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Rural Wisconsin hospitals already operated at narrow or negative margins. Will they survive the pandemic?

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Published: Apr. 29, 2020 at 8:20 PM CDT
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Rural Wisconsin hospitals have largely been spared the nationwide closures that have plagued some states around the country in the past decade. But six weeks into a postponement of elective procedures that’s left them without half or more of their revenue streams, federal funding has so far covered barely a third of those losses and experts fear for their future.

In the words of one longtime worker in the rural hospital world, “My crystal ball has never been quite so cloudy.”

Tim Size helped found the Rural Wisconsin Health Cooperative in Sauk City more than forty years ago; he serves as its executive director. More than

including seven in central Wisconsin, comprise its membership. As an advocate and networker for their needs, Size says he’s worked more hours in the past month than any other in the last twenty to thirty years.

He doesn’t know which—or how many—of the hospitals in the RWHC co-op may fold; much depends on their corporate structure and individual circumstances. But he fears at least a few might.

“I’d be very happy if we get through this period without any closures,” he noted. “It’s hard to imagine there won’t be some.” Wisconsin has only seen one rural hospital close in the last decade, leaving them as one of the states with the lowest risks for rural closures going forward according to pre-pandemic calculations. But they weren’t necessarily healthy, either.

“We have a fair number of rural hospitals in our state who have been running negative operating margins,” Size noted. "[They] went into this in a weakened condition." According to hospital financial reports aggregated by the American Hospital Directory, that included at least three in central Wisconsin for the period ending in July 2019. Normal margins are still narrow, running between 3 and 5%--some higher.

Elective Procedures and federal funding

Nonemergency medical procedures are the ‘electives’ that bolster a hospital’s operating revenue, forming 40-60% of their income according to estimates from the Wisconsin Hospital Association. Now roughly six weeks into their postponement for hospitals across the state amid the COVID-19 pandemic, the timeline of their return will be one of the biggest factors in determining how soon hospitals will return to some form of normal.

Some hospital systems in the state, including Aspirus which operates six hospitals in northern and central Wisconsin, are just beginning to roll back those procedures. But the revenue lost has only been recouped by barely a third so far in federal funding through the CARES act, which allocated $100 billion in hospital relief, and further relief legislation passed last week with an additional $75 billion for hospitals. $10 billion has been earmarked specifically for rural hospitals.

The WHA estimates Wisconsin hospitals have so far received a little more than $400 million of that, out of two payments totaling $50 billion dispersed to hospitals around the country. WHA’s Senior VP of Finance Brian Potter tells 7 Investigates that statewide, they estimate hospitals are losing about $260 million a week from the loss of elective procedures. Out of six weeks’ revenue lost, while more is expected in the future--federal funding so far covers less than two.

“It’s a large number to try to replace that revenue lost,” Potter said. “‘It’s a pretty dramatic hit to margins, because there’s no offsetting expense that goes away as part of it.” Hospitals have had to ramp up pandemic surge preparations and invest further in personal protective equipment, leading to hospitals needing to cut in other areas: staff furloughs, reduced hours and pay cuts.

“That’s touchy too because first of all, they still have to be ready in case a surge does happen,” Potter said. “Secondly, even before all of this happened there were work force shortages, so you don’t want to let good people go.”

There’s

but the WHA and RWHC say the chief hangup has been the distribution formulas calculating exactly how much to send each state. Systems vary widely based on demographics, and formulas introduced so far often have some form of disadvantage built in from one region to another, whether modeled based on Medicare reimbursements, total patients served, or otherwise.

“They’re struggling with the best methodology to deliver the dollars, so that’s why I think it’s taking a little bit longer,” Potter said. “We have empathy for them as they figure out the right methodology that’s fair for everyone, because it is a challenge.”

Size lists several major factors affecting the timeline of how soon rural hospitals are able to return to normal: the unknown length of time left in the fight against COVID-19, the final amount of incoming federal funds, a hospital’s starting operating margin, and the return of elective procedures. But significantly, several factors lie in the communities around the hospitals.

Community’s role in rural hospitals

Many rural hospitals have been community pillars for decades, Size explains. They’re supported by foundations, community philanthropy, and their success is connected to the community’s health.

“You can’t really separate out the economy from the health of the people,” he said. Some people scheduling elective procedures before the pandemic may have lost their jobs and economic stability; others may be nervous for their health entering a hospital in the post-pandemic world.

“Everyone’s hurting in this, it’s not just health care providers,” Potter said. “There’s that symbiotic relationship, particularly in rural areas, of ‘strong economy, strong rural healthcare provider.’”

Those communities, too, may be the ones that keep rural hospitals afloat through philanthropy and foundations—a common pillar of support. Other supports include financial investments and reserves—but all taken together, experts say, it’s difficult to predict whether it will be enough to meet the crisis. Those types of assets have been built up over a long period of time, Potter said, and now have to be tapped at once--while some, like investments, are likely suffering themselves in a suffering stock market.

“It’s gonna be case by case—hospital by hospital,” Size said. In regards to their finances, “the losses are going to be profound.”

But while there is no silver bullet, Potter hopes closures won't be the case.

"I think if we all do the right things, we’ll all get through this."

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