Rural Health: Is it Time for Fresh Thinking?

Last Thursday at 7 pm CDT, Jamestown Regional Medical Center (JRMC) shut its doors. Its owner, West Palm Beach FL-based Rennova Health, promised its 120 employees and clinicians the closure was temporary.

Predictably, the issue is money. JRMC had $4 million in unpaid bills and was notified May 28 that it failed to maintain its Conditions of Participation in Medicare and was, therefore, no longer eligible for reimbursement effective June 12. It marked the 10th hospital closure in Tennessee and 95th nationwide since 2010.

The JRMC challenges are familiar:

  • Difficult Market: JRMC’s market (Fentriss County, TN) is poor and unhealthy. The population has declined by 2386 in 1980 to 1963 today. Household income is less than half the state average, a and 6th lowest nationwide. And the population is 30% less healthy than nearby urban centers. Its major payers are Medicaid and Medicare and neither reimburses enough to cover costs.

  • Changing Healthcare Delivery: Inpatient care is less important and outpatient care more. And competition in outpatient services is intensifying with urgent care clinics, microhospitals and telemedicine grabbing bigger shares of the market. Nearby hospitals in Cookeville and Crossville are 45 minutes away in larger communities where Jamestown residents are prone to shop…unless they’re too old, sick or poor to get there. Those folks stay home.

Excellent studies by Morgan Stanley and Navigant have chronicled the plight of rural hospitals: of 2250 designated as rural or critical access, one in five is at risk of closing due to financial insolvency. And that might be an underestimate. The most at-risk are in states like Alabama and others where inpatient volume is shrinking, margins are thinning, urban competitors are encroaching and the resident populations are poorer and sicker.

The data from the Government Accounting Office also point to rural hospital ownership as a factor: investor owned rural hospitals are three times more likely to close than public or not-for-profits, all things being equal. One explanation is location: investor ownership of hospitals is highest in the Sunbelt where public health status is not good. The financial expectations put on rural hospitals when acquired by private investors coupled with the normal challenges facing rural operators are often hurdles that can’t be overcome. JRMC is a curious case in point.

Rennova Health, its owner acquired JRMC in June, 2018. Per Modern Healthcare “West Palm Beach, Fla.-based Rennova Health bought Jamestown (Tenn.) Regional Medical Center from Community Health Systems in June 2018. It was a perplexing deal given Rennova had reported a $51 million net loss from continuing operations in 2017 and was being sued by landlords, contractors and employees over unpaid bills and wages.”

JRMC was licensed for 85 beds and provided emergency services 24/7. It had achieved numerous recognitions including Chartis’ Top 100 Rural Hospitals in 2019, Modern Healthcare’s Best Places to Work in 2018 and a 4-star rating in CMS’ Hospital Compare ratings for 2018. But its finances weren’t good.

Its stock (RNVA) trades on the OTCPink exchange as a penny stock. It had $6.3 million in adjusted revenues in 2016 and adjusted EBITDA of -$25.2 million.

In its investor presentation in July 2017 (the last one accessible on its website) forecast of their 2018 financials, company officials were upbeat: “We believe that we can achieve the following revenues for 2018: $600K per month for toxicology and clinical diagnostics, $400K per month for software and RCM (revenue cycle management) related revenue, $1M per month from our hospital in TN Subject to acquisition, $800K per month from Dr’s practices, $1M per month from acquisition of additional hospital Potential revenue of $3.8M per month or $45.6M per annum.” They pledged that “Rennovva will continue bringing innovation to healthcare providers and deliver a single source solution through an ever-expanding group of strategic brands that work in unison to empower customers and drive growth.”

MY TAKE

Rural health is a perplexing challenge in healthcare. How to allocate resources to communities that serve 18% of the population as health costs go up and margins are going down is tricky. Rural health’s plight is further complicated by three unique characteristics:

  • It is politicized by state legislators who associate “good care” with local bricks and sticks but, as in Tennessee, inadequately fund health services for rural populations.

  • It is complicated: rural health is the frontline for the integration of social determinants and delivery, behavioral health, dual eligibles, the frail elderly and drug abuse.

  • It is competitive: investors and private equity see opportunities to cherry-pick niches in which rural health is attractive leveraging technologies and alternative delivery models to compete.

Fixing the wage index in rural communities is a start: Sunbelt states are among the most disadvantaged in the current index and that’s where most of the at-risk hospitals are. And enacting the Rural Emergency Acute Care Hospital Act would help allowing rural hospitals to offer emergency and outpatient services without inpatient beds. HHS has more than a dozen grants and innovation programs focused on the sustainability of rural health and the Health Resources and Services Administration (HRSA) has expanded its role in addressing rural clinical workforce shortages. But it’s not enough.

Like community banking, mom and pop retail and so much more, modernization in healthcare has its winners and losers. Inpatient care in rural hospitals is a casualty but that does not mean cessation of health services in those communities. Rural health is an ideal lab for integration of bricks and clicks, allied health and physician services, acute and senior care and funding that integrates local social services programs with delivery services to avoid duplication and enhance community health status. And, in tandem, perhaps federal/state policymakers should consider standards whereby acquirers of rural hospitals should have minimal capabilities and relevant expertise as a condition for approval.

Policymakers, community leaders, insurers and providers should take a fresh look at rural health. It’s more than an issue of hospital closings. The solutions are not closure: the solutions are transitions to care management organizations that are incentivized to improve health and reduce unnecessary use of tests, procedures, emergency room visits and more.

At least for now, the jury’s out on whether Rennova Health can rescue the 90-year old JRMC. Stay tuned.

Paul








P.S. This week, the Healthcare Financial Management Association will convene its 2019 Annual Conference in Orlando. It’s a huge meeting: 51 sponsors, 201 exhibitors, 47 breakout sessions, 13 Case Study presentations, 10 Cohort sessions, 6 workshops, 2 early riser sessions, 5 general sessions and 147 presenters including 17 clinicians. Incoming Chair Michael M. Allen  FHFMA, CPA, Chair HFMA will preside over the gathering at a pivotal point for the healthcare’s financial community: where and how will care be funded and paid for against growing disaffection for the value it provides.  www.hfma.org



FACT FILE

Rural hospitals: Per the Federal Office of Rural Health Policy (FORHP) definition of “rural hospital”, 2250 qualified in 2017. They represent 48% of hospitals and 16% of inpatient bed capacity nationwide.

Closures: 95 rural hospitals closed from 2010 to 2017.

Ownership: 11% of total rural hospitals are owned by for-profit systems and accounting for 36% of the hospital closures. 77% of shuttered rural hospitals were located in the south.

Payments: Rural hospitals with between 26 and 49 inpatient beds represented 11% of the rural hospitals in 2013 but accounted for 23% of the rural hospital closures from 2013 through 2017.

Margins: From 2010 through 2014, rural hospitals that closed had a median operating margin of -7.4% vs. rural hospitals that remained open achieved 2.00%.
 
RESOURCES

RURAL HOSPITAL CLOSURES Number and Characteristics of Affected Hospitals and Contributing Factors US Government Accounting Office August 2018 file:///C:/Users/paul%20keckley/Downloads/GAO%20report-rural-hospital-closures--number-and-characteristics-of-affected-hospitals_2018.pdf

M. Clawar et al., Range Matters: Rural Averages Can Conceal Important Information (Chapel Hill, N.C.: North Carolina Rural Health Research Program, 2018)

North Carolina Rural Health Research Program, Rural Health Snapshot, University of North Carolina at Chapel Hill, 2017
www.navigant.com/-/media/www/site/insights/healthcare/2019/navigant-rural-hospital-analysis-22019.pdf

http://www.city-data.com/city/Jamestown-Tennessee.html

Jamestown Regional, Fentress County’s only hospital, has closed www.newschannel5.com/news/jamestown-regional-fentress-countys-only-hospital-has-closed

J. Wishner et al., A Look at Rural Hospital Closures and Implications for Access to Care: Three Case Studies (Menlo Park, Calif.: Kaiser Family Foundation, 2016.

“Tennessee hospital bought by lab company struggling to say afloat” May 23, 2019 www.modernhealthcare.com/providers/tennessee-hospital-bought-lab-company-struggling-say-afloat