Crisis for Texas Rural Hospitals Amid Low Oil Prices

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DALLAS — Depressed oil and gas prices are adding pressure to Texas rural hospitals, many of which were already on life support due to state and federal spending cuts, experts say.

"There is a lot of doom and gloom out there," said Don McBeath, head of governmental affairs for the Texas Organization of Regional and Community Hospitals.

Over the past two years, 14 of Texas' 175 rural hospitals have closed, the fastest pace since the 1980s when 200 shut down, McBeath said.

"We have documented deaths because of this," he said of the hospital closings.  "It's also a huge economic impact because the hospital is usually the second largest employer behind the schools. It's devastating to a local community."

On Friday, Nov. 13, Bowie Memorial Hospital padlocked its doors 10 days after voters refused to create a taxing district. The hospital was chartered by the city, but the city did not own it or provide funding. A hospital authority board of residents appointed by the city oversaw its operations.

The ballot issue would have authorized a maximum property tax levy of 0.4% per $100 valuation, but hospital officials only expected to levy 0.17% if voters approved. The hospital in the oil and gas producing region on the Oklahoma border had 44 beds and 138 employees when it closed.

"We have to honor the election results, even if it is one of the biggest mistakes Bowie ever made," hospital director Dwayne Enlow told his staff. "I am so sorry."

A week before the Bowie hospital closed, Moody's Investors Service downgraded Rankin County Hospital District to A3 from A2, citing as one factor a tax base heavily concentrated in oil and gas.

"We anticipate the hospital district's tax base to continue to devalue as petroleum prices remain low," analyst Nathan Louder wrote about the district in the Permian Basin oil and gas producing region of West Texas. "With high concentration of tax base values exposed to petroleum industry, the district's tax base declined by 21% in fiscal 2016 from $3.7 billion to $2.95 billion. The top ten taxpayers represent a considerable 58% of the tax base and all of them are related to the oil and gas sector."

Moody's kept Rankin's outlook on review for another downgrade due to "persistent customer billing errors" and narrowed liquidity in addition to the weakening tax base.

McBeath, a former county judge in Lubbock County, said that the depressed oil market is just one of the "thousand cuts" threatening rural hospitals.

"You can't really take these generalities and apply them to any one hospital," he said. "The problem is rural hospitals are very, very different in their operating dynamics than urban hospitals.  They're very different because they're low volume and you've got to maintain staff for your peaks."

In the Rio Grande Valley, a region known more for agriculture than energy, Moody's this month downgraded Mission Hospital's $29.2 million of debt to a junk-bond rating of Ba2 from Baa3 and kept the outlook negative.

Moody's analyst Jennifer Ewing said hospital operator Mission Regional Medical Center has projected that it will violate its rate covenant when the fiscal year 2015 audit is released, "and we expect more narrow coverage going forward."

In East Texas, another key oil producing region, the East Texas Medical Center Regional Healthcare System saw Moody's downgrade its bonds to the lowest investment-grade rung of Baa3 from Baa2, while keeping its outlook negative.  The downgrade came after the system closed four rural hospitals.

"The system's exit out of four rural hospital markets will streamline capital spending but also put additional pressures on ETMC's flagship hospital in Tyler to generate cash flow," analyst Kevin Connolly wrote.

While the financial threats to rural hospitals can be found nationwide, Texas has the largest rural population in the nation at 3.3 million, according to census data. As the second-largest state geographically, Texas also is dependent on emergency care for motorists and passengers, many of whom work in the oil fields. Although only one-third of all motor vehicle accidents occur in rural areas, two-thirds of the deaths attributed to those accidents occur on rural roads, according to the Texas Rural Health Association.

At Dimmit Regional Hospital in the Eagle Ford shale play of South Texas, emergency-room visits have doubled in three years amid the hydraulic fracturing oil boom, according to hospital officials. Oilfield and road accidents account for most of the increase.

Politically, Texas leaders have taken the lead in attacking the Medicare and Medicaid systems that provide insurance for many elderly and low-income citizens. Republicans often refer to the systems as "broken" and take rigid stances against the federal law known as Obamacare. Former Gov. Rick Perry refused to accept federal dollars for the expansion of Medicaid to the working poor in 2012, saying it would "bankrupt" Texas.

For rural Texas hospitals, however, accepting Medicaid expansion "would have had a huge impact," McBeath said. According to a study by the Urban Institute, Texas gave up $100 billion in federal funds over 10 years. The state, which has the highest rate of uninsured residents in the nation, will thus be forced to provide about $5.5 billion for coverage of uninsured residents, costs that would have been covered by federal funds.

Since the 2010 Affordable Care Act went into effect, the uninsured rate among Texas citizens has fallen to 22% from 26% but remains the highest in the nation. The percentage of uninsured in rural areas can run as high as 50%, according to federal statistics. Of the 15 Texas counties with the highest uninsured rates, 14 are in rural areas.

Under a 2012 U.S. Supreme Court provision, Texas and other states led by Republican governors were allowed to opt out of Medicaid expansion and creation of state health exchanges.

"The court held that Congress could not coerce states into accepting a massive expansion of an already broken and bloated Medicaid program," Texas Gov. Greg Abbott said in a July statement involving another challenge to Obamacare. "The State of Texas will exercise its constitutional right to refuse Medicaid expansion."

Instead of letting the federal government cover indigent care, Texas forced local governments to cover those costs through property taxes, McBeath said.

If voters in Bowie had authorized a property tax for the local hospital, local taxpayers would have been on the hook for indigent care.

In addition to rejecting expansion of Medicaid, the Texas Legislature also cut Medicaid reimbursements by $75 million in the 2011 session. This year, state lawmakers restored $58 million of the funding. Since 2011, state and local cuts to Medicaid outpatient payments have come to about $100 million per year, McBeath said.

"It's not rocket science," McBeath said. "They just can't absorb the cuts. There's a limit to how long you can run upside down."

One measure before Congress that would improve rural health care is House Resolution 3225, McBeath said. Known as the "Save Rural Hospitals Act," the measure would provide financial and regulatory relief.

The bill, introduced by U.S Reps. Sam Graves, R-Mo., and Dave Loebsack, D-Iowa, would have to run a gauntlet that includes the House Ways and Means Health Subcommittee chaired by Rep. Kevin Brady, R-Conroe. Brady ascended to chairmanship of the Ways and Means Committee when former chairman Rep. Paul Ryan was named House Speaker.

Brady, whose district includes rural areas along with suburban Houston, has called for regulatory relief for rural hospitals. But like other Texas Republicans advocating for states' rights, Brady has sought to kill the Affordable Care Act.

Nationwide, 55 rural hospitals have closed since 2010 and 283 are on the verge of closure, according to the National Rural Health Association. Closing those hospitals would reduce critical care for more than 700,000 Americans, the NRHA says.

Since January 2013, more rural hospitals have closed than in the previous 10 years combined, according to NRHA.

"If Congress doesn't act now to prevent further closures, rural hospitals will be forced to lay off workers, cut wages, reduce services and close doors," NRHA said. "Lives will be lost, and local economies will suffer. The average critical access hospital creates 195 jobs and generates $8.4 million in annual payroll."

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