Average operating margin of Alabama’s hospitals is 2.38 percent Average operating margin for rural hospitals is 1.1 percent Almost half of all rural hospitals operate in the red 75% have seen increase in bad debt and charity care BRIEF FINANCIAL STATUS

From 2011 to 2014, 5 rural hospitals closed in Alabama

WHAT HAPPENS WHEN A HOSPITAL CLOSES? Loss of emergency services

LOSS OF OTHER HEALTH CARE Hospitals provide needed support for local physicians, pharmacies, etc. When a hospital closes, it can collapse the entire health care infrastructure.

Hospitals are often one of the largest employers. Hospitals provide tremendous economic benefits. Difficult to recruit industry without good health care. LOSS OF ONE OF THE LARGEST EMPLOYERS

WHY ARE HOSPITALS CLOSING?

DEMOGRAPHICS OF A RURAL AREA 20 percent age 65 and older (13 percent in urban areas) 17 percent below the poverty level (14 percent in urban areas) Chronic diseases tend to be worse in rural areas

LACK OF PATIENT VOLUME Benefits of being smaller – neighbors caring for neighbors Challenges due to lack of volume: Low volume makes it difficult to cover expenses (skilled staff 24/7) Thin margins make rural facilities more susceptible to market changes.

SHIFT TO OUTPATIENT CARE 56% of rural hospital revenue tied to outpatient (39% urban) Technology has driven much of shift Admission criteria also driving the outpatient increase: Patients come to ED – too sick to go home, but may not meet criteria to stay

LOWER MEDICARE REIMBURSEMENT Alabama has the lowest rural wage index in country = lower payments Wages factored into payments Budget neutral – wages go up in one part of the country, down in another Lower payments, less money to pay staff = lower wage index!

ReportingReporting VBPVBP ReadmissionsReadmissions HACsHACs Meaningful Use 1% 1.25%1.5%1.75%2% 1%2%3% 2% 1% 3% 2% 9% 1% Percent of Medicare Payments at Risk

MAJOR CHANGES IN MEDICAID Program that provides care to low-income Alabamians Rural hospitals serve a large Medicaid population, and Alabama is heavily dependent on federal dollars to fund Medicaid. Tremendous reform underway as state moves toward regional managed care approach.

MORE ABOUT REFORM Places risk at regional level, not state Better continuity for patients and more efficient care Opportunities and challenges for rural hospitals – will be innovating with slim margins for missteps

HIGH RATE OF UNINSURED 65% saw increase in ED visits Many of the uninsured would be covered by Medicaid expansion, but state has opted out for now. Federal government cutting supplemental payments for uninsured.

NOT EXPANDING MEDICAID MEANS 300,000 Alabamians won’t get health coverage. Alabama loses $12 billion over 6 years, which could have a total economic impact of $28 billion. Hospitals lose $167.8 billion nationwide. Loss of up to 30,000 jobs

RURAL RELIEF BEING THREATENED Rural hospitals have helped support struggling budgets with these programs: Sole community provider Medicare-dependent hospital Low-volume payments 340B drug program Critical access hospital program (CAH)

OTHER RURAL HOSPITAL CHALLENGES Limited access to capital Constant audits of care provided (RACs, MICs, ZPICs, CERTS) Financial support for electronic health records decreasing; hospitals now in penalty phase. Often difficult to recruit doctors and other health care personnel

CUTTING COSTS TO REMAIN VIABLE Alabama has one of the lowest revenue-per-discharge rates in the country 50% of rural hospitals have cut salaries 33% have had to cut services 8% have liquidated assets All rural hospitals constantly look for ways to cut additional expenses.

MANY RURAL HOSPITALS NO LONGER DELIVER BABIES In 1980, 58 counties provided obstetrical services. Today, only 29. There are only 17 counties in rural areas that deliver babies; that’s a 63% decrease! 50 – 60 miles

COST CUTTING CAN ONLY GO SO FAR Rural hospitals have already made significant cost reductions Rural hospitals continue to find creative ways to provide care to their communities Rural hospitals need increased local support to survive