23 Aug WHAT IS THE FINANCIAL CONDITION OF THE RURAL HOSPITALS THAT ARE PART OF MISSION HEALTH? IS IT LIKELY THAT ANY OF THEM WOULD BE PROFITABLE OR AT LEAST BREAK EVEN AS A FREE-STANDING INSTITUTION OR AS PART OF ANOTHER GROUP OF HOSPITALS BESIDES MISSION OR HCA?
Rural healthcare in America is under extreme duress directly related to federal and state healthcare policy and reimbursement combined with low population density and challenging demographics. More than one rural hospital in the United States closes monthly. Just recently, Regional Medical Center Jacksonville, a 104-bed hospital in Alabama, closed June 30, 2018 — after 42 years in operation due to rising input costs and insufficient revenue. The National Rural Health Association has said that one of every three rural hospitals is at risk of closure. Not surprisingly, many have reported on the very difficult challenges that rural hospitals faceand some have called for reinventing rural healthcare entirely.
In general, rural hospitals suffer from all of the same challenges as other hospitals, but then they are further stressed with: smaller populations with more challenging demographics (including payor mixes) that make sustainable service offerings difficult, and fewer physicians and other clinicians who want to live and practice in rural areas. Difficulties in recruiting to and retaining physicians and other clinicians in rural areas are multifactorial, including: patient volume limitations that makes maintaining specialized skills difficult or impossible; challenges for non-medical spouses in finding employment in rural areas; access to educational opportunities that such professionals frequently desire and, ironically, the economic stresses that rural hospitals face which result in negative implications for long-term practice and/or employment stability.
So when hospitals in western North Carolina were challenged, Mission Health reached out to support them as good neighbors, good stewards and good friends. With the stability that has come from being a part of Mission Health, it’s easy to forget that every regional member hospital was in economic distress prior to joining Mission Health (e.g., emergency funds were extended to Blue Ridge Regional Hospital in Spruce Pine even many years before it ultimately joined Mission Health; McDowell Hospital in Marion had depleted its cash and was unable to buy equipment or pay vendors; Angel Medical Center in Franklin was in default of its debt obligations; and Highlands-Cashiers Hospital in Highlands was losing nearly $5 million a year necessitating philanthropic support to remain open).
One objective numerical marker for the degree of distress faced by Mission Health’s rural hospitals is that cumulatively, they are today nearly $80 million in debt to Mission Health. If any hospital were to leave Mission Health that debt would have to be repaid in full. Instead, Mission will forgive all of that debt upon the closing of the transaction with HCA Healthcare.
Fortunately, since joining the system, member hospitals’ combined operating margin has risen steadily from a negative $16.4 million in FY10 to a positive $11.7 million in FY17, a net improvement of +$28.2 million. So today, while there is an annual struggle to maintain performance for everyone under the Mission Health umbrella, the overall financial condition of Mission Health’s rural hospitals is good. But every rural hospital is always just one step or change away from distress – the loss of one or more doctors, yet another Medicare or Medicaid cut, or demands from a dominant insurer that rural hospitals subsidize inflation on the cost of the care provided to its enrollees.
With respect to your question as to whether any of Mission Health’s rural hospitals “could be profitable or break-even as stand-alone hospitals,” that outcome is extremely unlikely (with Mission Hospital McDowell being the one possible exception). With respect to how an affiliation with another health system might change things, that forecast is obviously hard to project. In general, supporting small rural communities that are not part of a contiguous geographic area where care can be coordinated directly via the larger system entity to benefit patients (e.g., telemedicine services, outreach clinics, etc.) is either exceedingly difficult or impossible.
Over time, Mission Health has received offers from health systems to purchase some of our smaller hospitals (from entities other than HCA Healthcare). Each was willing to pay a significant amount of money, but only if they would be allowed to subsequently close the hospital. Such offers were counter to our values and we’ve never engaged substantively in any of those discussions. In that context, it’s obviously important to note that under the contemplated transaction with HCA Healthcare, every entity within Mission Health will have very significant protections that it lacks today, including protections against program closures or being sold or closed entirely.