Health Tech

More Than 30% of Rural Hospitals Are at Risk of Closure, Report Warns

More than 600 rural U.S. hospitals — which is more than 30% of the country’s rural hospitals — are at risk of closing due to their financial instability, according to a new report. The report argued that the dire financial situation among the nation’s rural hospitals stems from two main issues: low financial reserves and inadequate payments from private health plans.

More than 600 rural U.S. hospitals are at risk of closing due to their financial instability — that’s more than 30% of the country’s rural hospitals. For half of these 600 hospitals, the risk of closure is immediate, according to a new report from the Center for Healthcare Quality and Payment Reform (CHQPR).

All states have rural hospitals that are at risk of closing except for five: Delaware, Maryland, New Jersey, Rhode Island and Utah. In over half of all U.S. states, a quarter or more of rural hospitals are at risk of closure. In 16 states, 40% or more are at risk.

The report argued that the dire financial situation among the nation’s rural hospitals stems from two main issues. The first problem is that health plans don’t reimburse rural hospitals adequately. The report pointed out that it is often more expensive to deliver healthcare in rural areas because of smaller patient volumes and higher costs for attracting staff. 

While many people might assume that private insurers pay more than Medicare and Medicaid, the opposite is true for rural hospitals, CHQPR CEO Harold Miller told MedCity News earlier this year. 

“In many cases, Medicare is their best payer. And private health plans actually pay them well below their costs — well below what they pay their larger hospitals. One of the biggest drivers of rural hospital losses is the payments they receive from private health plans,” he declared.

Unfortunately, the report predicted that this issue will worsen — especially for smaller rural hospitals that continue to battle rising costs and workforce shortages. Some rural hospitals have managed to balance their losses through things like grants and local tax revenues in the past, but there is uncertainty about the sustainability of such funding sources and whether they will be enough to cope with escalating expenses.

The other main problem contributing to rural hospitals’ financial woes is the fact that they have low financial reserves. The country’s rural hospitals don’t have enough net assets (those other than buildings and equipment, minus debt) to make up for losses on patient services for more than six or seven years, according to the report. For the more than 300 hospitals at immediate risk of closure, that timeline is closer to two years, the report said.

In order to prevent closures, the report argued that private insurers need to increase their payments to rural hospitals. Increasing payments to a level that ensures endangered hospitals remain operational would cost about $4 billion annually, according to the report. It said that this payment boost would account for merely 0.10% of total national healthcare spending.

The report also called for health plans to issue standby capacity payments for rural hospitals. People in rural communities count on local hospitals to be there for them if they get injured or experience a sudden health problem, but rural hospitals are not paid for maintaining that availability, the report pointed out.

Earlier this year, Miller described this problem using these analogies: Do we only pay firefighters when there’s a fire? Do we only pay police officers when there’s a crime?

The report concluded that better reimbursement — in the form of standby capacity payments and increased rates from private health plans — is needed to avert rural hospital closures. It also pointed out that the shuttering of rural hospitals poses a grave threat to the country’s food supply and energy production because farms, ranches, mines, drilling sites, wind farms and solar energy facilities are primarily situated in rural regions. Without access to adequate healthcare services, these industries will struggle to attract and retain the necessary workforce, the report said.

Photo: Pongasn68, Getty Images