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Rural Hospitals at a Crossroads

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November 20, 2019

In a recent article in the Daily Oklahoman there was a story about a charlatan who had taken advantage of several desperate rural hospitals in Oklahoma, Missouri, and Kansas.  As it turns out rural hospitals can charge more for routine lab tests than their larger neighbors.  This individual would convince rural hospital boards he could save their hospital.  The scheme was to solicit lab tests to perform on patients (not citizens of their community) and reap additional payments.  Conceptually, payments flowed into the hospital coffers, but mostly into this individual’s pocket.  This Ponzi scheme was eventually detected and once again many rural hospitals were left at a financial death’s door.

                The problem is clear that the good citizens of these communities were desperate to save their local hospitals.  This made them easy targets for disreputable and dishonest schemers.  What is it about rural hospitals that makes them so vulnerable in today’s economic environment? 

First, they’re heavily dependent on Medicare and Medicaid with very little private insurance in their revenue base.  Private insurance is one of a few opportunities hospitals have to make a margin.  As a result, these hospitals often exist for years simply on cash flow with no profit and thus no reserves.  Consequently, they have little ability to update their physical plant or to purchase today’s sophisticated technology.  As a result, they become increasingly unattractive to newly trained physicians who expect sophisticated technology to practice today’s medicine.  As a result, they often are in a death spiral.

                The second problem is that all too often their leadership at the board and community levels refuses to recognize their clear economic eventuality.  Hometown pride makes it almost impossible for them to reach out for obvious forms of help.  For instance, several rural communities could combine and collaborate on building one hospital centrally located between them.  The additional volume would substantially improve the financial outcomes of the combined institution.  However, local pride often influenced by competitive football teams makes such cooperation almost impossible.  Some communities, however, are smart enough to reach out to major health care systems in nearby metropolitan areas to insure their survival.  However, local pride often doesn’t allow them to see a solution before they have become so desperate that they are an unattractive acquisition.

                Rural hospitals in America are at a crossroads. The current financial scenario almost insures difficulties and makes them particularly vulnerable to any carpetbagger with a sack full of tricks that are marginally ethical and financially unstable.

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