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Mon October 28, 2013
New Data Reveals Widespread Financial Losses Among Small Oklahoma Hospitals
A majority of small general hospitals in Oklahoma are losing money, and health care officials warn that some hospitals could close, be sold or cut services.
Federal financial reports for nearly every hospital in the state, obtained by Oklahoma Watch and analyzed and reported with the Tulsa World, show that in each year from 2009 to 2012, between half and three-fourths of general hospitals with fewer than 100 beds lost money. Most are in small cities or rural areas. More than half posted losses in multiple years.
Larger hospitals fared better. In each year during the four-year period, between 7 percent and 19 percent of general hospitals with 100 beds or more lost money.
The financial strains affecting the state’s more than 70 small general hospitals has many administrators on edge about what happens next. One hospital, Pauls Valley General Hospital, declared bankruptcy earlier this year, although it remains open. Rural health experts and officials say more bankruptcies or even closings could occur.
The loss of a hospital in a small community can seriously impede access to health care as well as hurt the local economy, health officials say.
Nationally, the picture isn’t much brighter. Small non-specialty hospitals are struggling with declining patients, a slow economy and dramatic changes in the health-care industry.
Rural hospitals in Georgia, Alabama, North Carolina and Arizona have closed their doors in recent months, said Brock Slabach, senior vice president of the National Rural Health Association.
“I wish I could say (the situation) is rosy, but it’s not,” Slabach said. “This is not something we’re crying wolf about. This is happening now.”
The financial data on Oklahoma hospitals was obtained from the Centers for Medicare and Medicaid Services via a Freedom of Information Act request, and from the American Hospital Directory, which compiles cost report data.
The federal government requires most hospitals to file cost reports annually. Figures were collected for 120 Oklahoma hospitals from 2007 to 2012, although not all hospitals’ reports were filed each year. Nearly all reports were available for 2009 through 2012.
There are some signs that things are easing up. In 2012, 52 percent of small non-specialty hospitals lost money, compared with 74 percent in 2010. From 2009 to 2012, about two-thirds of such hospitals had losses, totaling more than $83 million, according to the data.
Shane Dunning, administrator at Carnegie Tri-County Municipal Hospital, said after four years of losses, his hospital’s finances are improving.
“There’s been several times where the viability of this place has been under serious question,” he said.
On Easter Day this year, James Frizell took his wife to the nearby emergency room at Pauls Valley General Hospital after she began behaving unusually and had trouble performing simple tasks.
At the ER, workers found that Frizell’s wife had low potassium. She also was suffering from an allergic reaction to new medication, Frizell said.
The hospital workers were able to save her life. Now, Frizell, who is city manager of of Pauls Valley, wonders who will save the hospital.
“Had they not done what they did, my wife would have died,” Frizell said. “To me personally, it’s important that it stays open.”
Pauls Valley General Hospital filed for bankruptcy in February, the same month the group managing the hospital, SSM Health Care, declined to purchase the city-owned hospital after several months of negotiation. SSM Health Care is a hospital management company owed by St. Anthony Hospital in Oklahoma City.
In 2012, the hospital lost nearly $4.2 million, according to cost report data.
Frizell said the hospital had several issues, including not sending out many bills and failing to secure federal reimbursement for mandated equipment.
Some of the Pauls Valley hospital’s problems are unique. Others reflect what most small non-urban hospitals are confronting, particularly a decline in the number of patients, Frizell said.
The Pauls Valley City Council has assumed oversight of the hospital for now. The bankruptcy filing has residents and community leaders wondering how much longer the hospital will last.
“It think it’s to the front of everybody’s mind, that there’s a possibility it could close,” Frizell said. “The future may be that it closes down. We don’t want that to happen, but it could.”
A Critical Role
Small hospitals play a vital role in small and rural communities.
Without a local hospital, residents may have to travel for hours to get emergency and other health care. The community may have a harder time attracting doctors to set up practice, which already is a serious issue throughout the state.
Gayle England of Stroud depends on the hospital about 17 miles from her home, the Bristow Medical Center.
England, a 65-year-old horse rancher, was diagnosed with lupus five years ago, and easy access to health care became a top priority.
She has made regular trips to the Bristow hospital because of chronic dehydration, including a trip to the emergency room last spring for dehydration and low blood pressure.
“They (hospital staff) truly live by the standard of ‘do no harm.’ They kept me where they could see me at all times, and the emergency nurse never left my side,” England said.
Bristow Medical Center has lost money in four of the past five years. If the hospital weren’t there, England said, she would probably have to drive 50 miles to Tulsa to get treatment.
“A good, functioning local hospital … means the world to the families and those folks who don’t have cars,” she said.
The impact of local hospitals, however, goes beyond providing convenient access to health care. Hospitals also play a significant role in bolstering the economies of small communities.
Often, a rural hospital is one of the largest local employers and a selling point to attract other companies to locate their operations nearby.
“It simply comes down to two things: We provide the health care services and economic services,” said Tom Briggs, chief financial officer at Marshall County Medical Center in Madill. “Madill, our community, is very fortunate and unique for its size because we have several small industries in the area. Without the hospital here, it may be a challenge for them to stay locally.”
Small Is Vulnerable
All general hospitals, regardless of size, must maintain a certain level of staffing and care.
All face challnges. “We’re getting less, and we need to do more with that less,” said Don Ikner, CEO of Great Plains Medical Center in Elk City, which has lost money for the past three years.
Larger hospitals, however, have economies of scale that can insulate them more, such as from rising costs. Many also are in urban areas, where the patient pool is larger.
Richard Carter, an Oklahoma City physician who provides consulting services to hospitals experiencing financial losses, said several trends in health care have combined to threaten the survival of small, rural hospitals.
Among them: the difficulty of recruiting doctors to rural areas, the bigger returns doctors receive for providing non-hospital services, and the tendency of some doctors to transfer patients out of rural hospitals.
Doctors generally earn more revenue from outpatient procedures and clinic operations than they do from in-hospital services, Carter said. For patients with more serious problems, he said, some physicians move them into bigger facilities even if the rural hospitals are fully equipped to deal with them.
“A lot of them have just turned into Band Aid stations,” he said. “You have people with pneumonia and sepsis who can be easily managed in the hospital, but they are being transferred out.”
Carter suggested that physicians’ lack of confidence in smaller hospitals might be misguided. He said he has reviewed five studies comparing patient outcomes in rural versus urban hospitals. “In everything but cardiac care, the rural hospitals actually have better outcomes,” he said.
Carter said his consulting firm helps rural hospitals improve their customer service and business models, training nurses in advanced life saving techniques and encouraging doctors to admit patients with a variety of medical problems.
“Patients get better customer service when they take their car to get it tuned up than when they go to the hospital,” he said.
“It’s had a remarkable impact. I’ve been in one facility that was bankrupt and a couple that should have been bankrupt and we were able to turn them around and actually make them profitable.”
Competition and Cutbacks
In some areas, competition between small hospitals has caused at least one to lose money.
Owasso’s Bailey Medical Center, which competes with St. John Owasso, has seen double-digit losses in its overall profit margins in each of the last three years. Muskogee Community Hospital lost money when it competed with Muskogee Regional Medical Center until the two merged under the name EASTAR Health System in 2012.
According to the Oklahoma Hospital Association, from 2004 to 2007, before the Great Recession, about 35 percent of Oklahoma’s non-urban hospitals operated at a financial loss. Between 2009 and 2011, that number increased to about 60 percent, the association reports.
Some hospitals have cut back services.
Jefferson County Hospital in Waurika cut some services, such as obstetrics, because it could not afford them, said Jane McDowell, the hospital’s CEO.
“The (low patient) volume and requirements in order to provide those are too costly,” McDowell said.
The economic climate plays into what hospital officials and experts say is one of the biggest issues facing rural hospitals today: lower or stagnant numbers of patients.
Some areas’ populations are shrinking as people leave to seek better jobs in bigger markets. Also, rising health-care costs and low wages have caused people to put off treatment for health issues.
Hospital administrators said another reason for fewer patients is a severe doctor shortage, which is affecting all but a few counties in Oklahoma.
If a small hospital with two or three doctors loses one, it can cut significantly into the number of patients a hospital can treat. Patients go elsewhere, lowering the hospital’s revenue.
“They’re (hospitals) very delicate flowers,” said Edward Herrman, CEO and president of Integris Bass Baptist Health Center in Enid, a 162-bed hospital that has made a profit in recent years. “All it takes is for one doctor to leave, and your world can be turned upside down. You can go from a facility making 3 to 4 percent margin to being negative by millions of dollars.”
Another factor affecting profits is higher percentages of rural patients on Medicare and Medicaid, which often reimburse hospitals at a lower rate than private insurers. Higher staffing costs and uncompensated care also have grown.
It is not only the uninsured who contribute to uncompensated care. Briggs in Madill and Herrman in Enid said Integris hospitals have seen increases of insured patients unable to pay their insurance deductibles and co-payments.
“Our fastest-rising bad debt is having to write off co-pays and deductibles that patients don’t have the ability to pay,” Herrman said.
Effects of ‘Obamacare’
Last year, Gov. Mary Fallin chose not to accept federal funding to expand Medicaid under the Affordable Care Act, saying it would be too costly. That left more than 140,000 Oklahomans ineligible for Medicaid or subsidies to buy coverage on the new health-care marketplace.
Rick Snyder, vice president of finance and information services for the Oklahoma Hospital Association, said the biggest single thing Oklahoma could do to help rural hospitals would be to expand Medicaid.
Herrman said although Medicaid reimbursement doesn’t cover all costs, it would be “better than nothing, which is what we’re getting right now (from the uninsured),” he said.
“Obamacare” still could benefit hospitals by requiring people to get insurance or face a fine. But hospital officials worry that many people will buy high-deductible insurance plans on the marketplace, Herrman said.
“Yeah, they have insurance, but it’s a $2,500 deductible and they don’t have $2,500 in their savings account to even cover the deductible,” Herrman said.
Under the health-care law, hospitals will face smaller increases in Medicare reimbursements over the next decade. Nationally, that could take $220 billion off the table. Planned cuts in payments for treating the uninsured, called “disproportionate share,” will likely have little impact on Oklahoma hospitals in early years, according to the Oklahoma Hospital Association.
The Affordable Care Act also will push hospitals to reduce health-care costs while improving patient care.
New “accountable care organizations,” voluntary groups made up of hospitals and other providers, will aim to improve care for patients yet lower costs by avoiding duplicate services, according to the Kaiser Family Foundation. Providers will get bonuses when they keep costs down.
State Rep. Arthur Hulbert, R- Fort Gibson, a member of the House Public Safety Committee, said he is concerned small hospitals will not qualify for, or will be shut out of, such organizations.
In July, according to the Tulsa World, Hulbert was asked at a meeting if it would take a rural hospital’s closing to convince the state to accept federal money to expand Medicaid. “I think there will be many hospitals that close regardless,” he replied.
A separate issue has exposed more than two dozen of the smallest Oklahoma hospitals to possible loss of federal funding.
A designation called “critical access,” created in the 1990s to shore up rural hospitals with 25 or fewer beds, makes a hospital eligible for greater Medicare reimbursement of certain costs. The hospitals must be located at least 35 miles from a larger hospital.
In August, the U.S. Department of Health and Human Services reported that nearly two-thirds of the nation’s more than 1,300 critical-access hospitals do not meet the distance requirements and recommended Congress strip those hospitals of their status.
In Oklahoma, 28 of 34 critical-access hospitals fall into that category, according to the Oklahoma State University Center for Rural Health.
Congress hasn’t acted so far.
“That (status) is absolutely critical for the viability of these hospitals,” said Smalley, of Mercy Hospitals.
Risks of Closing
When a rural hospital closes, it’s likely gone for good, said Slabach, of the National Rural Health Association. The number of closings of small hospitals nationally has increased in recent years, he said.
“Rural health is like arctic tundra – once you step on it, it’s gone,” he said.
Several rural health professionals and managers said it’s possible there will be closings of Oklahoma rural hospitals in the next few years.
“I think we’re going to see more and more of those smaller hospitals go out of existence,” said Ikner, of Great Plains Medical Center. “Even for somebody in the business, it is very scary.”
The solutions to small hospitals’ problems are elusive.
Other than Medicaid expansion, “there aren’t a whole lot of real promising opportunities on the horizon that would reverse some of this downward trend,” said Snyder, of the Oklahoma Hospital Association.
The pressures have caused some hospitals to merge or partner with larger health-care provider groups. That can expand access to physicians, equipment, technology and administration at a lower cost, Smalley and others said.
The Pauls Valley City Council is seeking a larger group to purchase the hospital there, Frizell said.
“Obviously, it’s going to take a partnership with somebody to keep it running,” Frizell said. “We can’t run it by ourselves. We can’t do that. It just cannot happen.”
Whatever the strategy, a cure for rural hospitals’ financial ills must be found, Herrman said, because the alternative isn’t pretty.
“I think we all agree it’s not easy, but I don’t think it should be acceptable for us as a state to say, ‘Yeah … you have to drive two hours to get care.’ I don’t think that’s a scenario anyone wants to see.”
Oklahoma Watch is a nonprofit organization that produces in-depth and investigative journalism on important public-policy issues facing the state. More Oklahoma Watch content can be found at www.oklahomawatch.org.
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