Rural hospitals in America are closing at a rapid pace, and many others are experiencing severe challenges. The statistics reflecting the closings and financial challenges facing rural hospitals are readily available, but that is not the focus of this article. Rather, the focus is on identifying common problems facing rural hospitals from the viewpoint of debtor’s counsel and other restructuring professionals for hospitals that are debtors in possession or candidates for restructuring.
Declining Patient Volume
Patient volume at many rural hospitals is declining. Some rural hospitals are losing patients to larger hospitals. The length of patient stays in hospitals is decreasing, with many surgical procedures that previously required overnight (or multiple-night) stays being performed on an outpatient basis. Outpatient surgical centers are increasingly becoming competitors, and unless the rural hospital reacts in a timely manner, surgical procedures that were once routinely performed in rural hospitals will be lost.
Employee Retention and Recruitment
The financial condition of many rural hospitals is often a matter of public knowledge. Physicians, nurses and support staff are usually aware of the financial challenges. There is intense competition for nurses in light of the perceived nurse shortage. It is difficult to maintain loyalty among the staff at rural hospitals when the employees fear the hospital will close. Physician recruitment to rural hospitals is also a problem, as many physicians prefer the stability and improved facilities at larger hospitals. As a result of the staffing problems, some rural hospitals are understaffed, which leads to payment of overtime.
Cash Management
In many rural hospitals, cash is precipitously low, and any glitch in payments will cause some creditors to go unpaid. Cash management is an hourly task. Rural hospitals routinely postpone capital expenditures. The failure to update facilities and to defer capital expenditures increases the costs of those updates in the future.
The Center for Medicaid Service (CMS) has the authority to recoup payments it owes to hospitals when it asserts that the hospital has been overpaid by CMS. In chapter 11 cases, recoupment is not prohibited by the automatic stay, and in nonbankruptcy settings, CMS can recoup payments it would otherwise owe to the rural hospital. The administrative process to challenge CMS is long and uncertain. There are bankruptcy cases that hold that the bankruptcy court has jurisdiction to resolve these disputes with CMS; other cases hold to the contrary, leaving CMS with its ability to recoup, even to the extent that the hospital is forced to close. CMS has the discretion to allow the hospital to repay the overpayments on payment plans.
There is some light at the end of this tunnel, at least in the Fifth Circuit. There are two recent decisions that allow the debtor to invoke the bankruptcy court’s jurisdiction over Medicare/CMS issues despite 42 U.S.C. § 405(h). The first decision is Family Rehabilitation Inc. v. Azar.[1] In addition, the Fifth Circuit reached a similar result in the case of In re Benjamin.[2]
Corporate Governance, Management and Leadership
In many communities, rural hospitals are governed by a board of directors consisting of local citizens who lack experience or business acumen in the intricate details of restructuring. While the engagement of professionals to assist in restructuring is needed, the cash positions of many hospitals prohibit this. This leads, in many instances, to the hospital closing because it fails in any meaningful restructuring or turnaround.
“Difficult” Patients
Generally, rural hospitals have a patient population that is less affluent, older and sicker than non-rural hospitals. While this presents obvious challenges to the rural hospital (including collectibility of services), it highlights why it is important for the population that is served by rural hospitals to have access, locally, to the care that rural hospitals provide.
Behavioral Health Issues
Rural hospitals are often called upon to provide services for patients suffering from mental illnesses and substance-abuse disorders, but they are inherently understaffed and underfunded. These issues have only been enhanced in light of the opioid crisis.
Regulatory Issues
It seems that regulatory issues increase, or change, every year (or more often). These constant changes create compliance problems for rural hospitals. Rural hospitals lack staff and scale to keep up with the pace of change. Compliance with converting to electronic medical records has been a costly and time-consuming endeavor for rural hospitals.
Costs
In the area of increased costs, the high cost of prescription drugs stands out as being particularly troublesome. While these hospitals try to pass the costs of prescription drugs to patients and payors, they have not been able to keep up with these increased costs and cannot pass all those costs to patients.
Community Involvement
Rural hospitals are often the cornerstones of their communities. In addition to providing health care, rural hospitals provide good-paying jobs and economic enhancements. The ability of the rural community to attract residents and industry depends, in part, on the availability of a nearby hospital.
In many instances, when the local community and its citizens are called upon to provide assistance, they will do so. Local governments can reduce the cost of services (water, sewer, garbage pickup) to rural hospitals or provide services for free. Local governments can provide indigent-care funds to supplement revenues. Local citizens can encourage potential patients to utilize the rural hospital.
Local charitable organizations often provide charitable assistance to the rural hospital by providing “in kind” routine services to patients.
Experience reflects that a call upon the local community to provide these kinds of support to the rural hospital is almost never ignored and provides invaluable assistance. But the hospital must initiate the request.
Sales
Many rural hospitals remain open as a result of a sale of their assets, either out-of-court or under 11 U.S.C. § 363. If CMS has asserted an overpayment claim, that becomes a problem because the purchaser, in all likelihood, will want the debtor to assume and assign the “provider” agreement — which is the contract between the hospital and CMS for the providing of services to Medicare/Medicaid patients. Experience reflects that if the overpayment claim is a result of fraud or gross negligence, CMS is more likely to work out a solution to the overpayment claim if the hospital is being sold in an arm’s-length transaction to a third party. While many rural hospitals have been sold in either out-of-court restructuring/sales or sales under § 363, the purchasers for those hospitals have become few and far between in the recent past.
Advances
Rural hospitals are trying to become creative in reducing costs, increasing revenues and maintaining staff. Some rural hospitals “co-op” with others in the providing of services, staff and information exchanges. Advances in technology (such as so-called “telehealth”) can help, especially in telehealth visits that are related to behavioral health issues. Creative recruitment and retention programs can assist the rural hospital in attracting competent health care.
Obviously, changes in government payments and reimbursements, changes in regulatory burdens and “coverage” for patient care are also important issues that exist on all levels. It will take all stakeholders working together to solidify the place of rural hospitals.