More than a dozen hospitals in rural Michigan at ‘high risk’ of closing

Update: Rural hospitals in Michigan face a dilemma: Merge or not?

It’s been seven years since Cheboygan Memorial Hospital shut its doors, costing hundreds of jobs and jolting rural residents in the northeast Lower Peninsula.

But health care analysts now warn that more than a dozen rural hospitals scattered across Michigan risk the same fate, as fiscal pressures, staff recruitment troubles and dwindling patient numbers push them to the brink.

According to Chicago-based national health care consulting firm Navigant, 18 rural hospitals in Michigan are at high risk of closing – about one-in-four rural hospitals in the state, and ninth highest such percentage in the nation. Analysis by a University of Detroit Mercy healthcare researcher reached similar conclusions, citing more than 20 “at risk” rural hospitals in the state.

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David Mosley of Navigant said the price rural communities pay when hospitals close extends far beyond the immediate economic impact and health care jobs that are lost.

He pointed to a University of Kentucky study this year that found rural patients averaged 11 additional minutes in an ambulance in the year after a rural hospital closed. Patients over 64 years old spent 14 additional minutes in an ambulance, doubling their ride time.

“You are an elderly patient with a heart condition. Your 20-minute ambulance trip to the hospital just became a lot longer,” he said.

In Iron Mountain along the Upper Peninsula border with Wisconsin, news on the future of the local hospital, Dickinson County Healthcare System, has been grim. It’s one of those on the Navigant list.

“Chapter 11 bankruptcy could be in the works for DCHS,” read one headline in 2018, as the hospital board considered filing for bankruptcy.

Later that year: “Dickinson County Healthcare System needs nearly $24 million.”

Plans to sell the struggling hospital fell through in 2018, one to Wisconsin-based Bellin Health – which would have assumed $61 million in debt - and another to Marquette-based UP Health System.

Meanwhile, total inpatient days tumbled 15 percent in just two years, from more than 10,000 days in 2016 to 8,472 in 2018.

To shore up its financial position, the hospital pared its work force from 714 in 2017 to about 600 today. It imposed employee pension cuts and hired an interim chief to replace beleaguered CEO John Schon, who resigned in November.

Thanks to the cost-cutting measures, the hospital could be on course for its first profitable year since 2015. It posted an operating gain of nearly $750,000 through the first quarter of 2019.

Officials say they have fingers crossed the worst is behind them.

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“We are holding our own and our bottom line looks good,” board chairperson Margaret Minerick told Bridge Magazine.

“We need our hospital in our area. The big hospitals are an hour-and-a-half away in either direction. From that standpoint, the hospital is critical.”

Former Democratic U.P. congressman Bart Stupak is spearheading an effort to secure long-term financing for the hospital – perhaps as much as $25 million – through the U.S. Department of Agriculture’s Rural Development Agency. Officials say the funds would allow DCHS to settle outstanding debts and chart a more stable future course.

Stupak anticipates about half the loan would go to pay off debt and half to purchase aging equipment like MRI scanners and linear accelerators, the latter used in cancer treatment. He’s hopeful the loan will be approved this fall.

“Big picture, this will stabilize the hospital long term,” said Stupak, a partner in Venable LLP, a Washington D.C. consulting firm hired by the hospital after its negotiations for sale collapsed.

Still, Zigmond Kozicki, an associate professor of health administration at the University of Detroit Mercy, said warning signs continue to flash across rural Michigan, where hospitals struggle to find a stable business model.

“It’s a very big concern,” he said.

Kozicki analyzed 2017 federal financial data for Michigan and concluded more than 20 rural hospitals were at risk of closing, based on analysis of hospital balance sheets. He shared his conclusions at an April conference on small town and rural development.

In light of national trends, it could be that Michigan’s been fortunate thus far. According to a 2018 federal report, 64 U.S. rural hospitals closed from 2013 through 2017, about 3 percent of all rural hospitals. About three-fourths of those closed were in the South.

The report attributed the closures to “multiple factors,” citing a decrease in patients seeking in-hospital care and cuts to hospital payments by Medicare insurance for patients 65 and older. The North Carolina Rural Health Research Program, a branch of the University of North Carolina, counts 106 U.S. rural hospital closings dating to 2010.

Kozicki likened the challenges of rural hospitals to that of a restaurant with a shrinking customer base. Both have money going out for fixed costs but not enough coming in.

“How much does it cost to operate the restaurant? Is it sustainable over time?”

Rural Michigan hospitals continue to face demographic trends that eat at their bottom line: They sit in regions that are graying and draining people. Counties throughout the U.P. and northern Lower Peninsula suffered population losses from 2010 through 2017.

Michigan has 11 counties with a median age over 50, tied with Montana for most in the nation. All are in the rural northern Lower Peninsula or U.P., led by Alcona County 100 miles north of Bay City, with a median age of 56. The state’s median age is just under 40.

Beyond that, rural hospitals suffer other disadvantages that push down profit margins.

To stay competitive, they need diagnostic tools like CT and MRI scanners that can cost upwards of $2 million each. But those machines get less use in rural hospitals than at busy urban hospitals – and thus less revenue to pay for their cost. Rural hospitals staff costly 24-hour emergency rooms that tend to be chronic money losers, especially with lower patient volumes.

“An emergency department has fixed costs – there are things you have to do whether or not anyone shows up,” said Laura Appel, senior vice president of the Michigan Health & Hospital Association.

“Nurses and doctors have to be available. You have all the technology that has to exist whether there are 100,000 patients a year or 50,000 or 10,000.”

In the meantime, as they try to stay afloat, rural Michigan hospitals continue to cut services like labor and delivery that have become a luxury they can no longer afford.

Fifty miles west of Cadillac, Munson Healthcare Manistee Hospital closed its labor-and-delivery service at the end of May, as the number of hospital births had been on a steady decline. It had just six deliveries in March.

Northeast of Grand Rapids, Sparrow Carson Hospital in Carson City closed its obstetric ward in May 2018, citing dwindling births. South of Battle Creek near the Indiana border, Sturgis Hospital ended birthing service and hospice programs in December.

In the 1980s, there were more than 220 Michigan hospitals. Today there are 133, of which about 80 have obstetrics units, according to the Michigan Health & Hospital Association.

Eleven rural hospitals have shut down labor-and-delivery since 2008.

That leaves residents in much of rural Michigan a half hour or more from a hospital with an obstetrics unit or even a practicing OB-GYN.

Appel noted the Cheboygan hospital reopened weeks after it closed in 2012, rebranded as McLaren Northern Michigan-Cheboygan Campus, as it was absorbed by the sprawling McLaren Health Care system which owns hospitals throughout the northern Lower Peninsula. But while it has an ER and outpatient services, it offers no inpatient care.

As federal funding rules define it, it’s no longer a hospital.

But Appel said that could be the model some rural hospitals turn to in the future. She pointed to proposed federal legislation that could assure Medicare funding for such facilities, even if they are technically not hospitals.

GOP U.S. Sen. Chuck Grassley of Iowa has touted a bill that would let small rural hospitals continue to receive Medicare payments if they drop inpatient care and shift to emergency and outpatient care.

“I would be willing to predict we would see them transition to something that looks less like what we traditionally think a hospital is,” Appel said.

Still, as with closed OB wards, that would leave rural residents longer drives for care if they need hospitalization.

In Sault Ste. Marie, Chippewa County War Memorial Hospital has twice imposed a 10 percent pay cut on employees, in 2014 and in 2018, as hospital use fell from 12,402 inpatient days in 2012 to just under 10,000 in 2018.

Hospital CEO David Jahn said it’s cut about 80 jobs in a year to compensate for lost revenue. The hospital’s also among those on the Navigant at-risk list.

Jahn said the hospital struggles to attract and retain staff, which will be crucial to its bottom line. It’s been trying for two years to replace one of two staff orthopedic surgeons, positions he said collectively represent 10 percent to 15 percent of hospital revenue. The hospital is also trying to replace its sole staff urologist, who departed late last year.

“When you are at a rural hospital, you might be on call every other day. New doctors coming out (of medical school) don’t want anything to do with that,” he said.

Jahn noted the hospital posted a $1.7 million loss in 2017 followed by a $4.5 million loss in 2018, while showing a modest profit of $150,000 the first few months of 2019.

While the hospital’s always been under local control, Jahn said it’s had informal talks about affiliation with larger health care systems that include McLaren Health, Spectrum Health in Grand Rapids and Traverse City-based Munson Healthcare.

“Our goal would be to remain independent,” he said. “But how long in the future would we be able to do that?”