The Commercial Alternative to Traditional Medicare Is Putting Financial Strain on Rural Hospitals

For more than a dozen years, leaders in the rural health care field have issued strong warnings: Rural hospitals are struggling financially.

Despite public attention and some changes in federal policies, difficulties continue. A new report from a private healthcare consulting company has found that nearly 20% of all rural hospitals are at risk of closing.

The report, issued annually by the Chartis Center for Rural Health, said the percentage of rural hospitals operating in the red jumped to 50%, up from 43% last year. Of the independent rural hospitals across the country, 55% were operating in the red. More than 60% of rural hospitals are affiliated with larger health-systems. Of those, 42% were operating in the red.

All told, Chartis identified 418 of the 2,115 of the rural hospitals as "vulnerable to closure." Since 2020, 35 rural hospitals have closed, including nine last year. Nearly 200 rural hospitals have closed since 2005.

"I think we're in a much, much worse situation," Michael Topchik, national leader for the Chartis Center for Rural Health said in an interview with the Daily Yonder. "I mean, more than 15 years ago, I remember sharing some of these statistics… and there was a little bit of 'Chicken Little' in the air with a third of rural hospitals operating in the red… Now, to see half of rural hospitals operating in the red… in the absence of something being done, things have just gotten more challenging."

Those increased challenges include changes to Medicare and Medicaid reimbursement rates, changes to how hospitals are categorized, and what services hospitals are able to provide, among other things.

One federal program, the Rural Emergency Hospital (REH), provides rural hospitals with larger payments from Medicare and Medicaid, as well as a $3.2 million annual stipend, but eliminates a hospital's ability to offer in-patient services.

Passed as a way to prevent the loss of emergency services in communities at risk of losing their hospitals, the new designation for hospitals within the Center for Medicare and Medicaid Services went into effect in 2023. Eighteen hospitals chose to become an REH, Topchik said. While the program is new, he anticipates more rural hospitals will make the change.

"For many hospitals on the edge, Congress certainly saw it as a solution to maintain those vital services," he said. "The verdict is still out though… I think we'll easily see 300 to 400 rural hospitals who take up REH."

Still more is needed, he said. One issue to be addressed is how Medicare Advantage programs affect rural hospitals' bottom line, he said.

Medicare Advantage plans offer privatized versions of Medicare that are often less expensive for consumers and provide more benefits than the government-run program. Enrollment in these plans has more than doubled over the last 10 years. Enrollment in rural communities has increased over the last four or five years, he said.

And that's a problem for rural hospitals, he said. Medicare Advantage takes longer to pay than traditional Medicare and is more likely to deny claims or prior authorizations. That change has up-ended rural hospitals' bottom line, he said.

"Traditional Medicare is very predictable about what's allowed and what's not allowed, and they pay promptly on a monthly basis," Topchik said. "If your biggest payer is Medicare, which for most rural hospitals it is, and now more than a third and in many states it's more than 50% of your patients are on Medicare Advantage, well, then, all of a sudden, your entire financial foundation has just shifted, like an earthquake, and it's just really hard to make up for that."

Harold Miller with the Center for Healthcare Quality and Payment Reform (CHQPR) said his organization's look into the situation found worse results than Chartis. CHQPR estimates the number of hospitals vulnerable is closer to 600, with 300 at immediate risk of closing.

He said the federal government needs to further regulate Medicare Advantage plans.

"Even if they didn't deny the claim, the amount that they would pay for the claim might not be adequate to cover the cost," he said. "What is the federal government doing to ensure that Medicare managed care plans in particular, are paying the hospitals an adequate amount?"

Additionally, he said, the federal government should require insurance companies to negotiate with smaller rural hospitals.

"Many of the hospitals tell me they can't even get the plans on the phone," he said. "These are all things that the federal government could be doing to try to solve the problem and they're not."

Existing programs that were designed to help keep rural hospitals in better financial condition are in danger of being eliminated, officials said.

According to the American Hospital Association (AHA), two programs that currently benefit rural hospitals could expire this year. The Medicare-dependent Hospitals (MDH) program that provides higher payments small rural hospitals where Medicare patients are at least 60% of their admissions, and the Low-volume Adjustment (LVA) program that helps rural hospitals with low patient volumes to cover the cost of providing services, are both in danger of expiring on September 30, the AHA said. The programs are necessary to keep the hospitals open, it said.

In February, the organization urged Congress to support the Rural Hospital Support Act S. 1110) and the Assistance for Rural Community Hospitals (ARCH) Act (H.R. 6430) that would extend those programs.

"The network of providers that serves rural Americans is financially fragile and more dependent on Medicare revenue due to the high percentage of Medicare beneficiaries who live in rural areas," the AHA said in a statement. "Rural residents also on average tend to be older, have lower incomes and higher rates of chronic illness than urban counterparts. This greater dependence on Medicare may make certain hospitals more financially vulnerable."

The post The Commercial Alternative to Traditional Medicare Is Putting Financial Strain on Rural Hospitals appeared first on The Daily Yonder.