Rural SC hospitals explore avenues for help

Fifteen of the 17 hospitals in South Carolina that filled fewer than 30 percent of their beds in 2012 were in rural counties, and nine of those hospitals operate independently on what amounts to rural islands.

Thus it’s no surprise that many of them are looking for help from urban hospitals or large hospital chains in terms of merger, consolidation, affiliation or formal clinical cooperation agreements. The national trend began years ago and has picked up steam in the Upstate in the past year.

“If a small hospital is not looking at all its options, it’s not going to survive,” said Michael Williams, CEO of Fairfield Memorial Hospital.

Fairfield managed a net profit of $517,116 over the past five years, according to information compiled by the S.C. Department of Health and Human Services. But that includes all income for the hospital, including investments. The 25-bed hospital in Winnsboro lost more than $11 million in expenses vs. income for patient services alone during that five-year period, according to HHS.

Changes in the industry, many prompted by Affordable Care Act requirements, are making it harder for the smaller hospitals to go it alone, Williams said. Moving from paper to electronic medical records, for instance, can cost several million dollars, and the costs can be reduced if systems and technical support personnel are shared with multiple hospitals.

Fairfield, which ended a formal relationship with the Palmetto Health system in Columbia several years ago, is talking again with Palmetto Health as well as other entities, Williams said. The goal is not just to stay open but to find a way to grow stronger with help.

“We’ve got county support,” Williams said. “We’re not shutting down. But we don’t have a partner, and we’re looking at what’s best for our facility.”

South Carolina is slightly behind the curve in this trend, according to Thornton Kirby, CEO of the S.C. Hospital Association. About 12 percent of North Carolina hospitals were fully independent late in 2013, while 20 percent were in South Carolina, according to a presentation by a consultant firm to state hospital leaders last year.

“South Carolina is not a very consolidated state,” Kirby said. “I suspect the curve is coming our way. It’s all about security.

“There are parallels to so many doctors’ practices that have joined up with hospitals. That’s not where they necessarily wanted to be, but it provided security.”

What’s new

Hospitals have merged or been bought by bigger fish in the industry for years.

Roper Hospital in Charleston joined the Carolinas HealthCare System in 1997. Florence-based McLeod Health picked up facilities in Darlington in 1994 and Dillon in 1998.

But the rural hospitals that have hung on to their independence in recent years have begun to see that independence has its costs. With the changes wrought by the Affordable Care Act, “there are massive amounts of uncertainty in the industry,” said Richard Stokes, CEO of Clarendon Health System in Manning. “That makes it hard to get capital for improvements.”

What’s different in this wave is that the big hospitals face some of the same financial uncertainties and generally aren’t looking to buy small hospitals.

Charles Beaman,CEO of Palmetto Health,said the dynamics of health care have been altered by:

•  The shift by insurance companies to more out-of-pocket expenses, putting more financial burden on the patients.

•  Medicaid’s move to link reimbursements to quality of care, which in the short term often means more expense for hospital improvements.

•  State leaders’ decision to turn down the expansion of Medicaid, which would have pumped more federal health dollars into the state.

Gov. Nikki Haley’s administration increased reimbursement to 19 rural hospitals for uninsured care to lessen the blow of turning down Medicaid expansion. But Williams and Stokes say rural hospitals need more help, and they’re reaching out to their larger brethren.

They don’t necessarily want a full-scare purchase or merger. Instead, they want to band together to get quantity discounts on equipment or to negotiate higher reimbursements from major insurers such as BlueCross BlueShield of South Carolina. They might combine labs, or work out an affiliation with a larger hospital that has specialized, expensive heart care that the smaller hospitals can’t afford to provide.

“Until recently, small hospitals felt their only choice was to be sold (to chains or bigger hospitals),” Kirby said. “But the marketplace has responded lately, saying you don’t have to give up your autonomy.”

The trend is obvious in the Upstate.

Greenville Health System in recent years has taken on 50 percent interest in Baptist Easley, worked out a long-term lease on the facilities and taken over operation of Laurens County Memorial Hospital and begun talks about an affiliation with Oconee Medical Center.

On a smaller scale, AnMed Health in Anderson, which joined the Carolinas HealthCare System in 2009, has worked out partnerships to handle some services for Cannon Memorial in Pickens and Elbert Memorial, in Elberton, Ga. Cannon CEO John Miller said moving some lab services to AnMed will save Cannon $30,000 annually.

“In the past, mergers were all about revenue generation,” said Tony Keck, director of the S.C. Department of Health and Human Services, which handles Medicaid in the state. “This new trend is about cost avoidance.”

In the Midlands, Beaman says he is more than willing to listen to rural hospitals that seek affiliations with Palmetto Health. The key is finding a deal that can be a win-win.

“Many hospitals in South Carolina need to figure out what relationships are going to work for them in the long haul,” Beaman said. “Having size, scale and scope can bring benefits.”

What’s a rural hospital to do?

Only about 18 to 20 hospitals in the state remain independent, depending on how independent is defined.

The list includes larger entities such as Lexington Medical Center, Self Regional Healthcare in Greenwood, the Regional Medical Center of Orangeburg and Calhoun Counties and Tuomey Regional Medical Center in Sumter. The independent smaller facilities include hospitals in Abbeville, Allendale, Barnwell, Clarendon, Edgefield, Fairfield, Hampton, Newberry and Union.

Most of the independent hospitals, even the larger ones, are in rural counties. About one-third of South Carolina’s total hospitals are in rural counties, but they account for only 10 percent of the state’s hospital beds and about 5 percent of in-patient days, according to Keck.

Some might not be viable financially in their current setup, but they have many options.

The option they want to avoid is closing. For years, the best way to shore up the bottom line was to get more patients to stay overnight in beds or perform lots of X-rays and scans. But in many cases, locals are by-passing their county hospitals to get those services at larger regional hospitals.

“Some people will drive an hour for the right pair of shoes,” Keck said. Likewise, “they’re driving right on by their local hospital on the way to the bigger hospital.”

Some rural hospitals might be better off focusing less on filling beds and more on providing emergency care or out-patient management of chronic health conditions, Keck said.

Graham Adams, CEO of the S.C. Office of Rural Health, said one of the keys to making those sorts of changes work is altering the Medicaid payment model to give more value for emergency care and chronic illness management.

Adams warns that “there is no silver bullet for rural hospitals,” though he encourages small hospital leaders to be open to more affiliations with large hospitals.

Clarendon has taken that route. It has a cardiac affiliation with Providence Hospitals so patients who need heart procedures that can’t be done at the Manning hospital are sent to Columbia. It also has a group supply purchasing agreement with UNC Health Care in Chapel Hill.

Clarendon has gone for a wide but thin footprint by establishing its own long-term care centers, a home health center and a fitness center. Even though Clarendon has lost nearly $14 million over the past five years and has had to lay off some workers, hospital systems have approached Stokes to discuss partnerships and mergers. Stokes hopes to delay those talks because he thinks the hospital is turning the corner financially.

“We have our challenges,” Stokes said. “But the time to go to those (hospital chains) is not when you need them. We need to get stronger and then approach them from a position of strength.”

Stokes thinks more connections to large hospitals are inevitable for Clarendon and most small hospitals.

Keck and Kirby agree.

“The days are gone when (rural hospital administrators) can ignore the costs of what it takes to maintain a viable organization,” Keck said. “People are nervous, but they’re doing the right thing, asking the right questions.”

“In five years, a lot more hospitals will be connected to systems,” Kirby said. “Will there still be small rural hospitals? Yes. Will they be independent? I don’t know.”

Rural health

The S.C. Department of Health and Human Services boosted Medicaid reimbursements for uninsured care at 19 rural hospitals last year. Several of those had bed occupancy rates of less than 30 percent in 2012.

Hospital, occupancy rate

Allendale, 7.32

Edgefield, 12.71

Chester, 14.19

Marlboro Park, 15.73

Fairfield, 16.24

Hampton, 21.76

Williamsburg, 22.62

Barnwell, 23.28

Newberry, 25.95

Abbeville, 26.42

Lake City, 28.35