With more than 700 rural hospitals at risk of closing and financial pressures hitting institutions of every type, hospital CEOs are deciding how to adapt.
A Center for Healthcare Quality and Payment Reform analysis found roughly a third of all rural facilities nationwide are at risk of closure. The report found losses on privately insured patients are the biggest single driver of overall losses at hospitals deemed at risk of closure. About half of the services delivered at the average rural hospital go to patients with private insurance, and the hospitals on the at-risk list are losing money on those patients.
Although the analysis focused on rural hospitals, three CEOs told Becker’s the underlying financial pressures extend well beyond rural healthcare. While all three described the same economic headwinds, they also showed how an organization’s mission and structure shape the options available. An independent rural health system, an urban safety-net provider and an independent community health system are pursuing different paths, but each is trying to answer the same question: how to remain financially viable while continuing to serve patients.
Dennis Johnson, president and CEO of Catawba Valley Health System in Hickory, N.C., put it this way: “Our board, when they hired me three years ago, knew that we probably can’t stay independent forever. What keeps me up at night is knowing if and when we need to make that move.”
Catawba Valley is one of only nine independent hospitals remaining in North Carolina. The system is county-owned, operates 260 beds, generates roughly $500 million in revenue and has strong marks in quality, culture and financial performance. Mr. Johnson said those strengths won’t shield the organization from mounting financial pressure.
As Medicaid eligibility requirements tighten under HR 1, Mr. Johnson said, the hospital will continue treating the same patients. The difference is that fewer of them will have coverage. The legislation includes Medicaid work requirements, more frequent eligibility redeterminations and new restrictions on state-directed payments and provider taxes.
“We’re going to treat the same patients we’re treating now, even though tomorrow they’re not going to have Medicaid because they don’t meet one of the new work requirements,” he said. “We’re still going to be treating the same people, but we’re going to be doing it for free.”
Commercial reimbursement adds another challenge. Independent hospitals lack the negotiating leverage of large systems, Mr. Johnson said, and Catawba Valley pays for that gap every time it contracts with a commercial payer.
“The standalone independent hospitals like ours are already a dinosaur,” he said. “We get substantially less reimbursement than all the big systems do because we don’t bring the leverage that they do.”
At the same time, Catawba Valley is investing in ambulatory care while reducing inpatient costs.
“The left hand has to cut while we’re expanding the right hand, and that’s schizophrenic for healthcare executives,” he said.
Every major system in North Carolina has expressed interest in a partnership with us, Mr. Johnson said.
“Our mission is not to stay independent,” he said. “Our mission is to take good care of patients and their families. But obviously, if we ever have to join a big system, we want to do that from a position of leverage. The key is trying to discern that moment.”
At One Brooklyn Health in New York City, the financial pressures look different. Sandra Scott, MD, CEO of the safety-net organization, said the vast majority of patients are on Medicaid, with a smaller share on Medicare and a minimal commercial footprint. Safety-net systems have a different challenge: high reliance on government payers.
“The economic pressures are real,” Dr. Scott said. “It’s requiring us to think strategically and do something about how we’re delivering services so that we can do it within the confines of our financial constraints.”
That has meant eliminating some services, improving operational efficiency and pursuing partnerships that expand access without expanding cost. Dr. Scott pointed to a collaboration with NYU Langone Health as an example. One Brooklyn Health partnered with NYU Langone Health’s renal transplant program so that patients in the community can be evaluated, listed and followed locally. When a kidney becomes available, the patient goes to NYU Langone Health for the transplant surgery and returns to One Brooklyn Health for follow-up care.
“That’s the way we were able to provide greater access to transplant services right here in the community, but we didn’t stand up an expensive transplant program,” Dr. Scott said.
New York state’s safety-net transformation program is designed to encourage exactly this kind of arrangement, Dr. Scott said. The grants provide financial support for partnerships between safety-net institutions and other organizations, whether large health systems, health plans or specialty providers, with the goal of improving access and quality for the communities that safety-nets serve.
Dr. Scott said the traditional merger and acquisition model has become less central to how safety nets think about growth.
“The whole concept of mergers and acquisitions is probably less of a thing now than it was maybe even just three years ago,” she said. “But through partnerships there are definitely opportunities to increase revenue and access, develop efficiencies.”
Dr. Scott said the conversations she’s having with other CEOs sound similar.
“Many CEOs, including me, are grappling with making those transformative changes so that we keep our institutions afloat, make the right partnerships to continue to provide access to care, and weather the storm,” she said. “It is as stressful as the numbers indicate.”
Mark Behl, president and CEO of Fairfield, Calif.-based NorthBay Health, said his independent community health system has focused on growth during challenging times.
“Our approach has been to grow our way through them, not cut our way through them,” Mr. Behl said. “At NorthBay Health, growth has always been driven by community need, not by consolidation itself.”
That has meant investing in primary care, urgent care and specialty services to make care more accessible close to where residents live. But he said NorthBay won’t pursue every opportunity. When evaluating potential partnerships with struggling hospitals, the first question is whether the organizations share a commitment to the community and whether a partnership would meaningfully improve access, quality and outcomes.
“We simply cannot put the communities we serve today at risk to try to save a new community tomorrow,” he said. “Unless we are confident we can successfully manage the environmental conditions that placed a hospital in jeopardy, we have to draw the line.”
Mr. Behl said health systems that are in a position to grow have a broader obligation.
“Rural hospitals are the backbone of the communities they serve, and we believe the health systems best positioned to grow should view supporting them as part of their responsibility to the region, not simply as an opportunity,” he said.
All three CEOs described financial pressures they expect to persist rather than ease.
“The cuts to Medicare and Medicaid are not sustainable. Period,” Mr. Johnson said.
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