Rural hospital closures cluster in poor, diverse counties

Linda Rider

By Clarissa Donnelly-DeRoven

In the past decade, rural hospitals that shuttered tended to be in rural counties with lower incomes, higher levels of unemployment, and higher proportions of Black and Latino residents. That finding comes from a recent study conducted by researchers at the Cecil G. Sheps Center for Health Services Research at UNC Chapel Hill. The 141 rural hospitals that closed nationwide between 2010 and 2020 were also often located in counties adjacent to metropolitan areas.

Federal hospital finance data show that the rural hospitals in North Carolina that had the weakest financial outlook in 2019 — the most recent year for which data are available — are in counties that share many of the characteristics of the communities that suffered closures in the last decade, according to an analysis by NC Health News.

NC Health News used a database created by the Center for Healthcare Quality and Payment Reform to determine which hospitals have the worst financials. The organization conducts calculations of hospitals’ net assets and net margins and hosts them, though the data itself comes from federal hospital cost reports published quarterly by the federal Centers for Medicare and Medicaid Services

The numbers come from before the pandemic, which turned health care on its head. But even as COVID-19 strained rural hospitals, the federal government pushed out millions of dollars to help keep them afloat to care for affected patients. 

Under these abnormal circumstances, the financial status of these hospitals could be even more uncertain.

“It won’t show what happened in 2021 for most hospitals until early 2023,” said Harold Miller, the president and CEO of the CHQPR, which created the database. The organization is a national policy center that advocates for improvements to the delivery and payment models used in health care. 

“The data come from the hospitals themselves — they fill out the cost reports — so they can’t be totally unfamiliar with it, but they may not have made the same calculations using the data that we have,” Miller said.

What do these numbers mean?

The hospitals that might be in the riskiest financial position are those with negative net assets and negative margins, Miller explained. This means, essentially, their bills and their debt are higher than the amount they bring in. To think of it in terms of personal finance, Miller said, imagine net assets to be your savings minus your debt. 

“You can have more debt than you have savings, but at some point, the debt has to be paid off,” he said. “If you don’t have enough money to do that, you’ll be bankrupt.”

In order to analyze a hospital’s net assets, CHQPR adds up all of a hospital’s sources of income — bank accounts, investments, accounts receivable — but excludes the value of the hospital’s actual building, equipment and land.

“Many hospitals will show positive net assets because of the asset value assigned to the hospital building itself,” Miller explained. “The only way the hospital could use that asset to pay staff or loans would be to sell the hospital building, which would mean it would no longer be a hospital.”

A hospital’s margins refer to their profit — or lack thereof. If a hospital makes more money than it spends, it has a positive margin. If it spends more than it makes, it has a negative margin. 

For a lay person, he says, it’s the equivalent of expenses being higher than earnings. 

“If you’re not earning enough to pay your bills, you’re in trouble.  If you have savings, you can withdraw some of that money to cover the extra expenses, but if you have to keep doing that, at some point, the savings will run out, and then you won’t be able to pay the bills.”

Though CHQPR analyzes the hospital finance data, the organization itself does not label specific hospitals as “safe” or “at-risk.” Miller explained that the hospital could have a recovery plan in place, which the database wouldn’t reflect. On the other hand, a hospital could be at-risk but the data released by CMS could be too old to show it.

Which hospitals might be in trouble?

According to the calculations made by CHQPR, six rural North Carolina hospitals had both negative net assets and negative margins — meaning, essentially, that they’re spending more money than they’re bringing in — in late 2019, or early 2020. 

Those hospitals were Washington Regional Medical Center, Swain County Hospital, Person Memorial Hospital, Granville Medical Center, Bladen County Hospital, and Charles Cannon Memorial Hospital in Avery County. 

The data collected and analyzed by the CHQPR shows these six rural hospitals had negative net assets and negative margins according to fiscal data from either late 2019, or early 2020.

Frank Avignone, the CEO of Affinity Health Partners which owns Washington County Hospital, said the data are “very old” and do not reflect the hospital’s current financial status. Avignone said he would speak to NC Health News about the hospital’s status only with his attorney present, and didn’t respond to follow-up requests for an interview. 

Swain County Hospital and Person Memorial are both owned by Duke LifePoint.

“Both hospitals play critical roles in supporting an important regional network of local care through relationships with peer facilities,” said Michelle Augusty, the senior VP of communications at Duke LifePoint. “These hospitals are also part of a strong national healthcare system in LifePoint Health that is committed to their longevity and understands the critical role both Person and Swain play in our communities.”

Granville Medical Center is owned by that county. Alfred Leach, a spokesperson for Granville Health Systems, said that the hospital is “in solid financial operation.” Notably, in the most recent state budget, the hospital was awarded $10 million to improve its infrastructure.

The vice president of marketing and communications at Bladen County Hospital, Chaka Jordan, said the hospital has reported a profit for the last two fiscal years and is not in danger of closing. She said the hospital reported a loss in 2019/20 after experiencing “catastrophic damage from Hurricane Florence,” which could explain why the data show the hospital operating at a loss.

“Also, the Bladen County Hospital is part of the larger Cape Fear Valley Health System, which includes eight hospitals in the region. Discussing any individual hospitals’ financial statistics in this context gives an incomplete picture of the health system as a whole,” she said. 

Cannon Memorial is owned and operated by Appalachian Regional Healthcare System. Officials at the hospital did not respond to requests for comment.

What are the demographic characteristics of the communities these hospitals are in?

Using data from the U.S. Census, the North Carolina Rural Center, and the Health Policy Institute at Georgetown University, NC Health News found that the counties with the most financially troubled hospitals all share some of the same characteristics — proximity to a metro area, higher population of residents of color compared to the median for rural areas, low incomes, etc. — that researchers at the Sheps Center found among rural communities that suffered a hospital closure in the last decade.

A fact sheet put together by the NC Rural Center reported that the 2019 racial and ethnic makeup of rural North Carolina was 67 percent white, 19 percent Black, 8 percent Latino, and 2 percent Indigenous, while the median household income was about $50,000. 

Just one of the six hospitals — Washington County Hospital — isn’t in a county that’s adjacent to a metro area. But, nearly 50 percent of Washington County residents are Black and nearly 50 percent of households live on less than $35,000 a year. 

Avery County, where Cannon Memorial Hospital sits, is whiter than the average rural N.C. county, but nearly 45 percent of households make less than $35,000, the kind of reality that can result in trouble for a rural hospital. Bladen County is 32 percent Black with nearly 50 percent of households making less than $35,000. In Granville County, about 30 percent of residents are Black, 10 percent are Latino, and around 30 percent of the population reports a household income under $35,000.

Similar income levels are seen in Person County, where about 36 percent of households make less than $35,000 in yearly income and about a quarter of residents are Black. There are fewer Black and Latino people in Swain County than in the average rural North Carolina county, but as the center of the Cherokee Nation in North Carolina, nearly 30 percent of county residents are Indigenous. About 44 percent of households report making less than $35,000. 

While it wasn’t included as an analytical point in the Sheps Center study, two-thirds of these hospitals sit in counties where the uninsured rate — particularly the uninsured rate among non-elderly workers — is much higher than the average rate among rural North Carolina counties. The Rural Center reported that about 460,000 non-elderly rural North Carolinians are uninsured, about 11 percent of the state’s 4 million rural residents. 

In Avery County, the uninsured rate for non-elderly workers is 27 percent — the highest of any county in the state. In Bladen County, it’s 18 percent. In Swain County, it’s almost 23 percent. And in Washington County, it’s nearly 20 percent. 

The Sheps study did find that many of the most recent rural hospital closures happened in southern states, particularly in those that did not expand Medicaid, such as North Carolina. 

Advocates and researchers have long argued that non-expansion can contribute to rural hospital closures because it leads to higher rates of uninsured people in the community, compared to expansion states. When people don’t have insurance, a hospital will still care for them, but they are unlikely to get reimbursed for that care, which can hurt their margins. 

What meaning should be made out of these shared characteristics?

“I would not call [these findings] a coincidence,” said Arrianna Planey, a co-author of the Sheps Center study and assistant professor at the UNC Gillings School of Public Health.

The patterns the authors found fit well within existing research about what access to health care looks like for low-income people and people of color in other areas across the country, she said.

Washington Regional Medical Center in 2005. Photo source: Washington County tax records.

“It’s fair to suggest that rural providers — rural hospitals — have been facing generations of payment disparities,” said Brock Slabach, the COO at the National Rural Health Association. “These inequities between rural and urban providers have been systemic over time, and they have created the forces that are putting tremendous pressures on rural hospitals to be able to satisfy their requirements in serving their communities.”

Some of the racial patterns in the data, though, are seen in both urban and rural environments.

“In urban service areas, we can observe hospitals pulling away from neighborhoods with high shares of Black and Latinx residents,” Planey said. “Or, if they are in those neighborhoods, they engage in what is called medical gentrification.”

She defined medical gentrification as the process by which hospital expansion — both for medical and retail services — pushes long-term residents out of the area, especially residents of color. 

“The research on the health impacts of rural hospital closures has largely focused on mortality,” Planey said. Most of that research has not found that rural hospital closures lead to higher rates of mortality, she said, but has instead found evidence that hospital closures disrupt access to care for some patients more than others, namely those who are pregnant, Latino, and people on Medicaid and Medicare. 

Granville Medical Center in Oxford. Photo credit: Taylor Sisk

One theory the researchers have for why rural hospitals near metro centers are closing more than rural hospitals that are farther out is that they must compete with the facilities in the nearby metro areas — facilities that are often better-resourced.

“Rural hospitals generally have fewer days cash on hand, less capital, and more uncompensated care,” Planey said. Uncompensated care refers to services the hospital provides to uninsured people who can’t pay and to care provided to people who have Medicare and Medicaid, which generally reimburse hospitals at lower rates than private insurance.

More research is also showing how small rural hospitals were at a “disadvantage” when applying for funding from the CARES Act, she added.

“They are less likely to have dedicated personnel for grant-writing — and this is in contrast with larger academic medical centers who register each facility as a separate hospital and were thus able to secure grants for each facility within their system,” she said. 

A possible federal solution

In many ways, these community characteristics intersect and pile onto each other: areas with high numbers of people of color who have been systematically locked out of higher-paying jobs and worn down from racism and mistreatment collide with the unaffordability of insurance and the exodus of jobs from small communities. It’s a lot to tackle. 

Cannon Memorial Hospital in Linville. Courtesy of Appalachian Regional Healthcare

As a first step, Planey said, the U.S. needs to think about how to allocate resources to rural hospitals in a way that is “less burdensome.” 

One piece of federal legislation sitting in the U.S. Senate could start that process, according to Slabach: the Save Rural Hospitals Act of 2021. Two provisions in the bill could dramatically improve the finances of rural hospitals. Both deal with Medicare. 

One portion would increase the amount hospitals receive to care for people on Medicare, and another would enable hospitals to collect 100 percent of a debt that wasn’t paid by a patient on Medicare. Right now, they can only get reimbursed for 65 percent of the cost of the bill. 

“Rural populations are subjected to other disparities — they’re older, poorer and sicker generally. And these contribute to the issues that the UNC study pointed out,” Slabach said. “This all combines to make a pretty toxic mix, in terms of the ability for rural hospitals to be able to serve their communities.”

More than anything, Planey said, “We need to prioritize equity as an outcome.”

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