Nearly half of all rural hospitals are operating in the red, study says

The Chartis Center for Rural Health says that of the nearly 2,200 rural hospitals in the U.S., 453 are financially unstable and at risk of closing.

The cause is lower revenues from Medicaid and Medicare, rising personnel costs from staffing shortages, and increased demand for services. Michael Topchik, national leader for Chartis, said 43% of rural hospitals are operating in the red.

Rural hospitals in states that haven't expanded Medicaid are more likely to be spending more than they are taking in, the study found.

In states that did expand Medicaid, 39% were operating in the red, compared to 51% in non-expansion states.

Two states that haven't expanded Medicaid have the highest percentage of rural hospitals with negative operating margins – Kansas and Wyoming. Kansas, which has the second largest number of rural hospitals in the country, has 79% of its rural hospitals operating in the red. Wyoming has 78%.

To stave off closure, many rural hospitals have opted to close departments, Topchik said.

"In the last couple of years, as we've updated the statistics, we've noticed what I would call a surge in closures of services," he said in an interview with the Daily Yonder. "We continue to see hospitals operating with razor thin margins… As the pandemic relief funds have sort of worked their way through the system. Even if the hospital stays open, it doesn't mean they're providing the same service they once were."

The study noted that the number of rural hospitals eliminating OB services increased from 198 to 217, a 10% increase, and the number of facilities no longer offering chemotherapy services jumped from 311 to 353, a 13.5% increase. These closures mean rural residents must travel farther to access those services, increasing "care deserts" across the country.

To keep rural hospitals open, the federal government put in place a new category for funding – the Rural Emergency Hospital, or REH. Those hospitals would see increased funding, but would be open for emergency services only. To qualify, the hospital would have to be open 24/7 for emergency services, but would have to eliminate in-patient care.

Topchik said a little under 400 hospitals were "most likely" to consider converting to an REH, but their analysis found that only 77 of the hospitals were ideal candidates for conversion. Those hospitals were ones that were very small and continued to operate in the red year-after-year, he said.

"Over the next 36 to 48 months I think you'll start to see more and more hospitals consider this, but I don't think it's going to be a panacea," he said. "I don't think it's right for the entire rural safety net."

Those that it would be good for are the ones that are essentially already operating as an emergency-only hospital where inpatient services are limited. In the cases where Chartis found the REH designation would work, the small hospitals were being supported by Medicare and Medicaid, with smaller operating budgets.

"This statue is intended to recognize what is largely the de facto reality on the ground for the smallest of those rural hospitals," he said. "For the smallest of the rural hospitals, it's literally no change."

Switching to an REH designation for those hospitals would be preferable to closing, he said.

"This solution was intended to really stop that bleeding of hospital closures and I think it's going to do its job quite nicely in those communities," he said.

According to the Center for Healthcare Quality and Payment Reform (CHQPR), a national policy center that facilitates improvements in healthcare payment and delivery systems, as many as a third of rural hospitals are at risk of closing. In a recent report, the center said 600 of the rural hospitals it analyzed were at risk of closing due to "persistent financial losses on patient services" and "low financial reserves".

Over 200 of those are at immediate risk, the center said, because they lack the revenue to cover their expenses and have very low financial reserves. Traditional revenue streams may not be enough to keep them afloat, researchers said.

"It costs more to deliver essential services in rural communities because of the smaller number of patients served," the report said. "A payment that is sufficient to cover the cost of an emergency department visit at a large hospital may fall far short of the cost of visits at a small rural hospital."

CHQPR researchers said the solution is to pay rural hospitals enough to cover the cost of delivering services in rural communities. Instead of switching to Rural Emergency Hospital designations, the center argues that small rural hospitals should receive additional "Standby Capacity Payments" from private insurance companies and Medicaid to cover the extra costs rural hospitals incur.

Paying rural hospitals enough to cover the expense of delivering services to their communities would cost about $4 billion per year, researchers at CHQPR said, equating to an increase of about 0.1% in national healthcare spending.

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