Hospital administrator Ken Hiatt laughs with nurses as he greets patient Libby Priester at Allendale County Hospital. Hiatt knows the majority of the patients in the hospital and walks the halls daily to greet the patients.

FAIRFAX - A sign covered in roadside soot marks the front of Allendale County Hospital on Highway 278, but the man in charge here says he's not sure "hospital" is the right word for this beige brick building anymore.

There's still an emergency room and a long corridor of hospital beds ready for warm bodies, but the patients have all but vanished. There are no babies delivered in Allendale anymore, although a nursing home next door is nearly full every night.

Even so, Administrator Ken Hiatt keeps calling this a hospital - but it's probably just a 39-year-old force of habit.

After nearly four decades at the helm, it is unclear how Allendale County Hospital will survive after Hiatt's retirement later this year. The hospital sits along a stretch of paint-peeled buildings and shuttered businesses - an abandoned IGA grocery store, an open but practically empty pharmacy - reminders of economic and social forces beyond his control that have doomed so many small towns.

The plight of Allendale County Hospital is emblematic of rural hospitals in South Carolina and across the country - most of them built with a quick infusion of federal money in the late 1940s and 50s. While hospitals in Charleston, Columbia and Greenville are breaking ground on new buildings and pulling in millions of dollars in profits every year, rural hospitals have struggled to stay open on thin operating margins, been forced to merge with larger systems or close completely.

In that light, some might call Allendale County Hospital a success story - at least by rural South Carolina standards. For one, it's still open and still independent. The hospital also turned a small profit recently - a major coup considering the 19 rural hospitals in South Carolina lost a combined $25 million between 2008 and 2012.

But any recent achievements are relative. Allendale County Hospital treats far fewer patients and offers a smaller scope of services than it did when Hiatt first took this job.

In the 1980s, doctors delivered more than 200 babies at the hospital every year. Now, there are none. The surgical wing also sits dark and empty these days. "That's pretty much in mothballs now," Hiatt said. "We're not doing surgeries anymore."

In 2012, patients filled the hospital's 25 beds only 7 percent of the year - the lowest occupancy rate among all hospitals in the state.

"I would like to think it's in a fairly good position, in fairly good shape," he said. "I wish it were better."

Running a hospital in rural South Carolina has always been hard, but the last five years were more difficult than any Hiatt can remember.

"Way back in the 70s and 80s - that was a long time ago now - I don't recall necessarily feeling like it was overwhelming or that it was just impossible for this organization to meet all the challenges and stay afloat," he said. "The last few years probably have become a bit more challenging."

The population in Allendale County is aging and shrinking. Residents in this isolated county are listed among the poorest and sickest in South Carolina. Unemployment hovers around 10 percent - the second highest rate in the state. Hiatt said the county has struggled with these issues since at least the 1970s after Interstate 95 diverted Florida-bound drivers away from the Highway 301 corridor, which runs through Allendale, Bamberg and dozens of other rural towns. The recent recession only made their already-ravaged economy worse.

But hurdles to this hospital's future sustainability run even deeper. Patients who can afford to drive a longer distance are passing by their hometown hospital for more sophisticated treatment in Columbia, Aiken and Augusta. That's partly because it's difficult for the hospital to recruit physicians to work here, and partly because these patients need health care services that simply aren't offered in Allendale County anymore.

Also, the state's decision to reject federal money to expand Medicaid eligibility through the Affordable Care Act means the hospital will continue to treat poor, uninsured patients who don't qualify for the low-income health insurance program and can't afford to pay their hospital bills.

Even small changes to federal Medicare policies could wreak havoc with the hospital's bottom line because two-thirds of admitted patients are covered by the entitlement program.

These problems aren't unique to Allendale. Rural hospitals across the country are struggling to stay open. Seventeen rural hospitals in the U.S. either closed or suspended operations since January 2013, according to the federal Office of Rural Health Policy.

Five of those were in Georgia. Jimmy Lewis, a rural hospital lobbyist in Georgia, said 15 more in his state are at "serious risk." The fact that Georgia leaders are also declining the Affordable Care Act Medicaid expansion is only part of the problem, he said.

"It is by no means the silver bullet," Lewis said.

In South Carolina, Bamberg County Hospital, next door to Allendale, closed in 2012 after a failed attempt to merge with other hospitals in nearby rural counties.

The South Carolina Legislature is poised to invest $25 million dollars to help 19 rural hospitals transition to new business models. If approved, this will be the second year in a row that the General Assembly has passed a rural hospital bailout.

"I certainly don't think it's a bailout," Gov. Nikki Haley said. "We're allowing solid footing for these hospitals to make the changes that they need to make."

But it's unclear if this money will ultimately save the beleaguered hospitals. There are serious questions about whether all them can or even should stay open.

In some rural towns, an urgent care center may be enough, said Haley, who was born in Bamberg County Hospital. "It's going to be a community decision," she said. "You're going to see options. You're not going to see a state plan. What's good for one community may not be good for another."

When Bamberg County resident Gloria Duncan thought she was having a heart attack last year, Allendale County Hospital was her first choice for treatment.

"Listen, that's where I go. I live in Ehrhardt and I don't go to Orangeburg. I come to Allendale," said Duncan, a pharmacist.

"Our ER doctors are wonderful," she said. "I'll have to admit, they really are. They're a lot better than the other ones in the area and the service is much faster."

But comparing a rural hospital in Allendale to a major medical center is like comparing a mom-and-pop market to Walmart. While rural hospitals are failing financially, larger hospitals are turning millions of dollars in profit every year.

Trident Health in North Charleston made $284.5 million in profit between 2008 and 2012 - more money than almost any other hospital system in the state.

In 2012, the most recent year data is available, Roper St. Francis Healthcare made more than $91 million in 12 months. Even Medical University Hospital, which provided more uncompensated care than any other South Carolina hospital during the height of the recession, made a $7.3 million profit in 2012, according to tax data published by the S.C. Department of Health and Human Services.

Between 2008 and 2012, while nonrural hospitals in South Carolina made nearly $3.5 billion in aggregate profit, rural hospitals lost $25 million dollars.

Most rural hospitals across the country, including Allendale County Hospital, were built following the passage of the federal Hill-Burton Act in 1946, which provided grants and loans to improve the nation's network of hospitals.

While the legislation was well-intended, the rural hospital business model doesn't really work anymore, said Denny Berens, the former director of Nebraska's Office of Rural Health.

"If you can think about World War II and the Korean War time, at that point in time, things got shifted pretty dramatically. War creates the need to provide unique health care services," Berens said.

Each of these hospitals was essentially a smaller replica of an urban hospital, only with fewer hospital beds and a smaller staff. Most of them were located less than 35 miles apart from each other.

"The Hill-Burton Act came along and lots of money flowed in," Berens said. "The one question that I don't think was ever asked . was are these models going to be sustainable?"

Since 1980, Nebraska lost six of its rural hospitals. Berens predicted many more in his state would have closed if not for a federal designation called "Critical Access Hospital" that provides some rural hospitals with more Medicare funding per patient.

Allendale County Hospital is one of five Critical Access Hospitals in South Carolina.

"Most rural hospitals, in my state, if they are averaging three to five patients a day, they're doing really good," Berens said.

In 2013, Hiatt said Allendale County Hospital's highest daily census was 17 patients, but the hospital usually admits fewer than 10 patients each day. The hospital's occupancy rate does not reflect its 44-bed nursing home next door, which is nearly full with long-term residents.

Approximately one-third of all hospitals in South Carolina are designated rural by the state Medicaid program, but data shows they're practically empty.

Of all the hospital bed days logged by general acute care and long-term acute care patients across the state in 2012, only 5 percent of those days were spent in rural hospitals.

"All small, rural hospitals throughout the nation are struggling with low volume," said Graham Adams, CEO of the S.C. Office of Rural Health.

"I don't work with the urban hospitals extensively, but they just have so much greater economies of scale and they're so much more diversified. If one area isn't doing well, another area, in theory, can do well," Adams said. "The smaller hospitals have a steeper hill to climb."

In 2013, Haley and other conservative state legislators decided against accepting federal money to expand Medicaid under the Affordable Care Act - a decision that the S.C. Hospital Association says will negatively impact every hospital - but it may hit rural hospitals even harder.

"It's definitely not helping them," Adams said. "The fact that we're forgoing that really puts a lot of these facilities at a disadvantage."

In light of this financial stress, the Legislature gave rural hospitals $20 million worth of breathing room this year and is expected to pass another $25 million bailout before the session ends in June.

"Most of these (hospitals) can't even get a bank loan," said S.C. Medicaid Director Tony Keck. "These guys just have very, very limited access to credit and very, very thin ability to spend their own money to make capital transitions, to buy out contracts, to do all the things they need to do to change their model."

Keck's department distributes the money approved by the Legislature to support rural hospitals. It's carved out of a larger pool of state and federal dollars that are used to offset the cost of delivering uncompensated care to poor, uninsured hospital patients.

The Legislature attached strings to this money last year. Each hospital needed to brainstorm a "Healthy Outcomes Plan" to receive their share. Those plans target frequent ER patients with chronic conditions and redirect them to other, less expensive health care services in their communities.

The program serves dual missions. The bailout gives rural hospitals a financial cushion as they change their business models and the Healthy Outcomes Plan forces administrators to shift their focus from filling hospital beds to providing higher quality health care to some of the neediest patients.

"You can't transition when your head is underwater because all you're thinking about is generating revenue in any way possible," Keck said. "That's bad decision-making. Being in financial straits all the time leads to bad decision-making."

But the state isn't giving the rural hospitals a hand-out, Haley insisted. They must demonstrate that they're trying to adjust operations to meet their community's needs.

"They've got to have skin in the game," she said. "We've got to make sure they're moving with the times. This is not going to get better."

Losing money year after year has forced many independent rural hospitals across the country to merge with larger hospitals for survival.

"Some of them still think they can go at it alone," Keck said. "We didn't want to dictate that. We want to give the market some space to work it out."

Allendale County Hospital, an independent, nonprofit facility supported with minimal county money, has twice considered a merger with other hospitals and both times failed to finalize a deal, Hiatt said.

"Part of what we've learned is that the private, for-profit groups don't see this as a viable asset - not in it's present state," he said. "While they had some interest becoming the owners and operators of a regional type of system, if you will, what they were going to do for Allendale County was not going to be much."

Six of South Carolina's 19 rural hospitals are already owned by for-profit groups. Coastal Carolina Hospital in Hardeeville, 15 miles west of Bluffton, is one of them. Between 2008 and 2012, it lost more than $26 million.

"At one point, things looked bleak," said Coastal Carolina CEO Brad Talbert. "Any reasonable-minded person" would rightly question why the hospital is still open after losing that much money, but numbers on a spreadsheet don't tell the whole story, he said.

Coastal Carolina Hospital is owned by Dallas-based Tenet Healthcare, the same parent company that also owns Hilton Head Hospital and East Cooper Medical Center. Hilton Head Hospital made $113 million during those same five years.

"We still have our work cut out for us, but I don't have to worry about fighting with Hilton Head, our closest competitor, for business," Talbert said. "Because we're sister facilities, we've kind of decided to focus on different service lines that make sense for the community."

Instead of scaling back services like so many rural hospitals are doing as they focus on emergency, primary care and telemedicine programs, Coastal Carolina Hospital is trying to capture more inpatients, particularly new moms.

Earlier this year, the hospital announced doctors would start delivering babies in Hardeeville for the first time in eight years, even though more than two-thirds of the inpatient bed days at Coastal Carolina Hospital in 2012 were paid for by Medicare.

"It certainly appears that we serve a high percentage of Medicare patients because we don't have the services to attract those younger patients," Talbert said. "That's a huge segment of the population that we're not even getting exposed to."

Doctors stopped delivering babies at Allendale County Hospital in June 2005 and the hospital has no intention of relaunching obstetrical services, Hiatt said.

"It just wasn't sustainable," he said. "And certainly, in areas like this, the numbers of babies being born was somewhat declining."

In fact, there are no doctors delivering infants in adjacent Hampton or Barnwell counties, either. Some prenatal services are still offered in those counties, but mothers must give birth in hospitals outside that three-county radius.

"When all of those hospitals stopped doing OB (obstetrics), other natural referral patterns were created," said Adams, the CEO of the S.C. Rural Health office. "They would go to Beaufort, Walterboro, Aiken, Orangeburg and see OBs there, which made sense."

Only nine of the state's 19 rural hospitals still deliver infants.

Hiatt anticipates he will celebrate Christmas this year as a retired man, even though the hospital board has not officially announced his replacement.

"I well remember day one when I came in this hospital," he said. "It was all about paying the bills and making payroll and even 30-something years later, it's still some of those same things."

He acknowledges his successor will deal with those challenges, but he hopes the hospital will continue to survive independently.

"I think the role of this hospital and this health care facility continues to be vital to the community," he said. "If there's anything that has helped us stay the distance for now 63 years it's probably been that whole philosophy - we can't be all things to all people."

Reach Lauren Sausser at 937-5598.

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