Coronavirus Could Kill Rural Hospitals on Brink

The COVID-19 pandemic threatens the survival of rural hospitals in Arkansas, several hospital administrators told Arkansas Business last week.

“Without some significant assistance, many hospitals in Arkansas won’t be here next year,” said Vince Leist, CEO of North Arkansas Regional Medical Center of Harrison.

In March, NARMC sustained a loss of about $1 million. Leist said he projects a $2 million loss for April and “perhaps more for May” as the virus keeps patients away from routine visits.

Hospitals around the state have furloughed workers and postponed capital projects, and more pain is coming.

Leist’s assessment was bolstered by a report released Wednesday that said 18 of 34 rural hospitals in Arkansas are at “high risk of closing.”

“Rural hospitals and their communities are facing a crisis that can’t be ignored, one that could significantly worsen with a pandemic like COVID-19 or any downturn in the economy,” said the 2020 Rural Hospital Sustainability Index from Guidehouse LLP of Washington, a consulting firm that used publicly available financial information from hospitals’ fiscal years 2018 and 2019 for the report.

The report didn’t specify the hospitals in Arkansas that are in danger of closing.

Hospitals face rising expenses incurred in fighting the virus while their revenue plummets as elective procedures are postponed.

In February and March, the Centers for Disease Control & Prevention and the Arkansas Department of Health recommended that health care facilities prioritize emergency visits and procedures for the upcoming weeks. On April 3, the Arkansas Department of Health said in a directive that “procedures, testing, and office visits that can be safely postponed shall be rescheduled to an appropriate future date.” It added that rural hospitals under 60 beds and critical access hospitals, “though strongly advised to follow this directive to maximize resources,” are excluded from it.

At the end of March, Baptist Health of Little Rock, the largest health care system in the state, said it was furloughing employees to cut expenses because of the decline in patients. Following Baptist’s announcement, North Arkansas Regional said on April 3 that it was furloughing 35 employees to curb expenses.

Baxter Regional Medical Center, based in Mountain Home, said last week it was furloughing 105 of its 1,730 workers as its patient volume plummeted between the first two weeks of March and the last two weeks of the month, said Ron Peterson, the hospital’s CEO.

White River Health System in Batesville announced last week that it was furloughing employees, but it didn’t say how many of its approximately 1,800 workers would be affected. WRHS has taken other steps to cut costs, including reducing leadership salaries by 25%. Employees in nonclinical areas have had their hours cut by 25%.

Even though patients are staying away, hospitals’ expenses for supplies are rising in order to fight COVID-19. “So we’re seeing costs go up and our [patient] volume going down, which means our revenues are going down,” Peterson said. “And that’s an unsustainable model.”

And while federal stimulus money could help struggling hospitals, it might not be enough, according to a report last week from Fitch Ratings, the credit rating agency in New York.

The federal funds coming from the Coronavirus Aid, Relief & Economic Security Act, commonly known as the CARES Act, will help cover some of the hospitals’ losses tied to the COVID-19 outbreak, but “it will not completely make them whole,” and “the sector will still suffer significant operational losses through the first half of” 2020, Fitch said in a report. In addition, Fitch said it’s unknown whether the virus will be contained by the second half of the year.

Nevertheless, not all hospitals have decided to furlough employees.

Drew Memorial Health System in Monticello has seen a drop in patients in recent weeks, but it doesn’t want to furlough employees just yet, as a flood of patients is expected, said Scott Barrilleaux, CEO of Drew Memorial. “So our goal was to keep people on the payroll so that when we need them they’re available to us,” he said.

Thin Margins

Even before the pandemic, rural community hospitals struggled financially. Payments from Medicare and Medicaid don’t cover the cost of care, and rural hospitals have to pay more money to bring in nurses and doctors to practice at their hospitals, administrators say.

In September, Bo Ryall, president and CEO of the Arkansas Hospital Association, told Arkansas Business that a few small rural hospitals were inching closer to closing. He declined to name the hospitals.

On Dec. 31, Izard County Medical Center LLC, whose hospital is in Calico Rock, and its parent company, Americore Holdings LLC of St. Louis, both filed for Chapter 11 bankruptcy reorganization. ICMC listed $2 million in assets and $3.7 million in debts in its bankruptcy filing.

Despite these troubles, some rural hospitals reported a profit in 2019, and some reported healthy numbers in January and February of this year.

Drew Memorial Health System saw the benefits of its $31 million 51,000-SF expansion, which opened in 2018. The expansion featured a larger surgery center with six operating rooms.

As a result, Drew Memorial had about $10 million in revenue in January and $9 million in February, months during which it typically would see about $8 million, Barrilleaux said.

The Monticello hospital also was doing “pretty well” financially in the first half of March, he said.

But then Arkansas had its first presumptive COVID-19 patient on March 11. Within days, hospital administrators began noticing patients staying away from hospitals as the virus moved across the state.

“We obviously closed the month out doing really bad,” Barrilleaux said of March.

“April’s going to be one of the worst months we’ve ever had. It seems like it anyway.”

Drew Memorial said it’s not seeing normal foot traffic for this time of the year. “Even our inpatient services are off quite a bit, which is worrisome because I have to believe that people are putting things off,” which could make their health worse, Barrilleaux said.

As of last week, the counties surrounding Baxter Regional had only three COVID-19 patients, but more are projected to come, Baxter’s Peterson said. “So we’re trying to get ready for that,” he said.

The costs, however, are rising for the personal protective equipment that’s used to lower the exposure to the virus. Peterson said the disposable N95 mask that covers the nose and mouth used to cost the hospital about 95 cents; now it’s paying about $3 a mask.

And that price “continues to go up,” he said.

Baxter has positioned screeners at its doors to make sure people entering the hospital don’t have temperatures or COVID-19 symptoms. The hospital also operates a COVID-19 hotline 12 hours a day to answer questions.

“So there’s a lot of different things that are causing prices to go up that people aren’t realizing,” Peterson said.

Stopping Projects

To save money, in addition to furloughs, Baxter Regional put a hold on annual market-based pay increases. It also reduced the salaries of its executive and leadership team and required some employees to work reduced hours. In addition, it suspended the hiring of noncritical positions, which leaves 45 jobs open, Peterson said.

North Arkansas Regional Medical Center suspended plans for a $3.5 million project to renovate a building for physician offices. “We already talked to architects,” NARMC’s Leist said.

“We already had a construction company hired. We were ready to start renovating.”

The irony of the cost-cutting isn’t lost on Leist, however. “We’re the industry that’s supposed to be getting ready to care for folks,” he said.

“And we’re having to eliminate or reduce or furlough folks just to keep the lights on.”