How new federal help could save rural Midwest hospitals — and why some don't want it

A sharp ding rings through the loudspeaker at Crawford County Memorial Hospital in Denison, Iowa. On this early afternoon in September, the sound elicits cheers from nearby nurses.

Don Luensmann, the hospital’s marketing manager, is quick to explain with a big smile.

“Baby just got born,” he said.

The new infant is one of about 100 babies Crawford County Memorial delivers annually on average, he said. It's a service the hospital, like many rural hospitals, loses money on. Financial losses have pushed more than four dozen Iowa hospitals to close their labor and delivery units in the past two decades.

But Luensmann said that’s not something Crawford County Memorial is considering.

“We have a significant commitment to doing OB here. I don't think that that's going to change,” he said.

Recently, administrators at Crawford County Memorial have seen a lot of red in their budget — and not just in obstetrics.

“Our expenses are through the roof right now, but our revenues are not going up,” said Erin Muck, the hospital’s CEO.

There are many reasons for this, she said, including inflation, staffing shortages and COVID relief dollars drying up.

It’s not just Crawford County Memorial facing these growing challenges. In the wake of the worst of the COVID-19 pandemic, many rural hospitals are on track to experience their worst financial year in decades. About 30 percent are at risk of closing in the immediate or near future, according to a recent report from the think tank Center for Healthcare Quality and Payment Reform.

This is where the newly created federal Rural Emergency Hospital licensure designation comes in.

Federal lawmakers created the new designation – set to go into effect on Jan. 1 – as a lifeline for rural hospitals. It’s aimed at saving rural hospitals that are struggling and on the brink of closure.

It would allow them to end all inpatient care and operate just as an emergency room with outpatient services. The designation would also provide benefits like higher reimbursements through Medicare and Medicaid.

Hospital groups, including the National Rural Hospital Association and the American Hospital Association, support the designation, as does the Iowa Hospital Association, which represents 117 of the state’s hospitals.

“The thought of another community losing a hospital is something that I know that I lose sleep over,” said Chris Mitchell, IHA’s president and CEO.

From 2010 to 2021, 136 rural hospitals have closed in the U.S., according to a recent report from the American Hospital Association. This includes a record 19 closures in 2020.

“It's fine to talk about these things in the abstract, but when you go to each individual community, the loss of the hospital could potentially be devastating for that community,” Mitchell said.

However, some rural hospitals, like Crawford County Memorial, say they aren’t considering applying for the designation. Administrators cite concerns over the way it could affect rural care, bringing an end to obstetric services and other crucial inpatient care.

‘Things remain very tumultuous’

During the pandemic, federal CARES Act funding helped Crawford County Memorial fill in financial holes, but that ended in August, Muck said.

Patient levels have increased after dropping off during the pandemic when fewer people sought routine care, she said. But while inflation has raised costs, reimbursement amounts from private insurance companies and public programs like Medicaid and Medicare haven’t gone up.

“I can see more patients — great, you know that will raise up your revenue,” Muck said. “But [if] the amount of money that we get from insurance companies doesn't change, it doesn't matter.”

The public hospital is also dealing with chronic staffing shortages — some nursing positions are still being filled by pricey traveling nurses at a cost of $150,000 a month — and has $2 million in bad debt on average per year, driven by the fact that 8 percent of Crawford County residents are uninsured, Muck said.

This year, Iowa hospitals are predicted to have operating margins at negative 6 percent, said Mitchell of the Iowa Hospital Association.

“Things remain very tumultuous, I would say, from a financial standpoint,” he said. “Hospitals are in this position where they can't really raise or lower their prices to deal with the inflation that they're seeing in workforce costs and equipment and supply costs, because a lot of that is paid for by the state and federal government.”

When the threat of rural hospital closures becomes real

For more than 20 years, Iowa was spared from rural hospital closures that affected every other Midwest state and much of the U.S.

That changed in October, when Blessing Health Keokuk, a 49-bed facility in eastern Iowa closed its doors.

“The urgency has changed significantly now that the threat of a closure of a hospital in Iowa has been realized,” Mitchell said.

When the Blessing Health System acquired the financially troubled Keokuk hospital in early 2021, it had a five-year plan to turn it around, said Kathy Hull, Blessing Health’s chief of small rural hospitals.

But the hospital had long been experiencing financial difficulties due to a drop in patient volume and other issues, and the hospital building needed significant upgrades, she said.

When it closed, 147 hospital employees lost their jobs.

Closing the hospital was “probably the hardest thing I've ever done in my career,” Hull said. “We had people that were there 50 years – literally 50 years – and good, hard-working, dedicated people who did their level best, and really, through no fault of their own, lost their jobs.”

When Blessing Health first acquired the hospital, Hull said part of their plan was to convert it into a Rural Emergency Hospital. This was shortly after federal lawmakers approved the new designation in late 2020.

U.S. Sen. Chuck Grassley, a Republican from Iowa, spearheaded the new designation — the first since the Critical Access Hospital designation was approved in the 1990s following the mass closure of rural hospitals the decade prior.

“The existence of a rural hospital contributes to economic growth and can sustain a community,” Grassley said in a statement. “I believe [the U.S. Centers for Medicare and Medicaid Services] must continue to implement REH with minimal administrative burden and maximum flexibility for rural hospitals, while maintaining safe and high-quality care for patients.”

However, the designation moved too slowly through federal bureaucracy for Blessing Health administrators to apply it to its Keokuk hospital, Hull said.

CMS didn’t finalize the designation’s rules until last month.

On top of that, though the Rural Emergency Hospital designation was created at the federal level, each state is still required to create its own licensure category for it through legislative action.

So far, three state legislatures have done this: Nebraska, Kansas and South Dakota. Iowa lawmakers are expected to introduce legislation this session.

Sen. Grassley and Rep. Mariannette Miller-Meeks, another Iowa Republican, have said they are seeking clarification to see if the Keokuk hospital can still apply for the new designation and potentially reopen.

CMS rules state hospitals must meet the designation’s qualifications on Dec. 27, 2020, or later to apply. This includes hospitals that have since closed.

However, Hull said Blessing Health has no plans to reopen the hospital or seek out the Rural Emergency Hospital designation.

Pushback against the new Rural Emergency Hospital designation

Some hospitals, like Crawford County Memorial, are skeptical of the new designation.

Inpatient services make up just about 10 percent of all the hospital’s services, but they’re important for residents, Muck said.

“Let's say, I'm an 80-year old-lady and I have pneumonia, and I require hospitalization. I would have to go to a hospital further away just to be hospitalized for my pneumonia,” she said. “Anybody receiving surgery that could possibly be more than an overnight stay would have to have that surgery at another organization.”

Some experts, like George Pink with the North Carolina Rural Health Research Program, are also wary.

While it may provide a Band-Aid fix to prevent hospitals from closing, Pink said it doesn’t seem likely to address the underlying issues. He has many unanswered questions about how the designation will be able to address staffing shortages and account for changes in behavior from residents when their local hospital drops all inpatient care.

“Unless a viable long-term financial model is there, I don't think there's going to be many hospitals to pick to take up on this,” said Pink, a professor of health policy and management at UNC.

Pink, the lead researcher on a 2021 report, which predicted 68 hospitals nationwide would convert to be a Rural Emergency Hospital, and that hospitals with negative operating margins and low patient count were the most likely to convert. The states with the greatest number of hospitals expected to convert are Texas, Nebraska and Oklahoma.

Iowa has three hospitals that met the report’s criteria, but they were not named.

The Rural Emergency Hospital designation “is not designed for communities where there's a healthy, thriving rural hospital,” Pink said. “It's designed for communities where they're at risk of or facing imminent closure of their inpatient facility.”

Proponents of the new designation said change, like giving up inpatient services, can be hard for hospitals.

“It's just really hard for them to give up on that important part of their mission more than anything else, as they're trying to make that decision,” Iowa Hospital Association’s Chris Mitchell said.

Hull, the Blessing Health administrator, said she thinks the Rural Emergency Hospital designation will be beneficial, but she said the health care industry as a whole is reluctant to change and new regulations.

She said it may be time to “take a hard look” at the number of rural hospitals and whether all of them are necessary.

“That's hard to say to communities, ‘Every ten miles, do you need a hospital? Probably not,’” Hull said. “No community wants… to hear that, because, let's be blunt, hospitals are a huge economic engine.”

The importance of rural hospitals

Crawford County Memorial has a $25 million economic impact on the county of about 16,000 and employs close to 300 people, according to the Iowa Hospital Association.

The 25-bed public hospital sits on top of a hill overlooking Denison, the county seat.

It’s the county’s third-largest employer, said Evan Blakley, the executive director of the Chamber and Development Council of Crawford County.

“These are all professional, mid- to high-paying jobs at the hospital,” he said. “And these folks, they shop here in our community. They volunteer in our community. They buy housing, they pay taxes here in our community, and it just continues to ripple and ripple.”

On top of that, Blakley said the hospital is key to attracting businesses and workers to the community.

“When people are looking at a community that they want to live in — especially if they're up there in years — that's one of the first questions they will ask is, ‘What kind of healthcare facilities do I have access to?’” he said.

The hospital is incredibly important to long-term residents like Crawford County Supervisor Ty Roseburg.

He recently had a granddaughter born in the facility and his brother-in-law, who had ALS, spent his last days there.

“He was able to be here in our hospital, you know, with his family being able to be close, and all of us be able to stop by and see him, and I'm sure that meant a lot to him,” he said.

Crawford Memorial administrators say the hospital tailors its services to its community. It employs a team of interpreters since the county has a high rate of transient workers and foreign-born residents who move to the area for meatpacking jobs.

Crawford County ranks near the bottom on the Iowa Hospital Association’s county health rankings. So the hospital is also working on creating a wellness center, to encourage residents to adopt healthy habits as a part of preventive care.

Compared to the overall average operating margin for Iowa hospitals, which is in the red, Crawford County Memorial is doing well, with an operating margin of 2 percent, said CEO Erin Muck.

But that could easily change.

“We're doing great, which is excellent, and it's surprising,” Muck said. “But we know that that can turn on a dime.”

This story comes from a collaboration between Side Effects Public Media, based at WFYI, and the Midwest Newsroom — an investigative journalism collaboration including IPR, KCUR 89.3, Nebraska Public Media News, St. Louis Public Radio and NPR.

Copyright 2022 Side Effects Public Media. To see more, visit Side Effects Public Media.