Rural and Safety Net Hospitals Prepare for Cut in Federal Support

Daily Yonder,

Absent action by Congress in the next couple of weeks, Dr. Michael Waldrum, CEO of Vidant Health, is going to have to figure out what medical services to deny hard-pressed communities in rural eastern North Carolina.  “It runs the gamut,” Waldrum said in an interview last week. “Do we close hospitals? Do we close services within hospitals?”

With an operating margin of less than 0.5% — comparable to most other rural and safety net hospitals — and an expected loss of $7.7 million in federal money this year, which would double next year, Vidant, a multi-hospital safety net health system, could drop into the red.

Across the country, similar health systems face unwelcome choices about how to handle the coming funding cuts. They knew it was coming — the Affordable Care Act ordained a pullback in federal support for hospitals’ charitable care — and yet hospital leaders continue to hold out hope that Congress will protect the funding before the cuts go into effect in a few weeks.

“The consequences would be absolutely devastating,” said Beth Feldpush, a senior vice president for America’s Essential Hospitals, a trade association for safety net hospitals, which provide medical care for all comers, no matter their ability to pay.

Even without these prospective cuts, both safety net and rural hospitals, most of which have slim or negative operating margins, have been facing perilous economic times. At least 118 rural hospitals have closed since 2010, and a number of safety net hospitals also have shuttered or merged with for-profit health systems.

Hospitals in the 14 states that did not expand Medicaid will be hurt the worst, because they already miss out on the extra federal money that comes with expansion.  “How many punches can you take?” said John Henderson, president and CEO of the Texas Organization of Rural and Community Hospitals. Texas, which has not expanded Medicaid, leads the country in the number of closed rural hospitals with 23 since 2005.

The federal money reimburses hospitals for the care they provide to people who can’t afford to pay and offsets the cost of care that hospitals provide to Medicaid patients that Medicaid does not cover. The federal cuts amount to $4 billion this year and $44 billion through 2025.

The hospitals’ total loss of funding could be even more significant because the program includes state matching funds. If state cuts are commensurate with federal ones, the overall reduction would go from $4 billion to more than $7 billion in 2020.  As one example, the North Carolina Department of Health and Human Services said in an email to Stateline that if the federal cuts go into effect this year, the state would reduce its contribution by $47 million in addition to the expected $98 million cut in federal money.

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