Iowa rural hospitals are at risk of closure soon: analysis

Insurance, federal reimbursements challenge hospital profitability

RN Dawn Reagan (left) leaves the room as LPN Joni Hershey brings a patient's walker through at the Wound Care Center at
RN Dawn Reagan (left) leaves the room as LPN Joni Hershey brings a patient’s walker through at the Wound Care Center at Buchanan County Health Center on Thursday, March 7, 2019. BCHC is a critical access hospital and recently completed construction on a 74,000-square-foot expansion and remodel. (Liz Martin/The Gazette)

Nearly 18 percent of Iowa’s rural hospitals at high risk of closing down in the near future, according to a newly released national analysis.

However, some experts throughout the state believe that percentage could be much higher — and if their financial situation doesn’t change in the near future, Iowa will see its first hospital closures in nearly a decade.

“We’ve had national experts look at this as recently as the last five years,” said Iowa Hospital Association President and Chief Executive Officer Kirk Norris. “Four to five years ago, they said Iowa was in relatively good shape as far as its rural hospitals.

“That’s not true today. I think there’s probably no one in danger of immediate closure, but if you want to but a five-year time frame on it, there could be anywhere from five to 10 (closures) without things improving for them.”

Chicago-based consulting company Navigant released a financial analysis on hospitals across the United States this past month and found 17.9 percent of Iowa’s rural facilities “are at high risk of closing unless their financial situations improve.”

Twenty-one percent of all U.S. hospitals — a total of 430 facilities — are facing a dire financial situation, it also found.

Navigant measured financial risk through data submitted by hospitals nationwide to the federal Centers for Medicare and Medicaid Services, or CMS.


In February, two rural hospitals shut their doors, bringing the total number of closures across the country to 97 since 2010, according to the National Rural Health Association. No closures have occurred in Iowa between 2010 and 2019.

“Financial challenges are not unique to rural hospitals,” said Steve Slessor, chief executive officer of Buchanan County Health Center. “Larger hospitals are having difficulties as well ... . But when dealing with the law of small numbers, it doesn’t take much of a change for things to go dramatically differently from one way or another.”

Of Iowa’s 118 hospitals, 82 are critical-access centers, a designation for facilities with 25 or fewer beds that receive reimbursement from CMS to compensate for lower patient volumes.

According to the Iowa Hospital Association, the average operating margin for critical access hospitals between July 2017 and June 2018 was negative 2.7 percent.

Factors that include insurance reimbursement, such as mixed payer models and federal standards for Medicare payments, coupled with declining patient volumes and increasing costs have led to less than ideal financial standings, experts say.

“It’s not one or two issues, it’s a whole swatch of things rural hospitals have to confront,” said Bill Menner, board member of the Grinnell Regional Medical Center and consultant.

As a result, many hospitals across the state have had to cut costs by reducing some services, such as obstetrics.

“I think you’re going to start see people make decisions about what they can sustain based on their (patient) volumes and based on their revenue,” Norris said. “... As the things you’re making a margin on continue to evaporate, then you start looking at what services we need to stop doing.”


Expanding Medicaid in Iowa opened the door to a larger patient base for rural providers, Norris said, but privatizing the program “took several hundred million (in reimbursement dollars) out of community hospitals.”

For Medicare, some Iowa hospitals are reimbursed through a prospective payment system, which is based on a predetermined amount.

The average operating margin for a rural prospective payment system between July 2017 and June 2018 was negative 0.6 percent, according to the Iowa Hospital Association.

This fixed number doesn’t actually cover the cost of services and leaves Iowans at a disadvantage, said Todd Linden, former president and chief executive officer of Grinnell Regional Medical Center and now a consultant.

When federal officials adjusted how Medicare services were paid, he said there were “some unique things in Iowa that helped create the challenge we have today.”

“It was unintentional, but the consequences have been detrimental to Iowa and upper Midwest in general,” Linden said.

CMS moved to the prospective payment system and fixed price points initially determined by historical spending. These reimbursements have bumped up over the years.

However, Linden said Iowa’s rate did not either account for profit — as many facilities were not-for-profit — or for other price points such as fraud or inefficiencies in care, which some states across the country did take into account.


“That difference from the 1980s has been exasperated ever since,” Linden said. “Some (Iowa) hospitals get 30, 40, 60 percent less than other hospitals in other states.”

Linden said federal reimbursements — or the lack of them — has a greater impact on “tweener” hospitals, which that fall somewhere between 25-bed critical access hospitals and larger 100-bed facilities.

In addition, Linden said rural hospitals in Iowa have “an over dependence” on Medicare and Medicaid payments and can’t shift costs to commercial insurance because Iowa has one dominant insurer, Wellmark Blue Cross and Blue Shield, which has universal contracts with organizations no matter its size.

“On one hand, the big hospital will not get better payment because they can leverage their numbers more than a small, rural hospital who doesn’t have as many patients,” Linden said. “But on the flip side, because Wellmark has one contract, there’s no way negotiate that contract.”

One Eastern Iowa critical-access hospital has not been overly affected by these challenges, officials said. Buchanan County Health Center is a 25-bed hospital in Independence that had 191 inpatient visits the past fiscal year.

“We’ve been successful in getting people locally to use our services at our hospital the last five years,” said Slessor, the hospital CEO. “Since they’re using the services, we gain a good enough revenue to make things work out.”

Slessor also attributes federal support programs to its stability.

Along with being a critical-access hospital, Buchanan County Health Center is designated as a rural health clinic, a CMS definition enacted to increase primary care access.

Slessor noted the hospital also is part of the 340B Drug Discount Program, a federal program created to help health care organizations receive pharmaceuticals at reduced costs.


“Those three programs combined change our picture significantly,” Slessor said. “For other organizations, if you remove one of those things, that’s what changes it.”

Along with diligent budgeting and strategic growth plans, Slessor said the hospital was able to recently remodel its main facility and expand specialty and primary care clinics about 15 months ago.

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