Critical Times for Small and Rural Hospitals

Philip Betbeze, for HealthLeaders Media , July 8, 2014

A better approach is a systematic determination of whether such hospitals currently meet the community's needs or whether the community might be better off without an inpatient hospital. This would mean turning the cherished local hospital into an outpatient facility, a cardiac rehab facility, or possibly an urgent care center. But political and fiscal realities often make that transition impossible, at least while the current reimbursement model rewards the inpatient model.

"Many communities are wonderful partnership communities, but the financial realities are going to be difficult," Hart says. "I would love to see the government give you options to truly put a system in place to create what these communities need versus assuming it needs a hospital. Because of the payment system, you design your system around that versus around patient and community needs."

Hart says the fact that South Dakota did not expand Medicaid is also weighing on difficult strategic decisions that require investment.

"If our state would expand, that would provide more life to the critical access hospitals, but it would create a financial cushion so we could continue the services the community needs."

For now, grand plans succumb to more measured attempts to make the system more efficient. Hart and his leadership team spend a lot of their strategic time on how to reduce duplication of services and remove variation.

"Do we really need three CT scanners in hospitals 10 miles apart?"

There are also opportunities to more efficiently allocate the patient load among the system's array of hospitals.

"The most important thing from our perspective is that we have a bed shortage in our mother ship and excess beds in our critical access hospitals," says Hart. "We developed systems to transport patients who are not critically ill (swing bed status) to the critical access hospital. We're finding ways to utilize resources that are less unprofitable but not ideal."

Based on where reimbursement is going, Grinnell Regional's Linden also thinks rural hospitals will struggle with urgent capital needs.

"The one thing that will cause us to consider whether we can stay independent through this affiliation model is whether we would have adequate access to capital. We're too small to have our bonds rated," he says. "Banks have to guarantee our debt, and with profitability being challenged, finding banks to take that risk is hard. We're in good shape now, but a decade from now, we don't know. There's no way we could borrow $30 million today for a major renovation or replacement project without the support of a system."

Philip Betbeze is senior leadership editor with HealthLeaders Media. He can be reached at

Reprint HLR0614-5

This article appears in the June 2014 issue of HealthLeaders magazine.

Philip Betbeze is senior leadership editor with HealthLeaders Media.
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