USDA Loan Program is a Lifeline for Rural Hospitals
By Steve Spencer
We are all familiar with the crisis that rural hospitals are facing. Because rural hospitals have fewer patients with private insurance compared to larger cities, they rely more on Medicaid which is severely limited in Alabama. As a result, 17 rural hospitals in Alabama have closed since 2005, and many are teetering on the edge of solvency. In fact, a recent report from the Center for Healthcare Quality and Payment Reform said that there were 30 hospitals in Alabama that were at risk for closure.
Although there is no perfect solution, the United States Department of Agriculture Rural Development has a loan program that can make a difference. With a loan portfolio over $224.5 billion, the mission of the Community Facilities Direct Loan & Grant Program is to provide funding for essential services to the local community, which includes hospitals, medical clinics, dental clinics, nursing homes or assisted living facilities.
Depending on the circumstances, the program has several funding opportunities, including low interest direct loans, grants, or the Community Facilities Guaranteed Loan Program, which provides loan guarantees to eligible lenders for essential rural facilities. This is the program that Medical West tapped for their replacement facility.
Medical West executives concluded that in order to provide the highest-quality healthcare, they would need to replace the current facility, which was built in 1964. After working out basic plans for the new building, the group began studying financing options, and in July 2019, Keith Pennington and his team flew to Washington D.C. to learn more about the program. The hospital applied for and received a $350 million loan for the $400 million project.
As part of the arrangement to complete the funding for UAB-affiliated Medical West, the UAB Health System bought the existing Medical West Hospital campus for $51 million, and is leasing it to Medical West until the new facility is completed. UAB has several options for the campus, including potentially turning it into a mental health hospital.
On January 27, Deputy Agriculture Secretary Jewel Bronaugh and Congresswoman Terri Sewell traveled to the construction site of the coming replacement hospital to announce the loan to a gathering that included community leaders, media, and healthcare professionals. Two people were there to learn about the program for their own hospitals - Loretta Wilson, the Administrator at Hill Hospital in Sumter County and Doug Brewer, who is CEO of Whitfield Regional Hospital in Demopolis.
"This program is a huge help because there are not many funding options for small hospitals," Brewer said. "Whitfield Regional currently has two applications pending with the USDA, both of which are grants that came through the CARES Act which is administered by the USDA.
"One is for a partnership we're working on with Wallace Community College in Selma. A building on our campus is in disrepair and Wallace wants to bring their nurse training program here. So we applied for $1 million loan to re-fit the building into a training center so those nursing students can train on our campus and walk right next door to our hospital to work with our nurses with hands-on care. There is no profit motivation here, which makes getting a loan more difficult. If we can get this approved, the USDA will help create good jobs in a field that needs people, and support a rural community strengthening itself."
The second application that Whitfield Regional has pending is for a funds to renovate and expand the Emergency Department. Whitfield executives anticipate that this project will cost $5.5 million and they are asking for a $1 million grant to help.
"You need a bigger project than these two to access the loan program," Brewer said. "We're currently working on a master plan to upgrade our entire campus. For this, we'll probably make a $25 to $30 million request to the Community Facilities Guaranteed Loan Program. We're about a year away from completing these plans."
Given the hurdles so many rural hospitals in Alabama face, the USDA Rural Development loan programs can provide a critical lifeline, something that would be valuable for all our smaller hospitals to consider.