care unit. Dover said if he had just five Medicare patients a day, things would be a lot different. There would be money coming in and he could start thinking about updating his facility.

“Our facility is 60 years old and it looks it, unfortunately,” said Dover. “I wish I had a new facade on the front of my building, but we don’t.”

If this were any other businesses, the simple answer to Sullivan’s money problems would be to bring in more customers. Dover said he’s tried to stay competitive with other hospitals in the area.

“We're being told to be transparent about our charges and that,” Dover said. “It doesn’t matter. People don’t pay attention to our charges,” he said.

For example, a CT scan at a competing hospital in the area might cost $400 out of pocket. But at Sullivan, that same CT scan is just $55. “Do you think I get more patients by people recognizing that fact?” Dover said. “No.”

The hospital could charge more for its services, but Sullivan COO Amy Michael said that would mean the hospital’s commercial insurance rate would take a hit.

“They can basically say ‘OK here’s your rate, take it or leave it,’” Michael said. “Because our population here isn't that huge.”

This is because Critical Access Hospital reimbursement is for the Medicare population only; it has nothing to do with the Medicaid population, commercial insurance or private pay patients. The fact that hospitals have to try to appease them all is a big reason why Sullivan is operating hand to mouth. Michael said if Sullivan were to suddenly stop getting patients, they’d be broke within 10 days. When they need help making payroll, they get a loan from one of the local banks.

The last option for a struggling business is to sell it. And in the healthcare world partnering up with larger regional medical centers represents a viable option for small rural hospitals. Missouri has 35 Critical Access Hospitals, 14 of which are affiliated with a larger healthcare network. Affiliation looks different everywhere you go, but it usually involves a transfer of assets and control over to the larger hospital in exchange for staying open and serving as a tertiary hospital in the local community.

And last year that’s just what Dover was looking to do. At the time of our interview in July he was in negotiations with St. Luke’s Health System, but by the fall the negotiations had fallen through.

“St Luke’s turned us down. They decided after a full evaluation not to accept us as a managed hospital,” Dover said when I spoke to him by phone. “We were hopeful for a long period of time and certainly disappointed when they came with their final decision.”  

There are hospitals like Sullivan County Memorial all over the country. According to Slabach, 27 hospitals have closed since January of 2013. And there are 283 more just like them in jeopardy.

According to Slabach if all 283 of those hospitals closed today, 36,000 healthcare jobs would be lost. Not only that but 50,000 community jobs would disappear and spending in rural communities would be reduced by $10.6 billion.

More importantly, rural residents like Joe McCarty would lose something extremely important them. McCarty didn’t always draw cartoons for the local newspaper. For a brief period after college he put his art school skills to work out in California for a man named Walt Disney. But that’s not the thing he wants to be remembered for. 

McCarty’s legacy is that he helped bring Sullivan County Memorial Hospital to Milan, Missouri. And it’s a legacy he hopes will live on.