Rural hospitals caught in aging-facility dilemma

Kevin Stansbury, the CEO of Lincoln Community Hospital in the 800-person town of Hugo, Colorado, is facing a classic Catch-22: He could boost revenues by offering hip replacements and shoulder surgeries. But he can’t expand the operating room to provide those services without more money.

“I’ve got a surgeon that’s willing to do it. My facility isn’t big enough,” Stansbury said. “And urgent services like obstetrics I can’t do in my hospital, because my facility won’t meet code.” Locals currently must travel 100 miles to deliver babies.

Rural hospitals throughout the nation are facing a similar conundrum. Most were opened with funding from the Hill-Burton Act, passed by Congress in 1946. By 1997, that and its successor program had funded the construction of nearly 7,000 hospitals and clinics. Now, many of those buildings, particularly those in rural areas, are in dire need of improvements.

But rural hospitals don’t have the resources of larger hospitals, particularly those in hospital chains, to fund billion-dollar expansions.

“Most of us are operating at very low margins, if any margin at all,” said Stansbury, who is also board chair of the Colorado Hospital Association. “We’re struggling to find the money.”

Rural hospital closures dropped during the pandemic, from a record-high 18 in 2020 to eight in 2021 and 2022 combined, according to the University of North Carolina–Chapel Hill, as emergency relief funds kept them open. But that life support has ended.

Those financial headwinds will likely push more rural hospitals out of business. At least nine more rural hospitals closed in 2023. Harold Miller, CEO of the Center for Healthcare Quality and Payment Reform, said closures are reverting to pre-pandemic rates.

The challenges: time, Medicare, loans

Increased costs – payroll, inflation – amid lower payments from insurance make it harder for small hospitals to fund capital improvements. And rising interest rates are making it tougher for aging facilities to qualify for loans to upgrade their facilities to meet ever-changing standards of medical care.

Miller said the biggest problem for small rural hospitals is that private insurance is no longer covering the full cost of care. Medicare Advantage, a program under which Medicare pays private plans to provide coverage, is a major contributor, he said.

“You’re basically taking patients away from what may be the best payer that the small hospital has,” Miller said. The private plan pays less and “ends up also using a variety of techniques to deny claims.”

Rural hospitals must staff their emergency rooms with physicians round-the-clock, but the hospitals get paid only if someone comes in.

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Then there’s the time crunch. Rural hospital CEOs must search for funding while running a hospital, said Kristin Juliar, a capital resources consultant for the National Organization of State Offices of Rural Health.

“A lot of times when there are funding opportunities, for example, the timing may be just too tight for them to put together a project,” Juliar said. Some opportunities require hospitals to raise matching funds, which may be difficult in distressed rural communities.

Rural hospitals might not be very attractive to private lenders because of their financial constraints, and thus may have to pay higher interest rates, said Carrie Cochran-McClain, chief policy officer for the National Rural Health Association.

Another concern is that hospitals might invest in new facilities and end up shutting down anyway. Miller said only a small portion of rural hospitals might be able to make a meaningful difference to their bottom lines by adding services.

Policy solutions to help rural hospitals in progress

Lawmakers have tried to help. California, for example, has loan programs charging low to no interest in which rural hospitals can participate. Hospital representatives are urging Colorado legislators to approve similar support.

At the federal level, Rep. Yadira Caraveo, a Colorado Democrat, has introduced the bipartisan Rural Health Care Facilities Revitalization Act, which would help rural hospitals get more funding for capital projects through the U.S. Department of Agriculture. The USDA has been one of the largest funders of rural development through its Community Facilities Programs. In 2019, half of the more than $10 billion in outstanding loans through the program helped health care facilities.

Caraveo’s bill would also allow hospitals to refinance loans at lower interest rates, and would cover more categories of medical equipment, such as telehealth devices and technology.

“We need to keep these places open, even not just for emergencies, but to deliver babies, to have your cardiology appointment,” said Caraveo, who is also a pediatrician. “You shouldn’t have to drive two, three hours to get it.”

No time to wait

Lincoln Community Hospital opened in 1959 after soldiers coming back from World War II decided they needed a hospital. They donated money, materials, land and labor. The hospital has added four family practice clinics, a skilled nursing facility and an assisted living center.

Stansbury would like to build a new hospital roughly double the size of the current 45,000-square-foot facility. With inflation easing and interest rates likely to go down, Stansbury hopes to get financing lined up in 2024 and to break ground in 2025.

“The problem is, every day I wake up, it gets more expensive,” he said.

When officials first contemplated building a new hospital three years ago, they estimated the cost at about $65 million. Now the estimate is $75 million.

“If we have to wait another couple of years, we may be pushing up closer to $80 million,” Stansbury said. “But we’ve got to do it. I can’t wait five years.”

KFF Health News is a national newsroom that produces in-depth journalism about health issues and is one of the core operating programs at KFF – an independent source of health policy research, polling and journalism.

This article originally appeared on Louisville Courier Journal: Rural hospitals can't afford to upgrade facilities