Trouble for Rural Hospitals

I spend a lot of time in rural America, primarily in the upper-Midwest (Iowa, Wisconsin, Illinois, etc.). With the pandemic, the struggling economy, high inflation, high energy costs, labor supply challenges, and rising interest rates, rural health care is struggling like never before.

A story on the Fox Business website captures the plight of rural hospitals, highlighting a North Carolina hospital. The story is available here:

Since 2005, a total of 195 rural hospitals have closed to inpatient services – 100 totally closed, 95 no longer admitting patients. According to a report from the Center for Healthcare Quality and Payment Reform, more than 600 rural hospitals, 30% of the total of all rural hospitals, are at-risk of closing. As of June, this year, 11 rural hospitals have closed. The report summary is available here: Rural_Hospitals_at_Risk_of_Closing

The largest problem with the extensive number of closures is the gap in service availability that occurs for the communities the hospital served. Often, these communities are remote, and smaller in population areas (less than 10,000 lives in forty-mile radius from the hospital). The closure means not just hospital access is limited, but overall physician and outpatient services are negatively impacted as well. Access becomes a significant problem, necessitating often, lengthy travel for services. As these smaller remote areas tend to be populated with elderly and folk with co-morbidities such as diabetes, heart disease, pulmonary disease, care access challenges create care delays and, in some cases, further decay in population health. Further, the hospital typically is the only point of access for diagnostic services (laboratory, radiology, etc.), creating a significant a problem for early detection of cancers, infections, and other detectable health problems.

Like all hospitals nationwide, the pandemic brought additional strain on hospital resources, namely staff availability. While urban areas continue to struggle, access to staff is somewhat more fluid via staffing agencies. In rural areas, staffing agencies rarely exist and those that do claim to offer some support, have exceptionally limited supplies of staff that most calls for assistance go unanswered.

Today, the number one reason for closure is finances, principally inadequate revenues to cover expenses. In a similar vein as inner-city hospitals, rural hospitals have a disproportionate share of “no pays” or “slow pays” – patients without insurance or with limited coverage and high deductibles. In a small hospital, the chance of having diversified revenue streams to cover these no pay cases or slow pay cases is minimal. The impact thus, is almost direct to the bottom line. As many hospitals have limited reserves, a stream of negative revenue impacts driven by no pays, slow pays, and inadequate payment sources quickly pushes the hospital toward bankruptcy. Such as the case of the North Carolina hospital feature in the Fox Business article.

Inadequate insurance payments to these rural hospitals are also a significant issue.  Of the hospitals primarily at-risk, insurance payments below cost are the biggest reason for potential closure.  Medicaid and no pay cases simply, pile-on.

Of the hospitals that are not currently at-risk, payments are adequate to cover the Medicaid losses and no-pays and primarily, the hospitals exist in broader, more economically stable locations.  Similarly, many of the stronger rural hospitals have diversified service models encompassing expanded outpatient services, home health, hospice, and physician clinics, beyond the hospital.

Keeping rural hospitals viable is a function of government, insurer, and community support.

  • Insurance payments for rural hospitals must be adequate to cover costs, the no pay disparity plus provide a minimal margin such that a reserve can be developed.
  • Capital access, especially to lower cost capital, is imperative.  This is true for all of health care but particularly, rural health care. Here, federal and state governments can help.
  • Communities need to rally to the hospital’s cause by fund raising, by adding perhaps, a touch more taxation, and by providing volunteer support as needed to offload, non-clinical staffing costs.
  • Finally, as suggested by the report from the Center for Health Care Quality and Payment Reform, stand-by capacity payments are required.  Stand-by capacity payments are essentially health plan add-ons that are used like a capitation arrangement to pay the rural hospital for its availability of service to the community rather than simply, payment for service usage.  See graphic below.


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