Why are 600+ rural hospitals at risk of closing?

Posted on by • Posted in Access & Quality of Healthcare, Accessible Care, American Hospital Association (AHA), Center for Healthcare Quality and Payment Reform (CHQPR), Financial Viability, Financially Distressed, Health Policy, Rural Health, Rural Hospital, Standby Capacity • Leave a comment

https://www.advisory.com/daily-briefing/2023/03/22/rural-hospitals

A report from the Center for Healthcare Quality and Payment Reform (CHQPR) found that over 600 rural hospitals are at risk of closing in 2023, citing persistent financial challenges related to patient services or depleted financial resources.

More than 600 rural hospitals are at risk of closing in 2023

In the report, which was released in January, CHQPR identified 631 rural hospitals — over 29% nationwide — at risk of closing in 2023. However, compared to pre-pandemic levels, fewer rural hospitals are at immediate risk of closing because of the federal relief they received during the pandemic.

Among rural hospitals at risk of closing, CHQPR found two common contributing factors. First, these hospitals reported persistent financial losses of patient services over a multi-year period, excluding the first year of the COVID-19 pandemic. Second, these hospitals reported low financial reserves, with insufficient net assets to counter losses on patient services over a period of more than six years. 

In most states, at least 25% of the rural hospitals are at risk of closing, and in 12 states, 40% or more are at risk.

Meanwhile, more than 200 of these rural hospitals are facing an immediate risk of closing. According to CHQPR, these hospitals have inadequate revenues to cover expenses and very low financial reserves.

“Costs have been increasing significantly and payments, particularly from commercial insurance plans, have not increased correspondingly with that,” said Harold Miller, president and CEO of CHQPR. “And the small hospitals don’t have the kinds of financial reserves to be able to cover the losses.”

How rural hospital closures impact communities

In many cases, the closure of a rural hospital leads to a loss of access to comprehensive medical care in a community. Most of the at-risk hospitals are in areas where closure would result in community residents being forced to travel a long distance for emergency or inpatient care.

“In many of the smallest rural communities, the only thing there is the hospital,” Miller said. “The hospital is the only source. Not only is it the only emergency department and the only source of inpatient care, it’s the only source of laboratory services, the only place to get an X-ray or radiology. It may even be the only place where there is primary care.”

Many small hospitals also run health clinics. “There literally wouldn’t be any physicians in the community at all if it wasn’t for the rural hospital running that rural health clinic,” Miller said. “So if the hospital closes, you’re literally eliminating all health care services in the community.”

According to Miller, there has to be a fundamental change in the way hospitals are paid. “The problem that hospitals have faced though, is that they do two fundamentally different things — but they are only paid for one of them,” Miller said.

“Hospitals deliver services to patients when they are sick, and they are paid for that. But the other thing that hospitals do, which is essential for a community, is that they are available when somebody needs them — that standby capacity is critical for a community. But hospitals aren’t paid for that,” he added. (Higgs, Cleveland.com, 3/16; CHQPR report, accessed 3/20)

Advisory Board’s take

Why it is ‘not enough’ to simply stave off hospital closures

Hospital closures are a big deal — for all the reasons outlined above (and more) — but we cannot understate the importance of monitoring hospitals that are in or moving into the “at risk” category.

When hospitals fall into the “at risk” category, they are more likely to cut services to reduce costs. While this may help preserve hospital survival, it can have a devastating effect on patient access. For instance, a 2019 Health Affairs study found that rural hospital closures are associated with an 8% annual decrease in the supply of general surgeons in the years preceding closure.

While dangerous trends persist in maternal mortality, especially among Black women, obstetrics (OB) care is often placed on the chopping block for hospitals looking to rationalize services and stave off closure. According to the American Hospital Association (AHA), nearly 90 rural community hospitals closed OB units between 2015-2019. As of 2020, only 53% of rural community hospitals offered OB services, AHA reports.

Ultimately, these service closures carry massive implications for patient access and outcomes. As care delays result in higher-acuity downstream presentation, they can also increase the strain on the rest of the healthcare system.

So, yes, we need to stave off hospital closures. But to say “that’s not enough” is a massive understatement. In fact, many of the strategies hospitals deploy to stave off closure can create gaps that stakeholders must work together to fill.

This is especially true as we near the end of the COVID-19 public health emergency. As Medicaid redeterminations start ramping up, rural hospitals may see an increase in bad debt, especially among states that have not expanded Medicaid.

For example, the Alabama Rural Health Association reported that 55 of 67 counties in Alabama are considered rural, and CHQPR reported that 48% of rural hospitals in the state are at risk of closing. Meanwhile, the Wyoming Department of Health reported that 17 of 23 counties in the state are considered “Frontier,” which means there are fewer than six residents per square mile, and CHQPR reported that 29% of the state’s rural hospitals are at risk of closure.

When rural hospitals close their doors, the surrounding communities are left without access to timely, quality health care.

There is no silver bullet here — but Advisory Board researchers have created several resources to help stakeholders understand how to support rural hospitals:

Rural providers aren’t providing “rural healthcare” — they’re providing healthcare in a rural setting. While niche policies can help in pockets, rural providers need federal policymakers to consider rural needs in overall health policy to meet the magnitude of the crisis.

CFO base pay raises outpace CEOs’

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https://www.cfodive.com/news/cfo-base-pay-increases-edge-out-ceos-cap/644640/?utm_source=Sailthru&utm_medium=email&utm_campaign=Newsletter%20Weekly%20Roundup:%20CFO%20Dive:%20Daily%20Dive%2003-11-2023&utm_term=CFO%20Dive%20Weekender

Dive Brief:

  • CFO salary increases edged out CEO increases in 2022, with CFOs on average seeing an increase in base salary of 5.5% while CEOs’ pay increased by 4.4%, according to a recent report by Compensation Advisory Partners.
  • Most (80%) of both CFOs and CEOs saw increases in base salary, the report from the compensation consulting firm found. Of those companies making increases, CEOs saw a typical range between 3.4% to 7.4%, compared to the 3.6% to 9.1% range for CFOs.
  • A notable portion of both CFOs and CEOs saw significant increases in total compensation for 2022, with 40% of CEOs and one-third of CFOs seeing a 25% increase in total compensation compared to their total pay for the prior year.

Dive Insight:

The report, based on proxy statements, provides an early look at payment trends even as filings continue to trickle in during March and early April.

The bigger CFO salary gains could be partially due to the fact that the finance chiefs’ role has changed over time from a pure reporting function — the  “level of sophistication for the role has been increasing,” Ryan Colucci, principal for CAP and the author of the report, said in an interview.

Lingering stresses from the COVID-19 pandemic — which put particular strain on certain roles including the chief legal or chief human resource officer as well as CFOs — could also be contributing to the boost in salary, for that matter.

Executive team priorities have shifted since the pandemic, with individuals searching for a greater work-life balance which could be causing both higher turnover in these roles — Colucci has seen greater CFO turnover over the past six to 12 months, he said — as well as efforts by companies to hang on to skilled, dependable executives.

“I think if you have someone good, you want to reinforce it with a nice increase,” he said.

Equity awards also remained the bulk of the pay mix for the majority of executives, representing two-thirds of total compensation for CEOs, and 56% of total compensation for CFOs. Additionally, while top executives saw higher increases in total compensation compared to their finance chiefs, they were also more prone to significant fluctuations in the area of incentive compensation.

A higher percentage of CEOs experienced increases or decreases of 25% or more concerning their incentive compensation than CFOs, with one-fifth of companies keeping their equity awards on par with the prior years’ grants.

Raises for U.S. CFOs of small to mid-sized businesses outpaced inflation, an August report by French fintech startup Spendesk showed, surging 16% from 2021 to reach approximately $224,000.

Colucci expects future filings to continue to show salary increases in 2022. As companies facing economic headwinds seek out steady financial leaders, increases “might be a little preventative” from some companies as they look to entice their financial leaders to stay put, he said.

“I think, not that there’s a CFO shortage by any means, but I think because it is a more important role than it was maybe five, 10 years ago, I think that kind of lends itself to more movement,” he said. “I don’t see it slowing down. I think the pace of transitions will probably keep up for this year.”

While CFO base salary increases beat out top executives, CEOs still saw higher increases in total compensation, according to the report. The increase in total compensation on average was mild, rising by 4% for CEOs compared with the 2% average for finance chiefs. However, 40% of CEOs and approximately 33% of CFOs saw a significant 25% increase in total compensation compared to their total pay for the prior year.

This could also be driving trends in CFO payments —  “the biggest thing driving the trend of CFO pay going up is that CEO pay is going up, and other executives follow,” Rosanna Landis Weaver, director, wage justice & executive pay for consumer advocacy group As You Sow wrote in an email to CFO Dive.

CEO pay has continued to increase, a trend that shareholders will likely push back on as company performance wobbles ahead of a downturn. “That will be particularly true if we see companies that try to game ‘pay for performance,’” she wrote. “Shareholders are clear that structures should mean pays goes down when performance goes down.”

“I have never read in a proxy statement that the company’s performance is influenced by externals when the externals are positive,” Weaver wrote in an email, noting that “when the externals may affect performance on the downside, we read endless language about how challenging things are. Shareholders are becoming cynical about that.”

Companies are gearing up for an environment where they will soon need to share further details surrounding both executive pay and financial performance. Pay-versus-performance rules, which were adopted last year by the Securities and Exchange Commission, require large public companies to disclose additional information regarding executive compensation, including a table that covers compensation and financial performance indicators.

The financial performance measures will include the companies’ total shareholder return and net income, according to the SEC. 

Executive pay policy rejections ticked up in 2022 from 2021, according to recent data from Willis Towers Watson, up to 86 last year compared to 71 in the year prior — marking the highest number of rejections since “say-on-pay” was made mandatory in 2011, the company said.

Nonprofit hospitals lifted by $28B in tax exemptions: KFF

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https://www.beckershospitalreview.com/finance/nonprofit-hospitals-lifted-by-28b-in-tax-exemptions-kff.html?origin=BHRE&utm_source=BHRE&utm_medium=email&utm_content=newsletter&oly_enc_id=2893H2397267F7G

Tax exemptions for nonprofit hospitals amounted to $27.6 billion in value for 2020, according to new data from the Kaiser Family Foundation. 

Federal tax exemptions in 2020 made up $14.5 billion and state and local tax-exemptions amounted to $13.2 billion. Combined, the $27.6 billion represents 43 percent of net income earned by nonprofit hospitals in 2020, the foundation found.

Nonprofit hospitals may see renewed or heightened scrutiny of their tax-exempt status due in part to how much the value of tax-exemption has grown in recent years. The foundation’s analysis shows the value of tax exemption grew from about $20 billion in 2011 to about $27.6 billion in 2020 — a 41 percent increase.

“The rising value of tax exemption means that federal, state, and local governments have been forgoing increasing amounts of revenue over time to provide tax benefits to nonprofit hospitals, crowding out other uses of those funds,” KFF analysts wrote. “This has raised questions about whether nonprofit facilities provide sufficient benefit to their communities to justify this tax benefit.”

The $27.6 billion in estimated value of tax exemption exceeded nonprofit hospitals’ total estimated charity care costs of $16 billion in 2020, although KFF points out that charity care makes up one portion of nonprofit hospitals’ community benefits.

2020 was a standout year with the largest single-year increase — $4 billion — to the value of nonprofit hospitals’ tax-exemption. KFF analysts note that while COVID-19 caused disruptions that lowered net income from patient care, government relief funds and increased charitable contributions and investment income “more than offset those losses” and increased net income increased the value of not having to pay federal and state income taxes.  

“Even when setting aside the strong financial performance of nonprofit hospitals in 2020 as a potential outlier, total net income among nonprofit facilities increased from $19.4 billion in 2011 to $47.0 billion in 2019, a 143 percent increase, before jumping to $64.5 billion in 2020,” the analysts wrote. “Although we are not able to directly observe the value of the real estate owned by hospitals, the estimated value of exemption from local property taxes — which is based on our analysis of property taxes paid by for-profit hospitals — increased by 29 percent from 2011 to 2019. Finally, the supply expenses in our analysis increased by 44 percent and charitable contributions increased by 49 percent from 2011 to 2019.”

Melinda Hatton, general counsel for the the American Hospital Association, shared the following statement with Becker’s in response to the KFF analysis: 

“A more comprehensive report by the international firm EY has consistently found that the value of hospitals’ federal tax exemption was far outstripped by the community benefits provided. In the most recent analysis, the value was 9 to 1: for every one dollar in tax exemption hospitals provided nine dollars of community benefit. 

“A narrow reading of community benefit limited to financial assistance misses the important work hospitals do to close the pervasive gaps between federal reimbursements for care and the actual cost of care as well as the many other benefits hospitals provide directly to their communities. Whether it is public health activities, such as clinics and testing, training for the next generation of caregivers or efforts to prevent illness, including wellness education or more hand-on efforts to improve living conditions, hospitals continually give back to the communities they serve.”

5 health systems zeroing in on exec teams, administration

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https://www.beckershospitalreview.com/hospital-management-administration/5-health-systems-zeroing-in-on-exec-teams-administration.html?origin=CEOE&utm_source=CEOE&utm_medium=email&utm_content=newsletter&oly_enc_id=2893H2397267F7G

At least five health systems announced changes to executive ranks and administration teams in February and March. 

The changes come as hospitals continue to grapple with financial challenges, leading some organizations to cut jobs and implement other operational adjustments. Changes to executive ranks include reorganizing executive responsibilities and executive appointments.

The following changes were announced within the last two months and are summarized below, with links to more comprehensive coverage of the changes. 

1. Philadelphia-based Penn Medicine is eliminating administrative positions. The change is part of a reorganization plan to save the health system $40 million annually, the Philadelphia Business Journal reported March 13. Kevin Mahoney, CEO of the University of Pennsylvania Health System, told Penn Medicine’s 49,000 employees last week that changes include the elimination of a “small number of administrative positions which no longer align with our key objectives,” according to the publication. The memo did not indicate the exact number of positions that were eliminated.

2. Sovah Health, part of Brentwood, Tenn.-based Lifepoint Health, has eliminated the COO positions at its Danville and Martinsville, Va., campuses. The responsibilities of both COO roles will now be spread across members of the existing administrative team. 

3. Cox Medical Group, a subsidiary of Springfield, Mo.-based CoxHealth, has made several leadership changes to support the health system’s new operating model. The new model is focused on key service lines — such as cardiovascular services, orthopedics and primary care. Four things to know.

4. Valley Health, a six-hospital health system based in Winchester, Va., eliminated 31 administrative positions. The job cuts are part of the consolidation of the organization’s leadership team and administrative roles. They were announced internally on Feb. 28. 

5. Roseville, Calif.-based Adventist Health will transition from seven networks of care to five systemwide to reduce costs and strengthen operations, according to a Feb. 15 news release shared with Becker’s. Under the reorganization, the health system will have separate networks for Northern California, Central California, Southern California, Oregon and Hawaii. The reorganization will result in job cuts, including reducing administration by more than $100 million.

New MetroHealth CEO suspends bonuses that led to predecessor’s firing

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https://www.beckershospitalreview.com/compensation-issues/new-metrohealth-ceo-suspends-bonuses-that-led-to-predecessors-firing.html?origin=CEOE&utm_source=CEOE&utm_medium=email&utm_content=newsletter&oly_enc_id=2893H2397267F7G

MetroHealth CEO Airica Steed, EdD, RN, is suspending supplemental and one-time bonus programs that led to the firing of former CEO Akram Boutros, MD, Cleveland.com reported March 14. 

Dr. Steed also told Cuyahoga County Council that new safeguards are being put in place after Dr. Boutros was accused of taking $1.9 million in what the health system’s board called “improper bonuses,” according to the report.

The plan outlined by Dr. Steed includes a national search to fill several critical executive roles, including a human resources officer who will ensure the department is thoroughly involved in compensation matters going forward, according to the report. Dr. Steed said that structure was not previously in place. 

The system is also seeking a permanent CFO after Craig Richmond resigned from the role, according to the report. Geoff Himes, the health system’s former vice president of finance, is serving as interim CFO. 

The plan also calls for creating a workplace culture where “no one is afraid to speak up if they’re not sure what’s being asked of them is the right thing to do,” according to the report.  

A report from the accounting firm BDO at the request of the system’s board found that Dr. Boutros paid himself $1.9 million in unauthorized bonuses and concealed the actions from the board, according to Cleveland.com. He was fired in November after the payments came to light. He was set to retire at the end of 2022. 

The BDO report said Dr. Boutros created the Supplemental Performance Based Variable Compensation/Supplemental Incentive Compensation program without involving the human resources department. Former CFO Mr. Richmond allegedly forwarded details of the program down the chain for payroll approval without confirming there had been board approval.  

Dr. Boutros’ attorney Jason Bristol sent a letter to Cuyahoga County Council alleging the BDO report is “biased, inaccurate and seriously flawed,” according to Cleveland.com. Mr. Bristol argued the report contained no supporting evidence for the assertion Dr. Boutros secretly created a bonus program. He also said Mr. Richmond resigned because he believed the report “inaccurate, incomplete, and misleading,” citing a letter released by Mr. Richmond’s attorney. Mr. Richmond resigned two days before the report was released. 

Dr. Boutros has filed multiple lawsuits since his firing. He filed a lawsuit Nov. 28 in Cuyahoga County Common Pleas Court, alleging violations of Ohio’s Open Meetings Act and the board bylaws. Dr. Boutros also alleges board retaliation and accuses the MetroHealth board of violating the law in its hiring of Dr. Steed. Dr. Boutros filed a separate lawsuit against the health system in December alleging breach of contract. He has repaid the system $2.1 million for the bonuses and interest.