Chief financial officer John Cornell at Meadows Regional Medical Center, a 64-bed rural hospital in Vidalia, Ga., spoke recently with Healthcare Finance News Associate Editor Kelsey Brimmer regarding some of the most prominent financial issues that rural hospitals face in the future and have been facing in the last few years.
Q: What are some of the biggest financial challenges for rural hospitals right now?
A: From my perspective, in rural Georgia, our biggest challenge has to do with physician recruitment and retention. It's difficult to be able to hire good quality and trained physicians in the rural areas because we don't offer the amenities that you find in larger, urban markets. That's our biggest challenge - having the cash to hire quality physicians that we want reflected on our staff. We're in a little different situation than most rural hospitals in that we have been profitable pretty consistently; therefore we've had the cash flow to hire some excellent physicians. We've probably recruited a good 50 physicians over the last 10 years to our areas, but haven't been able to retain all of them.
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In the state of Georgia, two out of three hospitals operate in the red and there is a large discrepancy between the haves and the have-nots. Metropolitan areas have good anchor hospitals that do well, but predominantly rural hospitals are struggling.
Q: How are reimbursement changes affecting rural hospitals?
A: Forty-six of the 50 states are struggling with their budgets, and also in the state of Georgia, the Medicaid program and education account for about two-thirds of the state budget, so the state can't balance its budget without addressing healthcare.
States plan to manage their budgets by transferring Medicaid recipients in the managed care organizations, which has lowered reimbursements pretty significantly, but it's also affected our upper payment reimbursements. The Medicare cuts haven't really materialized at this point. We've been black for the last three years in rural Georgia as far as Medicare funding goes. The question with mandated healthcare coverage is are they going to reduce those without insurance enough to offset the disproportionate share funding we're currently getting? No one really knows the answer to that question.
Q: Where are some areas of opportunities for rural hospitals?
A: The biggest opportunity that I see for rural hospitals is working on improved quality scores, improved quality benchmarks and measurements, and that's what our focus is in our market. We feel if we provide a good patient experience and have good quality outcomes, the financials will be a by-product of that effort. We're more focused on improving our quality scores than financial operations.
These days, managing a healthcare organization is not so much about managing operations. It is more focused on managing markets. Rural hospitals need to focus on strategic alignment opportunities with other hospitals and physicians (or physician groups) on a regional basis, to identify opportunities for growth of services and substantial market share gains for the combined entities.
Q: What are some other major concerns of yours?
A: The biggest issue that rural hospitals seem to have is having good operating margins and having access to capital to replace aging facilities. I'm surrounded by five small critical hospitals that are struggling financially and have 40- or 50-year-old facilities that they need to replace and can't afford it. We are fortunate in that we have been profitable over the last decade and we did just complete a $78 million replacement facility at our location.
What we're also seeing is an increasing amount of indigent care. Prior to 2010, about 4 percent of our gross revenues went towards providing indigent care for those not covered by Medicare or Medicaid and income levels within 200 percent of the federal poverty guidelines. Since 2010, that amount has escalated to 5.25 percent over the last three years and has consistently edged upwards. It has about a $3 million impact on our bottom line and I haven't seen when that number will begin to do down. Some private hospitals certainly don't provide indigent care the way rural hospitals do or county-based organizations. It's something we can't avoid in the rural areas - picking and choosing who we treat and turning away patients.