Dive Brief:
- More than 700 rural hospitals, over 30% of all such providers in the country, are at risk of closing as they face financial losses on patient care, limited sources of other revenue and low financial reserves, according to a report by the Center for Healthcare Quality and Payment Reform.
- The outlook is even more dire for some rural facilities: 360 are at immediate risk of closing within two to three years due to their severe financial problems.
- Rural hospitals’ financial challenges are largely caused by “inadequate” payments from private health plans that don’t cover the higher costs of care in rural communities, according to the report.
Dive Insight:
Rural hospitals’ financial struggles are a long-term problem in the U.S. healthcare system. Over the past decade, more than 100 rural hospitals have closed, and dozens more have converted to rural emergency hospitals — cutting inpatient services to stay afloat with the help of federal grants, according to the report.
Some facilities have eliminated other services. Another analysis published by CHQPR last year found fewer than half of rural hospitals in the U.S. still offer labor and delivery care.
These closures and service reductions can have serious impacts for rural Americans, who already face worse health outcomes compared with their urban counterparts. When a rural hospital shuts down, patients have to travel farther to access care, and could lose the only facility where they could easily receive lab or imaging tests.
The financial challenges for rural hospitals are also widespread across the country. Nearly every state has hospitals at risk of closure. In nine states, the majority of rural hospitals could shut down, according to the report.
Nearly every state has rural hospitals at risk of closing
The main reason rural hospitals face dire financial straits is low payments from private insurers, the analysis found. Though facilities may lose money on reimbursements from public payers, about half of the services at rural hospitals are delivered to patients with private insurance — and the reimbursement from these insurers might not cover the higher costs of care.
Hospitals in rural communities have a smaller population to serve, meaning less revenue from patient care. But expenses are often fixed: for example, an emergency department still needs to be staffed at all times, even if fewer people need services.
“In most cases, the amounts these private plans pay, not Medicare or Medicaid payments, determine whether a rural hospital loses money,” the report’s authors wrote.
The analysis argues health plans should pay rural hospitals more to cover the higher costs of care in rural areas. Small rural facilities could also receive standby capacity payments from private and public payers to help cover fixed operational costs.
The report comes after many hospitals weathered negative margins and high labor costs during the COVID-19 pandemic in 2022. Rural hospitals were especially hard hit by growing expenses, and they were already in more precarious financial positions before the pandemic hit.
But many hospitals have been showing some signs of recovery, according to a report released this week by consultancy Kaufman Hall.
All regions except for the Great Plains — an area that includes smaller hospitals — showed improvement in June compared with the previous year. Still, the analysis noted a widening gap between high and low performing hospitals.
