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Facing layoffs and closures, rural Missouri hospitals push for Medicaid expansion

By Alex Smith | February 11, 2015

If you’re in the market for fluorescent light bulbs, you might talk to Chris Smiley. In the past few weeks, she’s been trying to sell off what’s left of Sac-Osage Hospital.

“Casework, lighting, plumping, sinks, toilets. Anything you want,” Smiley says.

That’s not in her job description. She’s actually the CEO of Sac-Osage, a hospital in Osceola, Mo., that closed in September.

“I have become an auctioneer,” Smiley says. “And I’ve learned more about asbestos and construction demolition than I ever wanted to know.”

The small, 45-year-old hospital shut down, Smiley explains, because of diminishing payments from Medicare as well as a heavy load of uninsured patients.

It’s a scenario more and more hospitals are facing – one that’s been especially hard on rural hospitals in states that have not expanded Medicaid.

Photo by Alex Smith Some of Sac-Osage Hospital's last remaining employees, from left, Carolyn Bruce, CEO Chris Smiley and Connie Chapman, are winding up the rural Missouri hospital's affairs. The hospital closed in September because of diminishing payments from Medicare as well as a heavy load of uninsured patients.

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Such hospitals are often the biggest employers in rural counties. But unless Medicaid eligibility is expanded to include more low-income people, as the Affordable Care Act envisions, officials at those hospitals say they may be forced to cut jobs – or even, like Sac-Osage, to close down.

The payment reductions that hospitals face came about in large part because of an agreement they made when the Affordable Care Act was crafted.

“It was a quid-pro-quo deal that the hospitals made,” says Timothy McBride, a health economist at Washington University in St. Louis.

Hospitals expected to see millions of newly insured customers thanks to federal subsidies enabling people to buy health insurance and the expansion of state Medicaid programs. In exchange, they agreed to accept reduced Medicare payments and a huge cut in disproportionate share hospital, or DSH, funding, which the federal government pays to offset the costs of uncompensated care.

Federal law requires hospitals to treat all patients in emergency situations, regardless of ability to pay, and many hospitals provide a full range of services without reimbursement.

Quid pro quo

McBride says the American Hospital Association offered to forgo more than $100 billion in federal payments. The thinking was that hospitals would be able to make up for the losses through the influx of newly insured patients.

But in 2012, when the Supreme Court ruled that the Affordable Care Act was constitutional, it also decided that individual states could not be required to expand their Medicaid programs. Many states, including Missouri and Kansas, chose not to do so.

That left many rural hospitals in an untenable situation.

“It’s been kind of a double-whammy, if you will. We’ve taken a cut in reimbursement and not received any additional patients with any type of coverage,” says Ronald Ott, CEO of Fitzgibbon Hospital in Marshall, Mo.

Audio: Rural Missouri hospitals push for Medicaid expansion

Last year, two of Missouri’s 74 rural hospitals (including psychiatric, rehabilitation and veterans hospitals) shut down. Statewide, about 1,800 hospital employees lost their jobs, according to the Missouri Hospital Association.

All told, Missouri hospitals say they expect to lose nearly $3.5 billion by the end of 2019 because of Affordable Care Act cuts. Similarly, hospitals in neighboring Kansas and Nebraska anticipate major reductions of well more than $1 billion each over the coming decade.

To avoid economic ruin, Missouri hospital leaders say the state needs to expand Medicaid eligibility to include people with incomes up to 138 percent of the federal poverty level, as provided by the Affordable Care Act. That would add about 300,000 people to the Medicaid rolls in the state, an increase of nearly 40 percent.

Without expansion, the Missouri Hospital Association says, the state could lose 5,000 jobs in health care and other fields.

Holding fast

Ott shudders to think about what closing Fitzgibbon Hospital would mean for Marshall. The hospital employs 600 people in the largely rural community.

“It would be disaster,” he says. “I just can’t imagine how difficult it would be for the community.”

But conservatives in Missouri’s largely pro-business Legislature remain unmoved.

“Now the hospitals have brought some of this on themselves,” says Republican Sen. Ed Emery from Lamar, Mo. “A lot of it was what we call in the rural areas ‘betting on the come’: If you’ll do this, then we’ll promise you this, and those promises were not fulfillable.”

Emery is among the majority of Missouri state senators who have held fast against Medicaid expansion because they say it will cost the state too much money and create too much reliance on government.

“Now they want my constituents and taxpayers to bail them out, and I just don’t think that’s the right thing to do,” he says.

The federal government has agreed to pay the entire cost of Medicaid expansion for states through 2016, phasing down eventually to 90 percent.

Studies conducted by the University of Missouri and the Missouri Budget Project show that once the federal funding level drops, expansion would call for hundreds of millions of dollars in state spending. But those costs would be offset or even exceeded by the economic boost provided by the federal funds.

The 2012 University of Missouri study forecast that the state would generate hundreds of millions of dollars in tax revenue and create tens of thousands of jobs in the next few years if it approved expansion.

The principal author of that study, MU professor and health economist Lanis Hicks, says that because the state has missed the first two years of federal expansion funding, the potential tax revenue is somewhat lower now than what her study initially predicted – though she maintains expansion at this point would still save the state money and produce jobs.

Republican Sen. David Pearce doesn’t buy it.

“The thought that, because you have federal dollars that that creates jobs – at the very end of the day we’re all paying for that,” Pearce says. “And so if it’s something you can’t afford, then it’s something you can’t afford.”

“As we all know, health care is extremely expensive, and so to be able to have a hospital in each county probably is not going to be a model we can sustain in the future.”

- Missouri State Sen. David Pearce, a Republican from Warrensburg, Mo.

Pearce represents the state’s 21st district, home to Fitzgibbon Hospital. He professes to be concerned about jobs there but insists the overall nature of health care is shifting due to changing demographics and consolidation.

“As we all know, health care is extremely expensive, and so to be able to have a hospital in each county probably is not going to be a model we can sustain in the future,” Pearce says.

The end

It’s a future that has already come to Osceola.

In a town of around 900 people, Sac-Osage Hospital employed more than 100. Now, a few months after the hospital closed its doors, that workforce has dwindled to five.

The remaining employees include Carolyn Bruce and Connie Chapman, who worked at the hospital for a combined 75 years. In recent weeks, they’ve been digitally scanning the hospital’s decades of paper records and preparing the building for demolition on May 1.

Since the hospital closed, a few clinics have helped fill the health care gap, and most of the employees have been able to find work elsewhere. But the town is now without an emergency room or inpatient services. There’s not another full-service hospital for 30 miles in any direction.

And of course the town’s largest single employer is no more.

CEO Chris Smiley keeps a stiff upper lip as she talks about the end of the hospital. But after her remaining employees leave for the day, she admits the closure has been difficult.

“This is my last job, so I see it as a failure,” Smiley says. “I don’t know that I could’ve done anything different. I don’t think I could have saved the hospital. I hope that I have done everything that I could do to minimize the negative impact on my people and on the community.”