Study: Up to a third of rural hospitals are at risk of closure

A pulmonary embolism is a life-threatening condition and, if not treated urgently, a patient can die. But how much the hospital receives for that treatment varies, depending on where the patient gets sick.

At Tazewell Community Hospital in Southwest Virginia, the insurance company Aetna will pay $13,000 to perform a lifesaving procedure to break the clots in a lung, allowing the patient to stabilize and breathe again.

Two hours up the road, at Roanoke Memorial Hospital, the same procedure is worth far more — $24,000, according to publicly available data of the hospital's rates. The difference, $11,000, is the result of the larger hospital's ability to negotiate better prices with insurers, like Aetna, Anthem and United, among others.

It's an advantage rural hospitals like Tazewell don't have, and one of many reasons why so many rural hospitals in Virginia continually run in the red, losing money and flirting with permanent closure.

Rural Virginia hospitals are lifelines in the communities they serve, and yet a third are at risk of closing within the next few years, according to national policy experts with the Center for Healthcare Quality and Payment Reform.

The grim forecast is the result of years of battering economic winds faced by these hospitals, many of which attract too few patients to remain profitable, but enough to remain a necessary resource.

CHQPR estimates more than 600 rural hospitals nationwide are at risk of closing, with states like Texas, Kansas and Mississippi among the most vulnerable.

For each patient they serve, these hospitals typically make far less than their competitors that serve suburban and urban areas. And they see far fewer patients relative to the cost of running a hospital, which has ballooned with inflation and a shortage of health care workers.

Harold Miller, CEO of CHQPR, described rural hospitals as "doing two things and only getting paid for one."

"They deliver services when people need them, and then they wait around for people when they aren't needed, and they aren't paid for that," Miller said.

His group estimates that as many as five Virginia hospitals stand at "immediate" risk of closure, while another five are headed in that direction. CHQPR does not release the names of the hospitals, but they do identify operating margins using data from the federal government.

Of Virginia's 28 rural hospitals, 13 were running in the red, meaning that it cost them more to stay open and serve patients than they were earning through income.

The most threatened was Bon Secours Southern Virginia Regional Medical Center, which ran at a 29% negative margin over the past three years.

Alongside the economics of inflation, Miller pinpoints the business practices of insurers that profit when they can pay rural hospitals less. Sometimes, they don't pay at all, Miller says, leaving payments to a hospital in arrears while they litigate whether a procedure was necessary or if it was fully covered by a patient's plan.

"Insurers are underpaying now," Miller said. "People have to understand that hospitals are not underpaid because they're inefficient."

As insurers saw record profits in the pandemic, all hospitals suffered as they lost access to lucrative elective procedures and were forced to shop for pricey personal protective equipment, ventilators and contracted travel nurses.

"Essentially, you had a double whammy: loss of revenue, loss of overall patient volumes and increase of labor costs and supply and resource costs," said Julian Walker, vice president of communications for the Virginia Health and Hospital Association.

Relief money from the CARES Act helped small providers, but only to a degree.

"Our members' losses far exceeded the influx of CARES Act money," said Walker, estimating that Virginia hospitals' losses due to the pandemic are more than $1 billion.

For rural providers, shelter from the storm has come under the umbrella of larger health care networks. Tazewell was formally purchased by Carilion in 2010. VCU has bought struggling hospitals in Hampton Roads and in southern Virginia. And Southampton Medical Center, Southern Virginia Regional Medical Center and Rappahannock General Hospital all joined the Bon Secours system in the past decade.

Just five of Virginia's 110 hospitals have remained unaffiliated with a larger health system, said Walker, a testament to the "strength in numbers" approach needed to stay financially solvent.

The buyouts stave off closure, but do not necessarily promise profits. Executives say they save little hospitals to keep options open for patients. One example is Tazewell Community, a 56-bed facility with a busy emergency department. Carilion Clinic bought the hospital after managing it for years, but not because the little mountain hospital would ever turn a profit.

Between 2019 and 2021, the hospital ran a negative 18% operating margin, writing off tranches of bad debt for underinsured patients and losing money on most patients who came in seeking care.

"Tazewell Community Hospital has had a negative operating margin for considerably longer than three years," said Nancy Agee, president and CEO of Carilion Clinic. "If you ask us why we keep a hospital with a negative operating margin, it's because that's a part of our values, and we live our values."

Even on the patients they do see, small rural providers don't necessarily turn a profit. Medicare and Medicaid pay less than the cost of care, and rural hospitals overwhelmingly take patients on these plans, or with no plan at all.

In Lee County, providers struggle with the low rates that Medicare and Medicaid pay hospitals — which run between 80 and 90 cents for every dollar spent on care. Last year, Ballad Health reopened Lee County Community Hospital, a six-bed facility that had shut in 2013.

Tony Keck, Ballad Health's director of systems and innovation, said the rates punish hospitals in Virginia, which is viewed as a "wealthy" state and reimbursed less by the federal government.

"Almost everyone agrees that that formula is broken," Keck said. "It's a pretty considerable effect on these small rural hospitals."

A few solutions have seen some daylight. Sen. Mark Warner, D-Va., introduced the Save Rural Hospitals Act, a bill that would raise how much Medicare pays providers.

"This legislation would also help ensure fairness in reimbursements for hospitals across the country — including the many hospitals that are facing closures in rural areas — and fix severe and disproportionate disadvantages that unfairly penalize hundreds of communities and hospitals across the United States," said the bill's authors, who include Sens. John Cornyn, R-Texas; Marsha Blackburn, R-Tenn.; and Raphael Warnock, D-Ga.

However, the bill has not moved forward since its proposal in 2021.

CHQPR has pushed an even bolder solution: a new model whereby insurers put up more of a hospital's day-to-day operating costs, paying them regularly even if patients don't come in seeking care. Miller says these standby payments are the only way to even the playing field.

The group believes those payments will benefit insurers in the long run, because health insurance becomes a lot less useful without a hospital where a patient can use it.

Different health networks use differing methodologies to satisfy federal price transparency requirements. Carilion's price transparency data relays an average price charged at that hospital, according to Chris Turnbull, spokesperson for Carilion Clinic.