Rising costs, low reimbursement lead to hundreds of rural hospital closures

More than 700 rural hospitals in the United States are at risk of closing because of financial problems, and more than half of them face an immediate risk of closure.

“Over the past decade, more than 100 rural hospitals have closed,” according to a new analysis by the Center for Healthcare Quality and Payment Reform. “As a result, the millions of Americans who live in those communities no longer have access to an emergency room, inpatient care and many other hospital services that citizens in most of the rest of the country take for granted.”

Nearly every state has hospitals at risk of closure, measured by financial reserves that can cover losses on patient services for only six to seven years. In more than half of states, one-quarter or more of rural hospitals face this risk, with nine states having a majority of their rural hospitals in jeopardy.

The majority of rural hospitals lose money delivering patient services. It costs more to deliver health care in small rural communities than in urban areas, and many health insurance plans do not pay enough to cover these costs. Although many hospitals have managed to remain open despite losses on patient services because they receive local tax revenues or state government grants, there is no guarantee that these funds will continue to be available in the future.

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The hospitals at greatest risk of closing have more debts than assets, or they do not have adequate net assets (other than buildings and equipment, minus debt) to offset their losses on patient services for more than a few years. The report made two recommendations to address the problem.

• Require that health insurance payments cover the cost of services in rural communities. Payments that are sufficient to cover the cost of services at large hospitals will not be adequate at small rural hospitals, because it costs more to deliver health care services in rural communities. This is not because rural hospitals are inefficient but because of the smaller number of patients served relative to the fixed costs of the services.
• Create standby capacity payments to support the fixed costs of essential rural services The financial problems at small rural hospitals are caused not only by the inadequate amounts paid by private health insurance and Medicaid plans but by the problematic method all payers use to pay for services. Small rural hospitals are paid nothing for what residents of a rural community likely would view as one of the most important services of all – the availability of physicians, nurses and other staff to treat an injury or serious health problem quickly

“Private insurance companies and public insurance programs need to make significant changes in both the amounts and methods they use to pay for rural hospital services in order to prevent more rural hospitals from closing in the future,” the report concluded.