Faith Community Hospital in Jacksboro, TX is a general medical and surgical hospital 25 miles away from its nearest competitor. As of 2010, the town had less than 5,000 residents, many of whom are on Medicare and Medicaid.
Five years ago, many of these residents were migrating out of the Jack County seat to receive care, mostly as a result of a hospital with what CEO Frank Beaman described as a bad reputation for customer service. The aging facility badly needed to be replaced, but the hospital couldn't drum up the community support to pass a bond election.
On top of all of that, the hospital also faced the usual challenges that plague rural healthcare providers, especially in states that don't expand Medicaid. In each fiscal year from 2011 to 2013, rural hospitals reported a median operating profit margin at least 1.66 percentage points lower than urban hospitals. According to iVantage, that gap is widening. 26 rural hospitals have closed their doors in the last 10 years, and the pace seems to be accelerating.
Five years later, FCH is opening a brand-new 17-bed facility with a 15,000-square-foot on-site health clinic. The hospital is meeting federal incentive requirements: After three failed attempts with various vendors, the hospital earned $150,000 in Meaningful Use payments for attesting to Stage 2.
FCH is not the only rural hospital surviving in what is widely considered to be a untenable environment. In May, LifePoint Hospitals—now LifePoint Health—announced a 5% increase in profits in the first quarter of Q1. The rural hospital operator saw $13 million in first-quarter profits and expects to benefit by between $40 million and $50 million this year from healthcare reform.
How are they doing it where other rural health providers are failing?
"Rural communities face many unique challenges," LifePoint CFO Leif Murphy told Healthcare Dive in an email. "There are workforce shortages in many areas, and recruiting providers to rural communities can be challenging. Many rural communities also have older and sicker populations than what you would find in more urban areas, as well as high Medicare, Medicaid and uninsured populations. Additionally, the economic health of many rural areas is impacted by high levels of unemployment and difficulty in attracting new businesses to the community."
Rural hospital operators vary on what the biggest challenge is, likely because it varies from community to community. Dwayne Taylor, CEO of Johnson County Community Hospital, a CAH in Johnson City, TN, told Healthcare Dive last spring that recruitment was his biggest challenge. Taylor says he has to sell the community appeal to attract potential physicians because there's no two ways about it: Mountain City, TN is an isolated enclave and for those unaccustomed to slowing down for a tractor on a windy two-lane, a culture shock.
According to Murphy, the payer mix is LifePoint's most difficult challenge.
"For many rural hospitals, high Medicare, Medicaid and uninsured populations in a region mean insufficient reimbursement and high levels of charity care and uncompensated care," Murphy said. "Also, there is a stark contrast among hospitals in states that have opted to expand Medicaid coverage and states that have not. There is no question that rural hospitals in states without Medicaid expansion face greater struggles."
A 2015 iVantage report on the financial vulnerability of rural hospitals found that in Medicaid expansion states, 8.3% of hospitals matched the profile of shuttered facilities, putting them at risk of closure. In non-expansion states, that percentage rose to 16.6%. Some states were worse off than others: Mississippi had 22 vulnerable hospitals, or 33.8% of its 65 total facilities. Arkansas, which expanded Medicaid through the so-called "Private Option," saw 27.5% of its hospitals rated "vulnerable." Of the non-expansion states, eight had more than 20% vulnerable hospitals. Of the expansion states, only one state had more than 20% (Arkansas).
Independent hospitals like FCH have it particularly tough. Beaman says that one of the biggest issues he faces is a function of economies. In order to meet minimum staffing levels, he often has more personnel than he needs for an average daily census of three on the inpatient side.
The shift to outpatient
Twenty-seven and a half percent of Texas' 153 hospitals are vulnerable to closure—42 of the 283 vulnerable facilities nationwide. Yet FCH is building a new facility. Why?
The answer is in how the original facility was used 60 years ago and how the new facility will be used.
"We're going from a 3,500-square-foot clinic to a 15,000-square-foot clinic [in the new facility]," Beaman said. "We're licensed for 41 beds, but we're only building 17 in the new hospital. Inpatient is not the drive. We don't want people to spend a lot of time in the hospital and when they do, we want them in and we want them out as quick as possible."
In other words, FCH has embraced an industrywide shift to providing outpatient care, changing its business model not only because it's more lucrative, but also because it seems to be what patients are demanding.
That focus on outpatient treatment and care, says iVantage Senior Vice President Michael Topchik, is what makes many of the top-performing rural hospitals so successful. According to Topchik, there are about 235 of these hospitals nationwide—and they are making changes.
"Rural hospitals tyically have 70% or more of their volume or revenues dependant on outpatient services, but there is a transformation there," Topchik said. "The inpatient business that has traditionally defined hospitals has been on the decline for the last five to 10 years. So the future of rural healthcare probably will look different."
In 2012, the changes in utilization and medical necessity rules cut FCH's inpatient census by two-thirds. But at the same time, Beaman says, the hospital's outpatient care spiked and he was able to put more providers in that setting.
"We saw a huge amount of out-migration in minor surgical procedures," Beaman says. "Physical therapy, rehab—those are things we are [now] expanding based on the needs of the community."
(Beaman notes that the new hospital does include a more robust OB. The hospital began delivering babies again a year and a half ago, after 27 years of not doing so. Four of the new hospital rooms are fully-equipped LDRPs.)
LifePoint is making the same shift in its business model. The provider has branched out from owning and operating community hospitals—going so far as to rebrand to LifePoint Health from LifePoint Hospitals—to running physician practices, post-acute care service providers and outpatient centers.
"This diversification, which recently led us to change our name from LifePoint Hospitals to LifePoint Health, has been instrumental in our ability to drive revenue and ensure that we are providing the services and support that our communities need," Murphy said.
How do you pay for it?
As Modern Healthcare's Melanie Evans noted recently, "Small hospitals lack the capital to invest in primary and ambulatory care facilities to attract patients seeking prevention and wellness services or whose insurers are pushing them to seek care in outpatient settings."
"Hospitals that are part of a strong system, like LifePoint, have an advantage over independent, standalone hospitals because of economies of scale, purchasing power and additional resources and support that can be tapped in times of need," Murphy said. (The economies of scale argument has been disputed in various FTC antitrust investigations surrounding big-box mergers, but it's inarguable that LifePoint has a cushion organizations like FCH do not.)
For a system like LifePoint, the problem of capital is an easier one to solve. For FCH, raising what was needed to shift its care delivery model was a multi-step process.
First, Beaman had to change local perception of the hospital. FCH has had to invest resources in two significant ways: Boost community engagement and education; and hire care transition and follow-up personnel. He rebranded, changed providers, invested in community education and women's, senior's and Hispanic wellness programs.
FCH "put lipstick on a pig," as Beaman says, improving the old hospital just enough to limp along until they could raise enough for a new facility.
Improving the hospital's image allowed him to ask the community to put a little more skin in the game—and that, for Beaman, is the key to the survival of rural facilities.
"Rural communities are going to have to accept—and this is a very hard pill to swallow—that if they want a viable healthcare facility in their community, they are going to have to support it with tax revenue and they have to use it," Beaman says.
That was how FCH was able to raise the capital to build its new facility, complete with that 15,000-square-foot outpatient clinic: through community investment.
"We raised our taxes 175% to pay for the new hospital," Beaman said. "We did a major tax increase to put us in a position to free up revenue to do a revenue bond. 80% [of the tax revenue] was paid for by large industry, mainly energy, and we also protected the senior citizens, but we live because of the tax revenue."
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