To Survive, Rural Hospitals Need To Grow—But The Demographics Don’t Add Up

$1.25 million.

That’s the size of the bill that could have shuttered the only public hospital in rural Pemiscot County, Missouri in August 2013.

$750,000 for payroll. $500,000 for a bond payment. $1.25 million total. One August day in 2013, the hospital’s CEO Kerry Noble had to face facts: The money just wasn’t there. It took an emergency bailout from a local bank to keep their doors open. For now.

For the nearly 700 rural hospitals in the United States on the brink of financial collapse, relatively small amounts of money can be the difference between life and death. There are variables that can strengthen their chances of survival: Did their state expand Medicaid? Does their patient mix include some higher-paying private insurance? Are they able to recruit doctors?

But health policy researchers say the problem for rural hospitals is deeper than all these issues. Rural America’s dwindling populations make it nearly impossible to keep these community institutions afloat.

“It’s a very narrow edge on which a lot of these rural hospitals are living,” says Andrew Coburn, director of the Maine Rural Research Center. “Because we’re talking about very small numbers. The loss of 10 to 20 percent of their patient load is more significant than it would be in New York City, because it represents a much higher portion of their total revenue.”

Pemiscot County’s hospital is the only public hospital in a county with a population of about 18,000. The next nearest ERs are between 20 and 50 miles away, depending which direction you drive—and two of the four nearest hospitals are in different states. Those distances can be a matter of life or death for someone who has a heart attack or serious injury.

Photo Credit: Bram Sable-Smith/Side Effects Public Media

In this county that was once dominated by agriculture and manufacturing, the median income here is $29,600. The county is still the number six producer of soybeans in the state, and number four producer of both cotton and rice. But far fewer employees are needed to yield those crops than 50 years ago.

In fact, health care has increasingly become the main industry in the area. Pemiscot Hospital is the county’s largest employer.

But the hospital’s business model, like many rural hospitals’, is precarious. For one thing, the hospital absorbs between $7 million and $9 million in bad debt every year—that’s the care they provide to people who can’t afford to pay for it. Medicaid expansion offered by the federal government under the Affordable Care Act would have helped reduce that burden but in 2013, but the Missouri legislature turned that option down.

What’s more, the hospital’s CEO Kerry Noble would later learn they’d missed out on millions of dollars due to an accounting error on a state Medicaid survey. Suddenly a hospital with annual revenues around $50 million couldn’t afford to spend $1.25 million in one month.

A Slow Decline

Earl Bullington’s wood-paneled office is in downtown Caruthersville, the government seat of Pemiscot County, just a stone's throw from the Mississippi River.

He’s an advisor for Focus Bank, which rescued the Pemiscot County hospital in 2013. Aside from a few years away for college, Bullington has spent all 83 years of his life here in Pemiscot County, his life span roughly aligned with the hospital’s.

He was a teenager when the hospital was built and he watched it go up. Later when he was married, his wife gave birth to their three kids in the hospital’s maternity ward.

“Not every county could have a hospital, but we did and it was a good one,” Bullington says.

But Bullington also saw the arrival of an invention that inadvertently doomed the hospital: the mechanical cotton picker.

“A farmer by the name of Looney Holland had the first picker that arrived on our farm,” Bullington says. “I think that changed Pemiscot County more than any one thing.”

That was in 1951—the same year the county’s hospital was completed.

Suddenly, one machine could do the job of 40 people. Since then the county’s population has dropped from 50,000 to 18,000. That’s 30,000 fewer people who might’ve used the county hospital.

Coburn of the Maine Rural Research Center says population decline, and thereby a loss of potential patients, is a lot more significant for hospitals in rural areas than a proportional loss in urban areas.

“It represents a much higher portion of their total revenue,” he notes.  

Photo Credit: Bram Sable-Smith/Side Effects Public Media

Coburn says low population also makes it harder for rural hospitals to pay off the money they borrow to keep their facilities up to date, because to pay that debt down the hospital either has to become more efficient or grow its revenues. Both of those are hard to do in a small, rural community where the population—and therefore the patient base—is shrinking and the hospital’s services are already slim.

“Hospitals have to grow their way out of this problem,” Coburn says, “and that’s very hard to do in a community where you only have so many people to serve.”

Many of those communities, in places such Georgia and Maine,  have responded with new tax levies and bond initiatives. One hospital in Polk County, Tennessee even created a GoFundMe page—though they raised just $5,534 of their $100,000 goal.

Pemiscot County turned to Focus Bank.

Getting Creative

Back in 2013, Pemiscot CEO Noble was looking for a solution.

“I began to get creative,” Noble recalls.

He called up Focus Bank to ask for an emergency loan of $1.5 million.

“And we got it,” Noble says.

The emergency loan was enough money to make payroll, make the bond payment and to keep the hospital going through March 2014. Then, Noble went back to the bank to get a five-year loan worth $3.9 million to buy out the hospital’s old debt.

“We knew what would happen to this community if that hospital closed,” Earl Bullington says. “You lose your hospital, that’s kind of like losing your right arm. It’s the difference between driving five miles or 50 miles to the hospital,” he adds.

Now the hospital has to work to keep itself open. They’ve found new revenue streams, such as a prescription drug program for low-income patients, and made difficult decisions to cut costly services like obstetrics and outsource others such as an ambulance service—decisions that mirror trends at rural hospitals across the country.  

The loan from Focus Bank bought the hospital a little more time to evolve. But no matter what it does,  it has to face the reality that rural America’s population isn’t going to get any larger.

“There's a need for coordinated policy response,” says Coburn. “I don't see that happening across the country yet, but I think it's going to.”

This story was produced by Side Effects Public Media, a news collaborative covering public health.

Bram Sable-Smith is reporting this series during a yearlong Reporting Fellowship on Health Care Performance sponsored by the Association of Health Care Journalists and supported by The Commonwealth Fund. This story is part two in series on rural hospitals. Read part one here.