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New Mexico Business Weekly

Going it alone

By Dennis Domrzalski, Reporter

The 67-bed Rehoboth McKinley Christian Health Care Services hospital in Gallup uses a CT scanner in its diagnostic imaging program. While stand-alone rural hospitals face challenges, some are finding ways to keep pace with changes in medical technology.

In 1990, there were 3,562 small, stand-alone hospitals in the U.S.

By 2010, the number of stand-alone hospitals had fallen to 2,044, as many of the institutions closed or merged with larger systems. The decline in the number of independent hospitals is expected to continue in the coming years as changes — from reduced Medicare and Medicaid payments to a shift to outpatient health care and a shortage of doctors in rural areas — shrink their numbers.

Those stand-alone hospitals, most of which are in small, rural communities, will have difficulty finding funds to update ever-changing medical technology and to keep buildings and equipment in good shape, experts in the field say.

Many will have to limit the type and amount of care they provide, the experts add. Some of those hospitals, which often have 25 or fewer beds, will simply turn into primary care facilities.

“Stand-alones tend to have lower profit margins and are more likely to be operating in the red,” says Caroline Steinberg, vice president for trends analysis at the American Hospital Association  “This makes it very challenging, particularly in today’s capital environment. Serious investment is required to be successful, and even hospitals that are part of systems are struggling.”

Still, some rural health care systems are finding their way through the maze of challenges, innovating and building crucial services and specialties.

The advent of electronic medical records could be a major challenge for those small hospitals. A recent AHA survey found that across all U.S. hospitals, the average cost of adopting an electronic medical record system was $9.8 million.

For small hospitals with little ability to raise large amounts of capital, that’s a problem. While the federal government will reimburse hospitals for the costs of those EMRs, it won’t cover the full cost, Steinberg said.

“The funding isn’t sufficient, but if hospitals don’t have them in place by 2015 and they don’t meet federal standards, then Medicare and Medicaid will start docking hospitals” by reducing reimbursements for patients, Steinberg adds.

“To make it worse, there aren’t enough [EMR] vendors to meet all the needs, and they are more responsive to the big guys,” Steinberg explains.

Cuts in the amount the federal Medicare and Medicaid programs pay hospitals for patient care also can have a devastating effect on those facilities.

In 2011, the 26-bed Roswell Regional Hospital saw its Medicaid reimbursements cut by more than $1 million. That forced its owners to seek a buyer, hospital officials said at the time. Lovelace Health System in Albuquerque bought the facility.

The 47-bed Holy Cross Hospital in Taos lost $1.2 million in Medicaid reimbursements in 2011 and had to lay off 14 people, says CEO Peter Hofstetter.

Jeff Dye, president and CEO of the New Mexico Hospital Association, says many independent rural New Mexico hospitals will evolve into primary care facilities that provide urgent and emergency care and send their seriously ill patients to hospitals in the state’s urban areas.

To survive, stand-alone hospitals will have to limit their services to a few things they’re really good at, says Stephen Forney, vice president and CFO of Lovelace Health System.

Rural hospitals don’t have the volume their urban counterparts have, Forney points out. Hospitals are paid based on the number of patients they treat and the services they provide them. Fewer patients means less revenue, Forney explains.

“Every year becomes more of a challenge,” Holy Cross’ Hofstetter says. “The margins just get thinner.”

The not-for-profit Holy Cross is the Taos area’s largest employer, with about $60 million in net revenue and about 500 on staff. It offers a wide range of services.

“We have a very strong general surgery department, two full-time cardiologists, a full-time emergency department program. We are strong on delivering babies,” Hofstetter says. “We don’t do neuro or vascular surgery, but we are not missing a whole lot of things.”

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