An eye exam is performed at the Remote Area Medical clinic in Wise, Virginia

An eye exam is performed at the Remote Area Medical clinic in Wise, Virginia (Mark Makela Reuters, / September 3, 2014)

SAN FRANCISCO Sep 3 (Reuters) - In January, Linden Texas native Richard Bowden suffered a mild stroke. Within minutes, medics had taken the 68-year-old to the local hospital emergency room, less than a block from his house.

"They checked me out real good," said the former city councilor, whose East Texas community of nearly 2,000 has relied on the Linden hospital since the 1960s.

Shortly after returning home, Bowden learned he would outlast the hospital itself: the facility was about to close because there weren't enough patients. "It blindsided me," he said. "It's 15 miles to the next hospital. Out in the country, that seems like a long way."

Small, rural hospitals like Linden have always struggled to remain viable, but things are getting worse, fast. Rural communities are shrinking at a time when healthcare providers are being pressured to cut costs and release patients sooner.

Twenty-four rural hospitals have closed across the country since the start of 2013, double the pace of the previous 20 months, according to the North Carolina Rural Health Research Program. For graphic see:

"Even with community support, investment in quality personnel and equipment, patient activity was not at a sustainable level," Steve Altmiller, president and chief executive of Linden hospital's owner, Good Shepherd Health System, said in a statement announcing the closure. "The decision to close the Linden facility, while difficult, is one that is occurring across the country."

Now the Affordable Care Act, better known as Obamacare, is bringing additional pressure. Obamacare is designed to fold the poor and uninsured into the healthcare system, but changes in how the federal government pays for the disadvantaged are already pressuring the hospitals that cater to them, such as rural ones.

Reformers are eager to see some hospitals close, including many out in the country. They argue that good care in the form of clinics and modern ambulances can tend to residents much better than decades ago, undercutting the need for local emergency rooms.

Investors are being warned of the change. Standard & Poor's Ratings Service in August concluded that the nonprofit hospital sector is "at a tipping point" from the drop in the number of patients cared for. Moody's Investors Service reported hospital revenue growth and operating margins are at all-time lows. Fitch Ratings wrote that the Affordable Care Act has accelerated the transition of patients out of the hospital and into clinics by tightening reimbursements and emphasizing technology.

"There is a big transition happening," said Mark Claster, president of investment firm Carl Marks & Co and chairman of North Shore-Long Island Jewish Health System board of trustees. "I don't think smaller hospitals are prepared, and I don't think they can be. I don't think they have the economic wherewithal."


Good Shepherd acquired Linden from the city nine years ago and spent $6 million on renovations, including revamping the emergency room. "It was very modern," said Linden Mayor Clarence Burns.

The hospital's net revenues grew from almost $8 million in 2006, the year after the acquisition, to $13.3 million in 2010, according to Texas Department of State Health Services data.

But operating losses were constant and accelerated, along with bad debt, which grew to nearly $3 million in 2012 from $990,000 in 2006. By 2013, the little hospital had a cumulative $11 million in losses under Good Shepherd, according to the nonprofit's financial statements.

Good Shepherd declined to discuss finances with Reuters. Public statements by the company, financial records in bond disclosures, and the state of Texas data describe changes over the years.

Two trends hurt the hospital: the number of patients shrank, as did hospital reimbursements from Medicare and Medicaid, two primary payment sources for rural facilities. Further issues lay ahead, including changes in federal funding for indigent patients and rural hospitals.

In the six years leading up to 2012, Linden's admissions dropped to just over four patients a day on average, from about 10 patients in 2007, according to state data. Fewer than one person per hour came to the emergency room in 2014.

Linden had 1,988 residents in the 2010 census, down nearly 12 percent in a decade.

Good Shepherd blamed losses on a paucity of patients and federal cuts to reimbursement in Medicaid and Medicare. For example, Medicare payments were cut 2 percent as part of the sequestration federal budget battle in 2013.