Counties in Crisis: We know why rural hospitals in Tennessee are closing. Can we save them?

Counties in Crisis

Hopeful signs of a financial regimen for rural hospital health

KNOXVILLE, Tenn. (WATE) – In seven years, Tennessee has seen more hospitals close than 48 other states.   

As we’ve seen, East Tennessee isn’t immune to the trends.

In June, Jamestown Regional closed. While its owner hopes to reopen the hospital, more than 18,000 people in Fentress County and families in surrounding counties are left with the help of 911 and ambulance services to transport them to outside hospitals in an emergency.  

Also, in June, the same company that owns Jamestown Regional, Rennova Health, turned to a bank to make payroll at Big South Fork Medical Center. Rennova-owned Jellico Community Hospital reported more than $10 million in net losses to the state. 

A rural hospital on track for success

Jason Pilant is the president and chief executive officer for Roane Medical Center, owned by Covenant Health, headquartered in Knoxville. Roane Medical has also seen net losses, in the millions, in recent years, but has steadily improved every year, according to Pilant and reporting filed with the state. In fact, so far in 2019, Pilant said the hospital is on track to break-even or potentially turn a profit.  

Their losses are a bit misleading, he explained. They stem from a more than $70 million investment in a new hospital, completed in 2013. When you consider the operating overhead, couple it with the investment cost, then look at those declining losses, Pilant explained what you see is a hospital performing exactly how you’d want it to from a corporate perspective. In other words, despite being rural in 2019, it’s doing well.  

Here’s how he broke down their patient payer-mix:  

  • Medicare 50% 
  • Medicaid 21% 
  • Uninsured/Self pay 9% 
  • Private 20% 

That’s both a blessing and a burden for the hospital, financially.

Patient payer mix hurts rural facilities

Medicaid, a federal-state health program for some low-income people which Tennessee calls TennCare,  “typically always reimburses under the actual cost to the hospital,” he said. This means immediately after the treatment of a Medicaid patient; a hospital would have lost money.  

Pilant said Medicare, on the other hand, typically reimburses “right at or below” costs to the facility. Medicare is a federal program for people 65 years old and older or people with disabilities.

Commercial insurance is where the opportunity lies for any profit-making, which he said can help supplement any loses from charity care. The need for larger numbers of commercial payers exists in rural areas because it’s where you find larger percentages of uninsured patients or patients whose care isn’t fully paid for, he said.  

The Covenant Health model

In many rural communities, a brand-new, state-of-the-art, healthcare facility isn’t an option. That option was made possible for Roane Medical Center when it became part of Covenant Health in 2008.  

Covenant’s portfolio spans across many Tennessee counties and includes two massive facilities in Knoxville. It supports rural facilities by offering more advanced services and specialized care, basically keeping those dollars in the Covenant system and not going elsewhere.

“it’s very, very hard and much more challenging today to be an independent rural hospital in these times and in these markets,” Pilant said. “Being able to align and join with a healthcare system, especially a financially strong healthcare system, really benefits these hospitals to keep them viable and to keep them in the latest technology and be able to treat patients the best they can.” 

A partnership between hospital and community

He also credited their success to the “partnership” between the hospital and the community. You have to have a strong enough population to support a hospital, but you also need those living in rural areas to choose local when considering their healthcare options.

“There’s not many times people would drive from large cities, past hospitals and come here. but also, in that same regard, we can’t have people in this community drive past our hospital going to the big cities and stay viable,” he said.  

Offer the right mix of medical services

Given the number of people uninsured, Pilant says you must be strategic in the services you offer. “Small, rural hospitals can’t provide every type of service needed, so you have to be very smart and learn from your community, the patients that you see, what are the things that are most beneficial.”  

They’ve also done some out-of-the-box thinking for cutting costs.  

At Roane Medical Center, there is an emphasis on pharmacy advocacy, aimed at keeping medical issues from becoming life-threatening, and costly conditions. If a patient, who is strapped for cash and without insurance, needed maintenance medication for things such as diabetes, high cholesterol, Pilant said they have an advocate that helps those people fill out paperwork, to be sent to drug manufacturers for discounted, or even free, medication.

Economies of scale matter

WATE 6 On Your Side Healthcare Analyst, Craig Griffith, explained size also matters during price negotiations. Buying in bulk for things such as supplies and equipment, for multiple facilities or for larger patient volume, reduce costs. A smaller hospital doesn’t have that advantage, he said, even a three or four hospital group doesn’t.  

While Medicaid expansion, he said, would allow a steady flow of money and replace some charity care dollars, it isn’t a cure-all. The reimbursement rate still leaves hospitals operating at a loss.  

Griffith remembers St. Mary’s buying a hospital in Scott County, but the payer mix had so few patients covered through private healthcare, it didn’t work. “In a rural setting, you still don’t have enough insured people in the population to cover costs,” he said.  

“It makes it very hard for those hospitals that are operating on a very narrow margin to begin with to cover their costs, pay their employees, cover their supplies and keep healthcare going in that community,” he said. 

There are also negotiations between insurance companies, physicians, and hospitals. Smaller groups, and independent facilities, he said, don’t have the leverage to get costs down. 

The best solution is jobs

The best solution, according to Griffith, is economic development. If more companies come in and provide insurance to employees, the payer mix would even out. “That’s the best way you’re going to improve the state of rural healthcare in Tennessee,” he added. 

State filings on hospital losses: 2016-2018 

Jellico Community Hospital

2016 Jellico Community Hospital (-3,508,213) 

2017 Jellico Community Hospital (-2,268,651) 

2018 Jellico Community Hospital (-4,398,811) 

Roane Medical Center

2016 Roane Medical Center (-3,769,460) 

2017 Roane Medical Center (-3,115,992) 

2018 Roane Medical Center (-1,231,787) 

*An SEC filing from Rennova Health for the 2018 fiscal year revealed the company reported a $13.6 million loss from continuing operations in 2018, a working capital deficit of $39.3 million and a stockholder’s deficit of $39.2 million. 

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