Coronavirus strains cash-strapped hospitals, could cause mass closures

Josh Salman and Jayme Fraser


In Carrollton, Alabama, on March 26, 2020. (Photo: Jay Reeves/AP)

For years, Lallie Kemp Regional Medical Center has spiraled further into the red.

The 24-bed charity hospital in Louisiana’s small town of Independence lost more than $15 million in 2016 and another $19 million in 2017, the latest public data available. Those losses represent nearly a third of the hospital’s total gross revenue.

Then coronavirus rocked Tangipahoa Parish, where Lallie Kemp is scrambling to help treat the community’s hundreds of confirmed COVID-19 patients – many of whom are indigent and unable to pay or rely on Medicaid, which pays hospitals less than private insurance.

With government restrictions banning elective procedures – one of the rural hospital’s primary money makers – the pandemic already has erased $1.3 million in expected revenue. If the quarantines continue through May, that will swell to nearly $3 million.

“We don’t have any profit margin to speak of, so it will be a direct loss,” said Chad Thompson, the hospital’s chief financial officer. “And we don’t know how long this will last.”

In rural communities across America, more than 800 hospitals like Lallie Kemp already faced financial peril before the pandemic took hold. Now, they must find a way to treat the 18,000 coronavirus patients in their communities. 

Those cases represented just 2.3% of U.S. totals as of Tuesday but could trigger a financial cascade that sinks up to a hundred hospitals within the next year.

A USA TODAY Network analysis of financial reports submitted to the Centers for Medicare and Medicaid Services found that almost half of the counties with coronavirus cases are served by a hospital that reported a net loss in 2017. 

For 640 of these struggling medical centers, there is no other hospital in town. Nearly all of those in jeopardy are in rural counties.

As the virus spreads into rural America, sometimes weeks after urban hotspots, many small hospitals must now wrestle with the choice of laying off longtime staff members or buying life-saving supplies for frontline clinicians.

“You have a vulnerable population for COVID, and we see a situation where many of these rural hospitals won’t be able to survive the pandemic,” said Maggie Elehwany, head of government affairs for the National Rural Health Association.

“These are some of the poorest areas of the country,” she said. “The providers are running out of money, they’re running out of supplies and they’re laying off staff as this wave of COVID hits.”

The 19 rural hospitals that shuttered in 2019 were more than any other year since researchers started keeping track – and 2020 was on pace to break that record even before the virus. States that did not expand Medicaid were hardest-hit. Some experts worry that dozens of rural hospitals could close this year if the federal response to the coronavirus does not adequately compensate for lost revenues.

The pandemic has accelerated closures in Kansas and West Virginia, while Tennessee-based Quorum Health, which operates more than 20 rural hospitals in 13 states, also filed for Chapter 11 bankruptcy in April.

Experts fear if more of these hospitals go down, swaths of rural America will be left to defend against COVID-19 without a local medical center.

“Some places have had one funeral, then suddenly there’s dozens of cases and the hospital is overwhelmed,” said Anna Loengard, chief medical officer with Caravan Health, which manages 150 rural hospitals and primary care clinics across the country. “You get into a situation where you really have no safety net for these hospitals.” 

Reduced capacity, closed doors

Batesville is a town of about 7,500 along a quiet stretch of Interstate 74 in Eastern Indiana.

Among the first areas of the Midwest to confirm positive cases, the city’s 25-bed hospital was pushed over capacity as 10 new patients came in each day with COVID-19 symptoms. The closest major urban hospital is 45 miles away in Cincinnati.

Without the ability to perform elective surgeries – about half of the hospital’s revenue – administrators are wondering how they will keep the doors open as their community needs them most.

The pandemic has taken its toll on the small staff at Margaret Mary Health, where doctors and nurses are treating people they have known for years. Then two of the four obstetricians fell sick with COVID-like symptoms at the same time.

“I still need to be able to deliver babies, perform C-sections or do other emergency surgeries,” said Tim Putnam, Margaret Mary Health’s chief executive. “We have to be ready to do anything we need to do.”

“I don’t think any hospital can go for long periods of time, keeping up all of the costs we have but with only half of the revenue.”

In 1978, there were 1.5 million U.S. hospital beds. Today, that’s down to about 900,000. Some hospitals have reduced capacity in an effort to stay afloat. Others shuttered entirely.

Across the country, at least 163 rural hospitals have closed since 2005, according to the North Carolina Rural Health Research and Policy Analysis Center.

Stewart-Webster Hospital in Richland, Georgia, is one of at least 163 rural hospitals that have closed since 2010. (Michael A. Schwartz, USA TODAY) (Photo: Michael A. Schwarz, USA TODAY)

Nearly half of those that remain are unprofitable, the center said.

Residents of these communities tend to be older, and many are poor, with more underlying chronic health conditions. Experts say a disproportionate number are uninsured, indigent or rely on Medicaid.

Those same variables also make these towns more susceptible to a COVID-19 outbreak. But many rural hospitals just aren’t equipped for such a pandemic.

These centers struggle to recruit nurses, physicians and technicians during the best of times. Coupled with recent layoffs, many cannot backfill staff that get sick. Some hospitals have one, maybe two ventilators. There are shortages of EMS providers, many of whom are volunteers that often are older and more at risk for COVID-19 themselves. 

And although smaller hospitals have purchasing pools for large quantities, traditional supply chains are disrupted, forcing them to turn to the government for help.

“We believe (the virus) is going to work its way everywhere,” said Terry Hill, senior advisor for the National Rural Health Resource Center in Duluth, Minnesota. “We’re going to have to deal with this, and it’s going to be backbreaking for some of the rural hospitals.”

Cash is running out

Few hospitals across the country have the type of cash reserves needed to survive the pandemic, and rural ones are no exception despite federal laws that guarantee many of them higher payments for services.

In 2017, about 57% of rural hospitals and 40% of urban hospitals reported having enough cash on hand to cover their salary costs for at least a month, according to financial reports submitted to the Centers for Medicare and Medicaid Services.

But experts warn some smaller hospitals might have only a couple weeks, or just days cash on hand, if any at all. They’re scrambling to figure out how they’ll make payroll next period.

“Right now, in the next 90 days, the problem will be cash,” said George Pink, deputy director of the North Carolina Rural Health Research and Policy Analysis Center.

The federal government relaxed rules on telemedicine, which has helped some hospitals recoup revenue from virtual patient visits. Private providers also have turned to Small Business Administration loans.

But a third of rural hospitals are community or publicly owned, so they’re not eligible, according to the National Rural Health Association. For that same reason, these are also the hospitals that cannot refuse patients for their inability to pay.

Of the federal government’s $100 billion stimulus earmarked for hospitals, the first $30 billion in CARES Act funds was split among providers who accept Medicare. Industry leaders estimate that left between $500,000 to $1 million for every rural hospital eligible.

Because rural health care providers serve one-fifth of the U.S. population, they’re lobbying for more.

Many rural hospitals also tapped into a program offering accelerated advanced Medicare payments. But that money must be paid back within a year, and without additional help from Congress, many rural hospitals expect to default.

“It doesn’t go as far as you would think,” said Patti Davis, president of the Oklahoma Hospital Association. “It’s not going to be enough to sustain them.”

Federal programs like Medicaid and Medicare pay more for services at Critical Access Hospitals. Those facilities have 25 or fewer beds and serve isolated communities that would otherwise be long drives from emergency care. 

Unlike other hospitals that get paid a flat rate based on the average charge for service, Critical Access Hospitals get 101% of service costs. This helps ensure doors stay open and doctors are still paid during times of the year when few people visit the hospital. 

Perhaps because of that difference in payment strategy, two-thirds of Critical Access Hospitals reported having enough cash on hand in 2017 to pay salaries for a month, significantly more than other hospitals. 

But those rural hospitals also have smaller budgets, which means the loss of even a few profitable surgeries could have significant impacts after savings disappear. In 2017, urban hospitals reported median operating expenses of $94 million, more than triple that of rural hospitals.

“Every hospital in the country is facing real financial challenges,” said Dave Gessel, executive vice president of the Utah Hospital Association. “It’s more acute for the rural hospitals because they don’t have the same backup and support networks to keep them in business.”

Up to 100 closures

Ozarks Community Hospital spent $350,000 to prepare for COVID-19 – doubling its bed capacity to 50, expanding the isolation ward and obtaining more ventilators.

At the same time, postponing elective surgeries has carved away nearly $7 million in revenues this year.

Without an advance from the Medicare program, the 3,400 residents of Gravette, Arkansas, would have been left without a hospital, said Paul Taylor, Ozarks’ chief executive.

“We were already operating on a negative margin and struggling financially – then the virus hit,” Taylor said. The hospital told federal officials in 2017 that it had a net loss of $36 million that year – nearly as much as its annual operating expenses of $47 million.

If Ozarks must repay the full amount of its Medicare loans, it will become one of more than 100 hospitals across the country that Taylor estimates will close within the next year. That’s more closures than the previous five years combined. 

“They delayed the abyss we all face,” he said. “But until something is done, we’re all sitting here on pins and needles, wondering how we’re going to pay this back.”

In Texas, four out of five rural hospitals similarly struggled to meet payroll before the pandemic.

Texas has seen at least 26 rural hospitals close since 2010 – more than any other state. Yet some rural areas are facing COVID-19 at greater rates per capita than Houston or Dallas. Overrun with admissions, one rural hospital saw its cases spike from two to more than 50 in a day.

“My fear is it will be unpredictable, sporadic and uneven – where some communities avoid it and some get wiped out,” said John Henderson, president and CEO of the Texas Organization of Rural and Community Hospitals. “And that’s even harder to prepare for.”

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