The Toughest Time in a Long Time

Wayne Myers, MD, Look What's Coming columnistby Wayne Myers

This year and next will be very tough for rural hospitals. They have become the de facto centers of care in many rural communities as primary care docs and therapists have moved into their organizations. Last year many hospitals were seduced into expansion by four factors. The federal economic recovery bill included loan money for hospitals that went out at around 4.25 percent, very cheap money indeed. The federal health care reform bill, the Patient Protection and Affordable Care Act, promised lots of newly insured patients in addition to the aging cohort of baby boomers covered by Medicare. Hospitals saw their competitors expanding and were afraid to be left behind. Finally, managers realized that the promise to reduce the growth of health care spending probably meant new constraints on expansion in the future. Better to get more beds now while it was still possible.

Through 2009 and 2010 the states were sinking into increasing financial distress as the recession deepened and tax revenue dwindled. The states, though, received supplemental federal money to help them fund their Medicaid programs. Those supplemental Medicaid payments to states, included in the last “recovery package” continue through June of this year. Hospitals are holding on.

But after June the outlook for hospitals getting paid looks bleak. Unemployment is still above 9 percent. Lots of people who have jobs are underemployed. The percentage of people with jobs who have good, employer-based insurance continues to decline and is lower in rural than in urban areas. There are a lot of people with and without jobs who can’t pay medical bills.

Most of the 50 states are in very serious financial trouble, some to the point of considering getting out of the Medicaid program. They are caught in a conflict without an acceptable answer. They don’t have enough money to fund the existing Medicaid Program. The federal health care reform bill expands Medicaid in 2014 in states with poor coverage and provides federal funding to cover the costs, but only to states which fully maintain their existing Medicaid programs. So states that cut their current Medicaid programs deny themselves possible future federal subsidies. These are generally poor states. The new Congress, with many new members who ran promising to reduce spending, is not going to come up with another round of appropriations to help the states with their Medicaid expenses.

In summary, we have lots of people without private insurance, some with jobs, some without, many with savings exhausted, states that can’t pay their Medicaid bills and a federal government that won’t help.

The poor and uninsured will likely seek care from hospitals that took on debt in the form of expansion programs that were more attractive only a few months ago, but which now may impair hospital resilience. The Greater New York Hospital Association subjected its members to a “stress test” and found that several were vulnerable to closure if the state’s projected Medicaid cuts became reality. While these weren’t rural hospitals, note that some rural and inner city hospitals serve similar demographic groups.

Medicaid contributes roughly a sixth of the country’s health care support. If Medicaid comes up quite short in most states, what are some of the consequences we can expect? Although most Medicaid support goes to long-term care, I suspect acute care will be cut earlier and deeper, based on the assumption that acute care has more options to shift costs to private payers. Second, unsubsidized hospitals and clinics caring for large proportions of poor people will be hurt the worst. If and when they collapse, the load of the non-paying poor will move up to more advantaged and better capitalized providers in more affluent communities. In terms of general demographics that means a shift of facilities and jobs from rural and inner cities to suburbs.

Starting in late 2011, institutional closures will displace clinicians, nurses, therapists, technicians and all the people that make health care work, generally reducing productivity of the whole health care system. Most of these workers will follow patients to new jobs in other facilities in more affluent communities, but the process will be inefficient and disruptive. Health care constitutes 17 percent of our economy. It continued to grow all through the recession, but at the lowest rates since the early 1990s. Might a serious hit to Medicaid put health care “growth” into decline and the overall economy in jeopardy of the dreaded double dip?

The poorer states, those which receive a federal Medicaid match of two-to-one or more, will probably lose at least a dollar in state taxes for every state dollar they cut from Medicaid, but few of their legislators believe it. The cuts will breed cuts.

Finally, once a hospital closes, it’s closed. I can’t recall seeing a hospital reopen as an acute care facility in 40 years of hospital watching. Poor people have poor health and trouble paying for care. Our market-based system tends to kill off the facilities that care for them. We’ll pay dearly to replace those hospital beds, and we’ll distribute them according to market demand rather than health care need.

Wayne Myers, a pediatrician, founded the University of Kentucky Center for Rural Health and served as its director. He also served as director of the Office of Rural Health Policy in the Department of Health and Human Services’ Health Resources and Services Administration. He is a past president of the National Rural Health Association.

Opinions expressed in this column are those of the author and do not necessarily reflect the views of the Rural Health Information Hub.


Back to: Winter 2011 Issue