ROANOKE — Randolph Medical Center reached the inevitable end of a long road when Roanoke Health Care Authority members voted to close it on March 17.

More than a week later, exactly what pushed the hospital over the edge remains unclear.

But the combined effects of the economic recession and adjustments to federal funding are common targets for most of the speculative blame leveled by county residents and outsiders looking in on the situation.

Alabama’s hospitals on average operated on a 1 percent total margin last year, according to a survey taken by the Alabama Hospital Association.

Rural hospitals, such as those in Clay and Randolph counties, are operating on an even narrower margin. The vast majority of patients treated there are on Medicare or Medicaid — which pays the hospitals less than the actual cost, health care professionals said.

“If 75 percent of my patients pay me less than what it takes to take care of them, I can’t make it up with the other 25 percent,” said Linda U. Jordan, Clay County Hospital administrator.

So when Congress added to the number of Diagnostic Related Groups, or DRGs — treatment categories that determine Medicare and Medicaid reimbursement amounts — a couple of years ago and lowered the amount of money it paid hospitals by 2 percent in anticipation of hospitals finding loopholes, it forced Alabama’s rural hospitals to dig deeper into already worn pockets.

It also appears to have walked Randolph Medical Center into the situation it finds itself in today.

The hospital had stood on uncertain financial footing for the better part of a decade. In 2002, it had more than $3 million in debt, according to The Star’s archives. Services were getting cut and Roanoke’s hospital — as well as Wedowee Hospital — was sold to a private company that operates acute care hospitals.

That company started making plans to close both hospitals, which were eventually bought by their respective cities in 2005. Taxes were committed, loans applied for and services added in hopes of turning a profit.

None of it worked in the face of declining federal reimbursement, increasing debt and rising indigent care. And last Friday, the day after the authority voted to wind down operations, emergency room physicians — provided by an independent contractor — walked out and the doors locked behind them. The hospital owed the contractor roughly $350,000.

Even though everyone involved in operating Randolph Medical Center knew the final day might come, having it arrive so abruptly was shocking.

“I don’t think there was a meeting I’ve been at where (closing) was not discussed,” Clark said after the authority meeting Tuesday night. “(But) being told that something might happen and the reality of that happening are quite different.”

Thin line

The average operating margin for Alabama hospitals is actually negative when you take away the top seven hospitals in the state, said Rosemary Blackmon, chief operating officer of the Alabama Hospital Association.

Operating margins became that slim in part because Congress adjusted how hospitals are reimbursed for Medicare and Medicaid by roughly doubling the number of Diagnostic Related Groups a couple of years ago. Hospitals categorize patient treatments into these DRGs and are reimbursed a set amount by the federal government, Blackmon said.

There were about 400 or 500 categories when the DRG system was created in 1983. When the system was revised two years ago, the number of possible groups increased to 700 or 800, Blackmon said.

The government anticipated that hospitals might find and take advantage of loopholes opened by adding that many groupings and reduced overall Medicare and Medicaid reimbursement levels by 2 percent, Blackmon said.

Around the time these changes were being made, a recovery audit contractor program was created to identify waste, fraud and abuse in the health care system, according to the Federal Register, the official publication for rules, proposed rules and notices of federal agencies and organizations. It was part of the Affordable Care Act.

Independent auditors report on hospitals both over-billing and under-billing Medicare and Medicaid, Blackmon said.

But the contractors are paid a “sort of commission on the over-payments,” she said.

Clay County Hospital — 34 miles west of Roanoke — has paid back about $8,000 in the current fiscal year, said Kerry Tomlin, the hospital’s chief financial officer. That’s a negligible amount compared to the $2.2 million owed by Randolph Medical Center.

But every dollar counts when your operating margin is negative, said Jordan of Clay County Hospital.

Fewer federal dollars reach rural hospitals than urban hospitals, even though they pay the same for the same treatments, Jordan said. That’s because cost of living is factored into federal health care reimbursements, she said.

Even though it costs less to live in Clay County than Jefferson County, services cost the same if not more, Jordan said, noting the difficulty of luring professionals to the area.

“Nobody expects any business to have a service — it costs them $10 — they get paid $6 and they stay in business. And they expect that every day from hospitals,” Jordan said. “That’s just not logical thinking.”

Reductions in federal health care payments to hospitals, when joined with a sluggish economy and an increasing number of uninsured or unemployed patients, leave hospitals — particularly rural hospitals such as the ones in Randolph County and Clay County — straining to break even.

“Hospitals like Clay County or Wedowee are so dependent on those federal dollars,” Blackmon said. “If those dollars shrink … there’s no way they can afford to provide services at all.”

Holding on

Randolph Medical Center had stood on uncertain financial footing for the better part of a decade. By 2002, the operating room had closed, the MRI machine for CT scans was shut off and it carried more than $3 million in debt, according to The Star’s archives.

Gilliard Health Services stepped in and bought both Roanoke’s hospital and Wedowee Hospital in 2003, assuming $4.8 million of debt — more than $3 million of which was held by the Randolph Medical Center.

But Gilliard, a privately owned company which operates acute care hospitals, started taking steps to close both of Randolph County’s hospitals as soon as it bought them, said Richard Daniel, Wedowee Hospital administrator. Daniel has worked for the hospital in some capacity for 31 years.

Wedowee’s citizens, incensed about the possibility of closing, held town meetings on the matter, Daniel said.

Roanoke had a similar grassroots movement to keep its hospital, going as far as to re-elect Henry “Spec” Bonner mayor in part because he vowed to keep the hospital open.

“I had this stupid idea that a town like Roanoke needed a hospital,” said Bonner, 76, now a former mayor. “(I) had an idea that if it was operated by Roanoke people that it would stay open.”

Both cities took over their respective hospitals in 2005.

Wedowee created a half-cent sales tax, generating up to $100,000 for the hospital each year, said Mayor Tim Coe. It also receives 32 percent of the county’s ad valorem tax, roughly $260,000 annually, Coe said.

Roanoke opened a credit line of up to $250,000 to its hospital and secured a $5.9 million USDA loan — which the city pledged to pay off with its 48 percent portion of the county tax. The USDA loan was used to buy the hospital, repay creditors and renovate the hospital, Bonner said.

Operations at Randolph Medical Center remained fiscally unstable, however. Between 2006 and 2009 the hospital lost $1 million to patients who were uninsured or unwilling to pay, then-administrator Tim Harlin told The Star two years ago.

“I think year in and out, ultimately it would lead to bankruptcy,” Harlin told The Star.

Harlin also told The Star in 2009 that Randolph Medical Center never received the $200,000 that Roanoke budgeted to give the hospital in fiscal year 2008.

Last year, the cost of indigent care increased to nearly $1 million, said Jon Dixon, current hospital administrator. Dixon assumed the position in October 2010 when the city contracted with West Georgia Health to provide administrative personnel and try to save the hospital.

It also owed “critical vendors” more than $1.5 million and the federal government $2.2 million for Medicare and Medicaid overpayments, Walter Sudduth, Roanoke Health Care Authority member, said Monday.

There was just too much debt, said Mike Fisher, current Roanoke mayor and authority member.

When the critical vendors stopped providing supplies sometime last month, the authority knew it was time to begin processes of shutting down, Fisher said.

But the Friday after the authority voted to begin winding down operations, emergency room physicians — provided by an independent contractor — walked out and the doors were locked behind them.

The contractor, Correct Care, was owed about $350,000, said Gary Clark, authority chairman.

“We said five years ago … unless something drastically changed, it would close,” Clark said.

After watching Roanoke’s hospital fold, administrators for both the nearby Clay County and Wedowee hospitals feel confident — albeit a little unnerved — that their facilities won’t shut down in the near future.

Clay County has cut staff and reviewed the financial efficacy of each department. Rumors that the hospital will cut its ICU are false, Jordan said.

The only change Clay County Hospital is looking at is becoming a “critical access” hospital, she said. Under that designation, Medicare would reimburse the hospital 101 percent of cost for allowable costs, which are chosen by Medicare, Jordan said.

Almost 75 percent of the patients treated at Clay County Hospital are on Medicare or Medicaid, Jordan said. Wedowee Hospital also serves a majority of Medicaid and Medicare patients.

Gaining the critical access tag is “not a cure-all,” said Tomlin, Clay County Hospital CFO. Randolph Medical Center was also a critical access hospital. But it is a benefit, especially if the hospital is able to break even on the remaining 25 percent of patients.

The trouble is, the amount of unemployed and uninsured patients is rising. Uncompensated care at Clay County Hospital rose from about $195,000 in 2008 to about $512,000 in 2010, Jordan said.

“Clay County went from one of the lowest unemployment rates to one of the highest unemployment rates in the state,” Jordan said. “Those people who have their benefits are fairly leery about having things done because they don’t want to put out their money for their co-pays or deductibles.

“We’ve had significant losses the last three fiscal years.”

In Wedowee, 22 miles east of Clay County Hospital and 14 miles north of the locked Randolph Medical Center, the cost of indigent care is rising as well.

The level of indigent care in the emergency room has risen 27 percent — a “significant” increase since 2007, said Richard Daniel, Wedowee Hospital administrator. At the hospital itself, it’s risen to 11 or 12 percent, he said, declining to put a number to the figure.

His hospital has handled rising costs by cutting staff through layoffs and attrition, as well as forego cosmetic upgrades. Wedowee Hospital is often mistaken for the local elementary school because of its red brick and flat roof, Daniel joked.

Daniel and Jordan won’t know how Randolph Medical Center’s closing will affect their respective hospitals until they’re able to discern how much of the Roanoke hospital’s indigent care they assume.

The south end of Randolph County, which was served primarily by Randolph Medical Center, has about 14 percent unemployment, according to the most recent census figures.

Wedowee Hospital, by far the closest hospital to Roanoke, has always had a good working relationship with Randolph Medical Center, Daniel said.

It’s also always done well serving the north end of Randolph County, said Mayor Coe.

“Now it looks like we’re going to get a chance to serve the south end as well,” Coe said. “Hopefully the good will outweigh the bad.”

Star staff writer Jason Bacaj: 256-235-3546