A doctor and her patient walk outside.

#196 Fall 2019 — Transit

Rural Hospital Struggles Are Also an Economic Development Issue

Aside from the health implications, the closure of a hospital in a rural community deeply impacts the area’s economic wellbeing. But in some cases, it can be avoided.

Photo courtesy of the Scotland Health Care System

A doctor and her patient walk outside.

A Scotland Health Care system doctor and her patient. The health care systems employees more than 1,000 associates in Scotland County, North Carolina. Photo courtesy of the Scotland Health Care System

It’s become one of the hallmarks of our time: around the country, rural hospitals are in trouble. Many are struggling, some are in survival mode, and since 2010, 112 have closed, leaving those regions with no emergency medicine and sometimes little medical care for miles. And the situation is getting worseit’s estimated that 21 percent of rural hospitals in the U.S. are on the brink of closure. 

The crisis highlights some of the biggest changes and challenges facing the nation today. There’s an urbanization trend that’s hollowing out rural areas; health care costs that have spiraled in the past couple of decades; and a large swath of people whose wages haven’t kept pace with the cost of living and whose communities aren’t able to keep up economically.  

The ultimate result is more than just lost medical services. When a rural hospital closes, communities lose their anchors, employees lose their jobs, and towns lose their status as desirable places to live.  

A real solution means figuring out how this country will pay for the medical care of people who can’t afford it themselves. In the meantime, though, hospital administrators in rural areas are doing their best to pare down, innovate, and find funding that will allow them to keep going—sometimes with the help of community development organizations.  

Struggling Along in Scotland County 

Greg Wood knows all about trying to make a dollar go a little further. He’s the CEO of Scotland Health Care System, a community-owned organization near North Carolina’s southern border that serves as a prime example of rural hospitals’ challenges today.  

There’s the upside of Scotland’s changes over the past few decades: “We’ve evolved from being Scotland Memorial Hospital to a full health care system,” says Wood. The institution is serving a wider region, and doing much more for its patients besides just emergency medicine. And, he says, “we are this area’s largest private employer, with a staff of over 1,000 full-time and part-time associates; there are all kinds of multiplier effects with that.”  

And then there’s the downside. The economics and demographics of Scotland County, where the system is based, have gotten worse over the past decade. There’s little growth and unemployment is high, so young people move away and don’t return, leaving an aging patient base and workforce. That wider region the company is now serving is one of the poorest in the state, with some of the worst health outcomes. And uncompensated care—that is, treatment for people who can’t pay their billshas continued to rise.  

“Eleven percent of what we do is uncompensated,” says Wood. “We collect 27 cents on the dollar from patients. 

That makes it hard to break even, much less invest in the future.  

“Rural health is where innovation happens.” 

In response, says Wood, the system is doing all it can to run leaner and eliminate waste. “We need to be much more strategic about what we offer,” he says. That might mean prioritizing profitable services; hiring clinicians like nurse practitioners rather than doctors; cutting back on some energy-intensive partnerships in the community; and asking doctors to take on more of a leadership role.  

And it’s also about being innovative and finding new ways to work. Could the Scotland system share resources with the hospital in the next county to support a specialist? What about getting doctors from a wealthier region to practice in Scotland County on a part-time basis? 

One change that would make a significant difference is out of Wood’s hands. North Carolina hasn’t expanded Medicaid, which means that hundreds of thousands of adults in the state earn too much to receive traditional Medicaid, but too little to qualify for subsidies under the Affordable Care Act. Most are uninsured, and that’s a huge reason Scotland’s uncompensated care costs are so high. If Medicaid were expanded, the federal government would be paying most of those folks’ medical bills.  

“It would be a very large win for us,” says Wood. And for the community, he adds: more money coming in from Washington and more hospital bills being paid would mean more revenue trickling down to business owners and workers, as well as more jobs and more taxes collected. 

Regardless, Wood and his colleagues are doing everything they can to keep the hospital going. Having a functioning hospital deeply matters to Scotland County. “The message it sends to anyone considering moving here is of vitality,” he says. And the fact that it’s community-owned is doubly powerful. “The community can take pride in a successful system.”  

Losing it would be tragic, in so many ways.  

Can Closure be Avoided? 

Scotland Health Care System’s story is very much the story of struggling rural hospitals in generalLike it, many are located in the South, overwhelmingly in states that have chosen not to expand Medicaid, and many have large minority populations (roughly half of Scotland County residents are people of color).   

And as in Scotland County, there are multiple reasons why the hospitals are struggling. Ultimately, hospitals close because of financial problems; 46 percent of rural hospitals currently operate at a lossThat might be the result of some combination of incomes that haven’t kept up with health care costs, an unhealthy population, and a high proportion of uninsured residents. But while Medicaid expansion would help hospitals located in states where it hasn’t occurred, it’s not a panacea; Medicaid reimbursement rates are notoriously low.  

The loss of a community hospital can be devastating. The biggest issue is the disappearance of medical services, of course, particularly if the next closest hospital isn’t close at all. But there’s also a huge economic tollGeneral hospitals in rural areas have been found to provide an average of 559 jobs, 500 of which aren’t health care related—that is, they’re available to residents without medical or nursing degreesAnd they frequently serve as economic drivers. As a result, research has shown that per-capita income drops by 4 percent and the unemployment rate rises by 1.6 percentage points when a community’s only hospital closes. 

There are all kinds of spinoff effects. Companies won’t want to locate in a community without a hospital: they’ll likely assume the workforce is less healthy as a result. Young couples will hesitate to move to towns where there’s nowhere to deliver a baby. And retirees won’t want to settle where there’s no comprehensive health care option 

“When a community loses its only hospital, the permanent effect is that it’s harder for the community to be competitive,” says Mark Holmes, director of the Sheps Center for Health Services Research at the University of North Carolina, which is doing some of the most prominent research on rural hospital closures.  

But while the surrounding environment is usually the root cause of rural hospitals’ struggles, administrators have some power 

For one, says Holmes, “being part of a system is probably a good strategy.” When a small hospital belongs to a larger health care system, there are resources it can draw on: specialists from other facilities who can be utilized, access to capital, greater bargaining power with insurers. It’s critical, though, that the larger health care company has a relationship with the community, and that there is some local control—and that tends to occur more often with not-for-profit systems.   

But even belonging to a locally owned company isn’t a silver bullet. Not far from Scotland County are examples of two large health care systems’ very different approaches to small, underperforming hospitals. On the coast, the eastern North Carolina hospital system Vidant Health bought the local hospital in Belhaven, North Carolina, in 2011Three years later, it closed the institution, despite the mayor’s lengthy advocacy campaign to save it, leaving an urgent care clinic that employs just 20 people. Residents now have to drive over 30 miles to get to a hospital.  

 Meanwhile, 250 miles away, Atrium Health (formerly Carolinas HealthCare System) chose another approach for the small, struggling hospital it owned in Anson County. Rather than shutter the institution, the corporation elected to rebuild it, creating a smaller, more nimble facility that still offers emergency services, as well as primary care. It’s considered a win for the rural county. 

But regardless of ownership, administrators have to find new, creative ways to operate. That’s already occurring around the country, says Alan Morgan, CEO of the National Rural Health Association. “Rural health is where innovation happens—every rural community is unique; there are multiple strategies out there.” It’s about being market driven: examining potentially valuable service lines to capitalize on and potentially useful organizations to partner with 

In South Carolina, Allandale County—one of the poorest counties in the nation—has been able to maintain its hospital while several around it have closed. That’s in part the result of its affiliated nursing home, which has a strong reputation and earns Medicare dollars, as well as its cafeteria. The latter has become one of the most popular spots in the county for lunch, says Wilbur Cave, an affordable housing developer in the area. And the hospital has taken advantage of telemedicine options to expand its offerings at a lower cost.  

 Telemedicine is key to struggling rural hospitals, says Morgan. “It’s a tool that can be employed like a stethoscope, an extender of the practitioner.” No, a doctor can’t do surgery or deliver babies by telehealth. But he or she can use it to consult with other practitioners, particularly specialists, and feel a little less isolated. Behavioral health can be effective via computer, and so can pharmacy consultations.   

“There are a lot of creative ideas about how to do it,” says Morgan. And telemedicine is still in its nascency, so there’s likely much more to come 

CDFIs Can Play Key Role 

But many rural hospitals have served their communities for decades and are saddled with outdated facilities and equipment. They’re barely earning enough revenue to operate; how can they manage to upgrade in order to continue?  

That’s where community development financial institutions come in.  

“Our facility is 69 years old. What happens is you reach a point of no return—equipment gets so old you can’t get parts to service it, or even make custom parts,” explains Patrick Chapman, the CEO of Tippah County Hospital in northern Mississippi. To boot, the building is outdated and patient rooms are tinyall of which are unappealing to job-seeking medical practitioners 

When you’re trying to recruit doctors to a small rural hospital and they see a really old facility and small rooms, it gives them pause. Is this really where I want to work?” he asks rhetoricallyChapman and his colleagues had already realized that it would cost less to build a brand new building than to renovate. But where would the money come from?  

Then Chapman met Cassandra Williams, senior vice president at HOPE Enterprise Corporation. Based in Jackson, Mississippi, HOPE is authorized to provide New Markets Tax Credit (NMTC) financing, and had already done so for several health care institutions, providing them with access to low-interest loans. And this one was a no-brainer.  

“The hospital is in disrepair. They’re in desperate need of a new one; because it’s so old, they do lose patients” to newer facilities, says Williams.  

The project is still being finalized, but both Williams and Chapman are optimistic that it’ll go through. It will include $8 million in NMTC from HOPE, as well as potentially close to $12 million more from two other Mississippi CDFIs with NMTC allocations 

That would be a huge game-changer, says Chapman. An entirely new facility would allow the hospital to provide additional services like cardiac and pulmonary rehabilitation and intensive outpatient therapy to seniors, as well as to offer surgery again; the hospital closed its surgery suite several years ago. Additionally, “we think it’ll be a very important economic driver for our community,” says ChapmanOur philosophy is activity breeds activity. Land around it suddenly becomes more valuable. It just has a domino effect.”

Several other CDFIs around the country have helped rural hospitals obtain the financing they need in order to go on. Many have utilized NMTC; some have also provided loans through the USDA Rural Development’s Community Facilities Re-Lending program. Not all of the hospitals on the receiving end ultimately survived—the financing isn’t a silver bullet—but for some, it has been transformative.  

The hospital in Coeur D’Alene, Idaho, for instance, was aiming to build a $12 million addition that would serve as a medical residency program. The facility treats a rural area, and the addition was designed to potentially to attract young doctors to the region. But hospital administrators couldn’t quite make the development work financially. In came MoFi, a CDFI serving the western Rockies, with almost $12 million in NMTC financing, and the project went through.  

It’s now making a serious difference in the region. “Now they’re seeing [medical] residents stay in northern Idaho, and [the residents] are specialists in rural and family medicine,” says Dave Glaser, MoFi’s president. “They’re building the inventory of doctors able to serve that really rural area.”  

MoFi has also provided loans that allow hospitals to make much simpler changes: to update their HVAC and electrical systems, for example. Even those basic upgrades are crucial, allowing facilities to devote funds to improving operations rather than making repairs.  

And that matters. Because if those areas lose their hospitals, says Glaser, “it’s a death knell for the community.”   

But advocates and analysts emphasize that while the loans and upgrades can be lifesaving for rural hospitals, they don’t address the issue at the very heart of the rural health care crisis.   

“Hospitals are required to treat all comers,” says Morgan, the National Rural Health Association CEO. “But at the end of the day, someone has to pay the bill.” And until there’s an answer—in Washington or elsewhere—to the question of who that someone is, rural hospitals’ struggles will continue.