How Rural Hospitals Can Achieve Financial Resiliency
It’s a well-known fact that many small U.S. hospitals are increasingly under pressure. Their problems stem from a myriad of challenges: razor-thin margins, inflation, higher borrowing costs, declining insurance reimbursement rates, technological inefficiencies, staffing issues, along with supply and other cost increases.
All together, these factors have put rural healthcare delivery at significant risk. Over the past two decades, 191 rural hospitals have either permanently closed their doors or converted to emergency or outpatient care, according to the University of North Carolina Cecil G. Sheps Center for Health Science Research. Making matters worse, other rural hospitals may soon encounter the same fate. According to the Center for Healthcare Quality and Payment Reform, more than 600 of the country’s rural hospitals are at risk of closure due to financial difficulties. The number of these at-risk facilities represents more than 30 percent of U.S. rural hospitals.
In order to sustain operations, community hospitals must develop resilience. Accomplishing this goal requires hospital leaders to regularly scrutinize their facilities’ financial and operational health and take decisive action if problems occur, such as negative profit margins, dwindling days-cash-on-hand, and bond covenants at risk.
Perhaps the greatest challenge toward achieving financial resilience is the lack of a healthy balance sheet. This means that when rural hospitals are in a financial bind, they may have too much debt and not enough cash to help them move past a rough patch.
The limitation of bankruptcy is another challenge for rural hospitals. In many cases, hospitals restructuring their debt in bankruptcy will still be on the hook for unpaid and often massive mortgage payments.
Rural hospitals can implement various strategies to become more resilient in a challenging and complex environment.
- Explore federal funding and state grants designed to help keep rural hospitals financially afloat. One example is the federal Rural Emergency Hospital (REH) designation, a new Medicare provider program created to improve rural hospital sustainability and offer greater patient access to health care services. The U.S. Department of Health and Human Services Department and state governmental agencies also offer financial assistance to rural healthcare providers.
- For hospitals with variable-rate loans, their debt obligations may be at a point where loan restructuring is needed to avoid insolvency. An example would be shifting a bond structure to Housing and Urban Development (HUD) financing to secure lower interest rates, albeit for a longer term. This gives hospitals some time to conduct an assessment of its operations and implement recommended strategies to allow for greater cost efficiencies and innovation.
- Look for signs of increasing risk of bond covenant violations. Failure to pay strict attention to bond covenants – debt-service coverage ratios and days-cash on-hand – could lead to downgraded credit on bonds, placing an institution in financial peril. Some bonding agencies have lowered restrictions on covenants in an effort to minimize violations. However, hospital leaders should resist this approach because it can lessen their ability to see signs of potential covenant violations.
- Take a deep dive into hospital operations. A comprehensive operational assessment can show hospital leaders how to make operations more efficient which, in turn, improves patient satisfaction, clinical outcomes and overall financial performance.
- Monetize hospital services to produce fresh revenue streams. For example, enter into a contract for a third party to take over a hospital’s revenue cycle. This will provide an infusion of cash to help reduce costs or invest in growth strategies like recruiting clinical staff.
Hospitals can attain resilience through growth. This can be accomplished by leveraging the capabilities of others, such as:
- Develop partnerships with companies to expand outpatient services like wound care and pain management.
- Create collaborative relationships with other healthcare facilities to improve staff recruitment.
- Mine and utilize market data for needs-based service line development.
Achieve resilience through innovation. New and innovative ways to provide cost-efficient and quality patient care are helping community and rural hospitals rise above the challenges facing rural healthcare delivery. Some of these innovations include:
- The hospital-at-home model serves as a shining example of how rural and other hospitals and their patients can benefit from this practice, which allows eligible acute-care patients to be treated in the comfort of their homes instead of a hospital setting. Community Hospital Corporation (CHC) has been at the forefront of this model through a joint venture with Resilient Healthcare that makes the health system’s platform available to CHC’s hospitals.
- Alternate care delivery models continue to gain momentum in the post-pandemic environment. CHC helps hospitals determine the best model, such as REH and Critical Access Hospital (CAH) designations, and partnering with other healthcare providers, to provide health resources locally. CHC evaluates hospitals’ operations, finances, clinical services, market opportunities, and navigates the complex regulatory web of federal and state programs.
- Embrace telehealth and virtual care as ways to lower costs and improve access to care.
CHC CAN HELP RURAL HOSPITALS REACH FINANCIAL RESILIENCY
Hospitals, clinics and other healthcare resources play a vital role in the health, safety and economic well-being of America’s rural communities. This can only be accomplished by local healthcare leaders actively taking measures needed to overcome challenges threatening the financial stability of community and rural healthcare facilities. CHC can provide the resources and expertise needed to guide, support and improve your hospital’s performance.