Legislators offer lifeline to rural hospitals drowning in debt

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By Taylor Knopf and Rose Hoban

There’s a hospital in the middle of the state that’s about to go under, and it has a lot of people concerned. Some of them are at the General Assembly, where the Senate leader introduced a bill late in this session to establish a state-funded loan program for struggling rural hospitals.

The budget compromise released Tuesday night includes about $20 million over two years in one-time money to fund the Rural Health Care Stabilization Act, pending approval of the bill. And the old Randolph Hospital in Asheboro, surrounded by shuttered textile mills, would likely be the first beneficiary.

An infusion of money would help the Randolph Health system upgrade its aging infrastructure and stop the bleeding on its balance sheet. But skeptics say that without dealing with the hospital’s cash flow issues, it would continue to struggle.

The fix for cash flow? Health experts say the state must expand its Medicaid program to address the many low-income residents who show up at the doors of Randolph Health, and other rural hospitals, but who lack the ability to pay for care.

The bill lands in the middle of an increasingly sharp war of words between leaders at the General Assembly and Gov. Roy Cooper over the fate of rural health hospitals and whether or not to add some 634,000 low-income workers to the state’s Medicaid program.

The Governor has signaled that he would be reluctant to sign a state budget that does not include Medicaid expansion, while the legislature is this week inching toward sending him a document that lacks the provision.

Potential hospital partnerships

The way the Rural Health Stabilization Act would work is that funds would be available for hospitals in the most distressed counties that are in “financial crisis due to operation of oversized and outdated facilities and recent changes to the viability of health care delivery in their communities,” according to the bill summary.

The loans are to be used to construct a new facility, for operational costs during a transition to a new facility or both. The hospital in crisis must create a plan for how it will get back on its feet financially and share it with UNC Health Care, which will vet the plan and administer the loan. The N.C. Local Government Commission has ultimate approval authority over the loan.

It’s no secret that several rural hospitals across the country and North Carolina are financially strained. Many have sought partnership opportunities with larger hospital systems, particularly with UNC Health Care.

Sen. Phil Berger (R-Eden) presents a bill to help struggling rural hospitals during a Senate Finance committee hearing on Wednesday. Photo credit: Rose Hoban

The hope is that another larger health system will be more inclined to partner with the struggling rural hospital if its infrastructure is smaller and up-to-date, according to Sen. Phil Berger (R-Eden), whose local hospital partnered with UNC Health Care after filing for bankruptcy in 2017.

“The most prominent one out there now is the one in Randolph County in Asheboro, is having serious problems,” Berger said in the Senate finance committee Wednesday.

“This bill is an effort to try to deal with that problem. What it does is creates a non-reverting, revolving fund to be administered through UNC Health Care to provide low-interest loans to support hospitals located in rural areas that are in financial crisis.”

Sen. Jerry Tillman (R-Archdale) represents Randolph County and is the only other primary sponsor on the bill.

He said the Randolph Health has had talks with all the major health systems and that he believes this bill would “give them a bridge.”

“They would like to have a way to join with Randolph Health or to buy it in bankruptcy, but I can’t give you the names,” Tillman told NC Health News.

Sen. Floyd McKissick (D-Durham) told the finance committee that he sees the benefits of the loan program, but he’s concerned that it’s just more money the struggling hospitals will have to repay.

“Some of them are not going to be able to afford the debt service,” McKissick said. “While it can help get their physical infrastructure in better condition, it ignores a greater problem in terms of their patient population, which is growing increasingly indigent.”

He said the issue of struggling rural hospitals seems naturally to lead to a conversation about Medicaid expansion.

“Lending money to financially strained hospitals can help stem a pressing cash flow problem, but ultimately does not improve their balance sheet, since they still need to find a way to generate enough income to pay back the loan,” Mark Hall, director of Health Law and Policy Program at Wake Forest University, told NC Health News.

“Doing that is difficult unless they can reduce the number of uninsured patients they have to treat,” Hall added. “Also, loading a hospital up with debt does not necessarily make it a more attractive target for acquisition.”

Payer mix problems

National Rural Health Association data shows that 46 percent of rural hospitals nationally are running in the red. And data the organization has compiled shows several North Carolina hospitals operating at double-digit losses, according to Maggie Elehwany, NRHA vice president of government affairs and policy.

“The numbers do look very troubling in North Carolina,” she said.

“And with cuts to Medicare and states that haven’t expanded Medicaid, what we’re seeing are just more and more hospitals having to absorb bad debt,” Elehwany said. “North Carolina is one of those states where it is particularly tough.”

Data compiled by the Sheps Center for Health Services Research at UNC Chapel Hill indicates that in states that have not expanded Medicaid, rural hospitals are more likely to close.

Randolph Hospital has had negative margins for the past several years, according to the financial statements that the hospital is required to file with the Internal Revenue Service.

In 2016, the hospital ran $4 million in the red, for a -3.6 percent margin; in 2017, the hospital’s financial troubles deepened, running $10.6 million in the red for a -9.8 percent margin. A hospital spokeswoman said the institution has not yet filed with the IRS for 2018.

One of Randolph Health’s biggest problems is that 25 percent of its emergency department “patients have no insurance whatsoever, which makes it very difficult for us to survive as an organization,” hospital CEO Angela Orth told the Governor and NC Secretary of Health and Human Services Mandy Cohen during a meeting in April.

The Randolph emergency department has 38,000 emergency department visits a year and is the safety net for uninsured patients, Orth said.

“Bringing access to care will not only improve the hospital — because we will have additional funding — it will bring about a million dollars net to Randolph Health a year,” Orth said. “It will improve the community and improve the lives of the people that live in our town.”

Other rural hospital CEOs expressed the same problems with uninsured patients and emergency department losses as they asked the Governor to expand Medicaid. They will likely be watching how the situation in Randolph County plays out closely.

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