Rural hospitals face challenges across the state

DALTON — The economic downturn, cuts in state and federal health care programs, and attempts by private businesses to rein in their own health care costs have combined to create a “perfect storm” that threatens small rural hospitals across the state, according to Jimmy Lewis, CEO of HomeTown Health, which represents 55 rural hospitals in Georgia including Murray Medical Center.

“We could wake up tomorrow and have 10 hospitals about to close,” said Lewis.

Forty-one Georgia hospitals have closed since 1980, according to the Georgia Hospital Association, many of them small rural hospitals.

The problem that rural hospitals face is that their “payer mix” is typically heavy in patients on Medicare and Medicaid and those without insurance.

At Murray Medical Center, for instance, 43 percent of revenue comes from Medicare, the federal health program for seniors. Another 17 percent comes from Medicaid, the joint state and federal program that provides health care for low-income people. And 19 percent of revenue comes from those who have no health insurance, according to Hamilton Health Care System, which operates the hospital.

“Typically, we can get about 95 cents on the dollar from Medicare. We have been collecting 85 cents on the dollar or less from Medicaid. We collect about 2 cents on the dollar from self-pay (those without insurance),” said Lewis with HomeTown Health. “Right or wrong, small hospitals have had to subsidize themselves through their commercial customers to try to cover their losses from the other payers.”

At Murray Medical Center, just 21 percent of revenue comes from commercial customers, patients with private health insurance.

“Murray, like most rural hospitals, has a very traumatic payer mix,” said Lewis. “They can have $18 million in revenue and lose $2 million a year simply because they have excesses in Medicare, Medicaid and self-paid, and they don’t have enough commercial to cover those losses. That’s a universal problem.”

Murray Medical Center had about $54 million in revenue in 2009 but also had to write off just under $10 million for bad debt or charity care, according to Hamilton officials. Murray Medical Center’s total projected loss this year was $2.4 million, though officials said recent cuts in staff should get it to break even.

“Unfortunately, the problems at Murray Medical Center are not unique,” said Kevin Bloye, spokesman for the Georgia Hospital Association. “Sixty-two percent of the rural hospitals in the state are in the red.”

Rural hospitals require subsidies

Rural hospitals have long had to be subsidized either by local governments or by larger partners such as Hamilton Health Care System. Larger hospitals have been willing to cover the losses of their smaller partners because those hospitals have brought patients into the larger system that use diagnostic equipment and medical specialists, allowing the larger system to spread those costs over a larger base.

“But their need for subsidies has grown beyond what anyone could have imagined,” said Lewis.

That’s due largely to the downturn in the economy.

Rising unemployment has left many people without health insurance. In addition, rising health care costs have caused many companies to raise the premiums paid by employees, leading many workers to drop health insurance. That has driven up the number of self-paying patients.

“Regardless of where they are, hospitals are challenged in the current economic climate. But certainly, Northwest Georgia has been hit hard recently,” said Hamilton President and CEO Jeff Myers. “In the last several months, unemployment has been up to 13 percent in Murray and Whitfield counties, which means more and more of the patients are uninsured or are unable to pay.”

Further, health insurance companies have begun cutting payments to hospitals, making it harder for those hospitals to continue subsidizing their losses from Medicare and Medicaid.

That hammers both small hospitals and large.

“The larger partners are suffering from the economic downturn just like the little guys. They have to scrutinize how they subsidize units like Murray,” said Lewis. “We are seeing this across the state. Larger hospitals are scrutinizing their affiliations with smaller hospitals. That’s not peculiar to Murray and Hamilton.”

Rural hospitals capture small part of market

Like the rest of the Hamilton system, Murray Medical Center isn’t in the preferred provider networks of most major insurance plans. Hamilton officials say they don’t believe that has played a role in the financial problems at Murray.

But Lewis says it might make it more difficult for Murray to increase the number of patients treated there who are covered by insurance and to improve its payer mix.

“There’s no question that has a significant impact on patients covered by those plans. At the same time, it’s important to note that the major hospital has to make a decision on how low it can go on its rates,” he said. “The commercial carriers want to cut and cut and cut their rates while the hospital system has relied on the commercial payers to offset the other losses.”

Hamilton officials say that about 70 percent of Murray County residents who are hospitalized go outside the county for treatment. But Lewis says that is typical for rural hospitals, which typically capture just 30 to 35 percent of their market share.

Lewis says Murray Medical Center does face one problem unique among the state’s rural hospitals: It isn’t considered a rural hospital by federal regulators.

In 2004, the federal government designated the Dalton area as a metropolitan statistical area (MSA) including Murray County. As a result, Murray Medical Center lost about $891,000 annually in federal reimbursement for indigent medical care.

Future is uncertain

Hospital administrators across the country are keeping a close eye on the health care law enacted by Congress earlier this year. Most of the provisions in the law don’t take full effect until 2014, so the administrators say it’s hard to predict if it will help or hurt hospitals.

“The bill promises health insurance coverage to 32 million Americans, which would obviously be a positive,” said Bloye, since it would reduce hospitals’ losses for uninsured patients.

On the other hand, the government plans to pay for covering those patients by cutting $500 billion from Medicare, which officials say does not fully compensate them now.

Hospitals are also keeping a close eye on what state lawmakers do to health care spending. This year, for instance, lawmakers proposed cutting Medicaid spending by $350 million to close the state’s budget gap.

Lewis said that could have forced 20 rural hospitals across the state to close.

“When they realized they were going to close 20 economic engines across the state, they chose another way to close their deficit,” he said.

But Lewis and Bloye say hospitals are still worried that state and federal lawmakers will deal with their own budget issues by shifting costs onto private hospitals.

And what that means for hospitals such as Murray Medical Center remains to be seen.

“We know there are going to be a lot more insured patients, but a lot of it depends on what the government is willing to pay for services,” Bloye said.

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