Covid aid papered over Colorado hospital’s financial shortcomings

Reviewed by Emily Henderson, B.Sc.Mar 7 2023

Less than two years after opening a state-of-the-art $26 million hospital in Leadville, Colorado, St. Vincent Health nearly ran out of money.

Hospital officials said in early December that without a cash infusion they would be unable to pay their bills or meet payroll by the end of the week.

The eight-bed rural hospital had turned a $2.2 million profit in 2021, but the windfall was largely a mirage. Pandemic relief payments masked problems in the way the hospital billed for services and collected payments.

In 2022, St. Vincent lost nearly $2.3 million. It was at risk of closing and leaving the 7,400 residents of Lake County without a hospital or immediate emergency care. A $480,000 bailout from the county and an advance of more than $1 million from the state kept the doors open and the lights on.

Since 2010, 145 rural hospitals across the U.S. have closed, according to the Cecil G. Sheps Center for Health Services Research at the University of North Carolina. But covid-19 relief measures slowed that trend. Only 10 rural hospitals shut down in 2021 and 2022 combined, after a record 19 in 2020. Two rural hospitals have closed already this year.

Now that those covid funds are gone, many challenges that threatened rural hospitals before the pandemic have resurfaced. Industry analysts warn that rural facilities, like St. Vincent Health, are once again on shaky ground.

Jeffrey Johnson, a partner with the consulting firm Wipfli, said he has been warning hospital boards during audits not to overestimate their financial position coming out of the pandemic.

He said the influx of cash aid gave rural hospital operators a "false sense of reality."

No rural hospitals have closed in Colorado in the past decade, but 16 are operating in the red, according to Michelle Mills, CEO of the nonprofit Colorado Rural Health Center, the State Office of Rural Health. Last year, Delta County voters saved a rural hospital owned by Delta Health by passing a sales tax ballot measure to help support the facility. And state legislators are fast-tracking a $5 million payment to stabilize Denver Health, an urban safety-net hospital.

John Gardner took over as interim CEO of St. Vincent after the previous CEO resigned last year. He said the hospital's cash crunch stemmed from decisions to spend covid funds on equipment instead of operating costs.

St. Vincent is classified by Medicare as a critical access hospital, so the federal program reimburses it based on its costs. Medicare advanced payments to hospitals in 2020, but then recouped the money by reducing payments in 2022. St. Vincent had to repay $1.2 million at the same time the hospital faced higher spending, a growing accounts-payable obligation, and falling revenue. The hospital, Gardner said, had mismanaged its billing process, hadn't updated its prices since 2018, and failed to credential new clinicians with insurance plans.

Meanwhile, the hospital began adding services, including behavioral health, home health and hospice, and genetic testing, which came with high startup costs and additional employees.

"Some businesses the hospital was looking at getting into were beyond the normal menu of critical access hospitals," Gardner said. "I think they lost their focus. There were just some bad decisions made."

Once the hospital's upside-down finances became clear, those services were dropped, and the hospital reduced staffing from 145 employees to 98.

Additionally, St. Vincent had purchased an accounting system designed for hospitals but had trouble getting it to work.

The accounting problems meant the hospital was late completing its 2021 audit and hadn't provided its board with monthly financial updates. Gardner said the hospital believes it may have underreported its costs to Medicare, and so it is updating its reports in hopes of securing additional revenue.

The hospital also ran into difficulty with equipment it purchased to perform colonoscopies. St. Vincent is believed to be the highest-elevation hospital in the U.S., at more than 10,150 feet, and the equipment used to verify that the scopes weren't leaking did not work at that altitude.

"We're peeling the onion, trying to find out what are the things that went wrong and then fixing them, so it's hopefully a ship that's running fairly smoothly," Gardner said.

Soon Gardner will hand off operations to a management company charged with getting the hospital back on track and hiring new leadership. But officials expect it could take two to three years to get the hospital on solid ground.

Some of those challenges are unique to St. Vincent, but many are not. According to the Chartis Center for Rural Health, a consulting and research firm, the average rural hospital operates with a razor-thin 1.8% margin, leaving little room for error.

Rural hospitals operating in states that have expanded Medicaid under the Affordable Care Act, as Colorado did, average a 2.6% margin, but rural hospitals in the 12 non-expansion states have a margin of minus 0.5%.

Chartis calculated that 43% of rural hospitals are operating in the red, down slightly from 45% last year. Michael Topchik, who heads the Chartis Center for Rural Health, said the rate was only 33% 10 years ago.

A hospital should be able to sustain operations with the income from patient care, he said. Additional payments — such as provider relief funds, revenues from tax levies, or other state or federal funds — should be set aside for the capital expenditures needed to keep hospitals up to date.

"That's not what we see," Topchik said, adding that hospitals use that supplemental income to pay salaries and keep the lights on.

Bob Morasko, CEO of Heart of the Rockies Regional Medical Center in Salida, said a change in the way Colorado's Medicaid program pays hospitals has hurt rural facilities.

Several years ago, the program shifted from a cost-based approach, similar to Medicare's, to one that pays per patient visit. He said a rural hospital has to staff its ER every night with at least a doctor, a nurse, and X-ray and laboratory technicians.

"If you're paid on an encounter and you have very low volumes, you can't cover your costs," he said. "Some nights, you might get only one or two patients."

Hospitals also struggle to recruit staff to rural areas and often have to pay higher salaries than they can afford. When they can't recruit, they must pay even higher wages for temporary travel nurses or doctors. And the shift to an encounter-based system, Morasko said, also complicated coding for billing , leading to difficulties in hiring competent billing staff.

On top of that, inflation has meant hospitals pay more for goods and services, said Mills, from the state's rural health center.

"Critical access hospitals and rural health clinics were established to provide care, not to be a moneymaker in the community," she said.

Even if rural hospitals manage to stay open, their financial weakness can affect patients in other ways. Chartis found the number of rural hospitals eliminating obstetrics rose from 198 in 2019 to 217 last year, and the number no longer offering chemotherapy grew from 311 to 353.

"These were two we were able to track with large data sets, but it's across the board," Topchik said. "You don't have to close to be weak."

Back in Leadville, Gardner said financial lifelines thrown to the hospital have stabilized its financial situation for now, and he doesn't anticipate needing to ask the county or state for more money.

"It gives us the cushion that we need to fix all the other things," he said. "It's not perfect, but I see light at the end of the tunnel."