Warren Memorial Hospital in Friend, Nebraska, was about ready to close its doors.
Payroll was due one day last July, and the city-owned hospital didn’t have the funds to cover it.
“We were hours from having to close our doors, because we would have had no employees,” said Jared Chaffin, chief financial officer and one of the hospital’s three interim co-CEOs.
The city provided two infusions of cash, totaling $250,000, to cover the next two payrolls. The hospital foundation kicked in $75,000 and a special hospital tax district at least $40,000 more. But that was just a temporary solution.
To find more solid financial ground, hospital officials last fall sought a new federal designation intended to maintain essential health care services in communities served by small rural hospitals.
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On Feb. 8, Warren Memorial officially became the first hospital in Nebraska — and among the first 20 in the United States — to convert to what’s known as a rural emergency hospital. Under the new federal payment model, hospitals forgo most inpatient services but maintain observation beds and a 24/7 emergency room, in addition to continuing outpatient services and clinics. That gives them a 5% boost in reimbursements for Medicare outpatient services.
“It’s a lifeline we’ve been looking for,” Chaffin said. “It’s not the answer to all of a sudden become profitable, because there are still things we need to do as a hospital to make sure we stay open, but it’s a lifeline.”
The program isn’t the answer for every struggling hospital. But it is an option several others in Nebraska and more nationwide are considering as they wrestle with cost pressures, workforce issues, changing rural demographics and other challenges.
Many rural facilities, like Warren Memorial in Friend, have long faced financial challenges for various reasons, including competition from nearby hospitals and larger ones in Lincoln and Omaha. More recently, hospitals across Nebraska have been dealing with rising labor and supply costs, Medicaid and Medicare payments that haven’t kept pace with expenses and difficulty collecting on claims.
One proposed solution is a measure in the Nebraska Legislature that could help address below-cost Medicaid rates. Backed by the Nebraska Hospital Association, Legislative Bill 1087 could net Nebraska more than $1 billion of federal money to boost Medicaid rates for hospitals and other health care providers.
‘Lifeline’ federal program comes with benefits, trade-offs
But that wouldn’t have come in time for Warren Memorial. Congress created the rural emergency hospital program in late 2020, and it took effect in January 2023. It aims to prevent additional hospital closures, as well as the job losses and other economic impacts that shutdowns can have on communities, and maintain some, if not all, local health care services.
As of June, Nebraska and Iowa were among 15 states that had adopted laws enabling the program, according to the National Conference of State Legislatures.
Jed Hansen, executive director of the Nebraska Rural Health Association, said the program comes with trade-offs. Participating hospitals exchange the cost-plus reimbursement allotted to critical access hospitals, another designation created in 1997 to help stabilize rural hospitals, for monthly payments that total about $3.2 million a year.
Rural emergency hospitals also give up inpatient beds and swing beds, those designated for patients no longer sick enough for hospital care but not well enough to go home, as well as their eligibility for the 340B drug payment program, which allows hospitals of all sizes to purchase drugs at a reduced rate and bill at full cost.
All rural hospitals with fewer than 50 certified beds are eligible for the new emergency program, Hansen said. But because of the trade-offs, it doesn’t make sense for mid- and large-sized critical access hospitals.
The association, along with the Nebraska Hospital Association and the Nebraska Office of Rural Health, analyzed all 63 of the state’s critical access hospitals and Fremont Health, which became part of Methodist Health System in 2018. The organizations determined that six critical access hospitals would likely see a positive financial impact from converting to the rural emergency model.
The groups worked with the Friend hospital and four others on more comprehensive analyses, he said. Those indicated the model made sense for Warren Memorial and three of the four other hospitals but not for the remaining one.
“In the case of Friend ... what we’re seeing and anticipating is it will remove some financial pressure off that community, off that hospital, so they can evaluate what services they can offer and they’re no longer a competitor to other area hospitals,” Hansen said.
Nationally, Chartis, a Chicago-based health care advisory and analytics group, found that nearly 400 rural hospitals were “most likely” to consider conversion to the rural emergency model, according to a recent report. Within that group, modeling identified 77 facilities ideal for conversion based on their performance profiles.
Friend Mayor Jewels Knoke, who serves on the hospital board and the local rescue squad, said some residents have expressed concerns about the loss of hospital beds close to their homes, where relatives and friends can easily visit. Those concerns arose during a town hall meeting hospital officials held last fall to discuss the conversion option.
Hansen said he would particularly like to see swing beds added back to the program for that reason. During the worst of the pandemic, swing beds across the state also served as an escape valve for large hospitals by taking less-sick patients and freeing beds for those who were more critically ill.
David Palm, an associate professor and director of the Center for Health Policy at the University of Nebraska Medical Center, said the emergency hospital program, first proposed about 15 years ago, could benefit from additional flexibility.
Nationally, that lack of flexibility has been cited as a reason so few hospitals have chosen that route. Some also may be waiting to see how the first conversions work out.
“With a few changes, it could be much more important and adaptable in rural communities and allow us to provide some still excellent services,” he said.
Knoke said the program offered Friend the best chance of securing its emergency room for the long term. That’s a potential lifesaver for the town of nearly 900 residents, which is about 30 minutes’ drive from several nearby hospitals and 50 miles from Lincoln.
With an E.R. in town, she said, first responders can get patients in quickly to be stabilized without the delay of a longer drive or the need to connect with a ground or air ambulance that offers advanced life support.
“I’m feeling relieved in the fact that I can now breathe easier knowing that for the foreseeable future, this community has an emergency room, and that could save lives,” Knoke said.
Amy Thimm, vice president of clinical services and quality and interim co-CEO, said the hospital is working to make connections with other nearby small hospitals so that local residents still could get skilled hospital care closer to home than Lincoln or Omaha.
‘It’s hard to recruit people if you lose your hospital’
Warren Memorial can keep patients 24 to 48 hours for observation. It also can extend stays for individual patients if necessary, which could allow for hospice care, another service that’s important to the community, she said. Overall, the hospital’s patient stays can’t average more than 24 hours over the course of a year. But with fewer inpatients, that leaves room to maneuver.
Ron Te Brink, the hospital’s chief information officer and interim co-CEO, said the inpatient arrangements the hospital is seeking with its neighbors also could bolster those hospitals’ bottom lines. Before, local hospitals all were competing for the same patients.
“It’s sometimes a win for everyone when someone makes a change,” he said.
Still, the hospital and its 50 employees have had some challenges to overcome.
Chaffin, the finance officer, said the hospital — like other rural facilities — got through the pandemic with the help of additional funding provided by the federal government. But that covered only payroll and some fixed costs. Debts to vendors mounted. When that funding ended last year, the hospital essentially faced two years’ of expenses with one year of revenue.
The hospital’s daily census also dwindled during 2023 from a handful on average to fewer than two, he said. Some patients overstayed the maximum days allotted under Medicare. Once patients exceed that limit, a hospital no longer receives reimbursement.
But Warren Memorial has made progress financially since late last year, he said. It’s been in the black in the months since its fiscal year began Oct. 1.
Management has focused heavily on outpatient services, such as wound care and the hospital’s infusion clinic, which the team hopes to expand to a 24/7 operation.
The hospital is offering more specialty clinics — an orthopedist comes in once a month to provide injections and scans — and it has resurrected its operating room, which hadn’t been used since 2021. Another doctor will being performing colonoscopies and upper endoscopies next month.
“I tell everyone: The way you win this game is to build your outpatient services,” Thimm said. She would like to add even more, such as general surgery for conditions such as carpal tunnel syndrome, and women’s health services.
Chaffin said the team also has focused on reshaping contracts and looking hard at expenses. During the community town hall last fall, they also explained that the facility is a “use it or lose it” operation. Even if residents rely on the two other clinics in town, they can still come to Warren Memorial for X-rays and lab work, rather getting them in Crete, Seward or Lincoln.
“If the town wants us here, you have to use us,” he said.
The hospital’s laboratory, which has someone on call 24/7, can test for respiratory illnesses and run full metabolic panels, assessments of cardiac markers and more.
“It’s a small lab, but it’s complete,” said Alphe Manalili, lab manager.
The hospital’s emergency rooms are connected to a telemedicine provider in Sioux Falls, S.D., allowing local staff to pull in remote nurses, doctors and specialists such as cardiologists for backup help in all emergency cases.
Michael Karel, a physician assistant who was working in the hospital’s attached clinic Friday, said being able to provide more services nearby means the community’s aging residents don’t have to drive far for care. Four or five area rescue squads use the E.R.
“There’s definitely a lot of support for keeping the hospital here,” he said.
Te Brink said accessible services also are important in such an ag-focused community. Friend is ringed by cornfields and grain bins.
“You have farmers and ranchers who won’t take the time to drive to Lincoln if their knees hurt,” he said. “If we can provide it, they can come in over lunch.”
Jen Stutzman, president of the hospital board, said that securing an E.R. and clinic in town also is important for the overall health of the community, including recruiting employees for local schools and industries. It’s also kept some aging residents in the community.
“It’s hard to recruit people if you lose your hospital,” she said.
Te Brink said the conversion process hasn’t been an easy one. But the team feels a commitment to the hospital.
“We’ve gone through some really tough times, and we keep going through the tough times because we’re really committed to seeing that it still exists,” he said. “We’ve all seen how important it is to the community.”