Many medical facilities in rural areas are at risk of closing within six years, study shows.
A new study authored by Harold Miller, MS, president and CEO of the Center for Healthcare Quality and Payment Reform, has found that more than 200 rural hospitals nationwide are at risk of closing within the next six years. With limited healthcare resources, residents in rural areas rely primarily on these hospitals to be available in time of need.
“In general, the major cause for the losses at the smallest hospitals were private payers,” Miller, also an adjunct professor of public policy and management at Carnegie Mellon University in Pittsburgh, Pennsylvania, said. “In some cases, the private payer may have been paying something equivalent to the hospital’s cost, but it wasn’t paying anything significantly over that which is a problem because if the hospital has uncompensated care from uninsured patients, even if the private health plan is paying for costs, there’s no margin to cover everything else, and what I found in most cases was that they were paying under cost.”
He added that the reason why these hospitals haven’t been getting higher payments is, in part, because of problems “with negotiation,” said Miller, “And in some cases, it’s just that [insurers] have a standard fee schedule: ‘Here’s what we pay.’ [That amount] might be plenty or even more than plenty at a big hospital, but it’s not enough at a small hospital.”
The study analyzed reports from 4,807 rural and urban hospitals, homing in on the impact of the pandemic. Miller and his team specifically used the financial data required by the government for the facilities to provide Medicare to patients and their families. The majority of rural hospitals had decreasing profits from 2020 to 2021.
“This was most problematic for small rural hospitals,” the study indicates. “The majority of small rural hospitals were losing money on patient services prior to the pandemic, so the lower margins during the initial year of the pandemic pushed them even further into the red.”
In 2021, according to the data collected “costs increased as much or more than charges, and payments from private payers continued to be lower as a percentage of charges,” the study continues. “As a result, patient service margins were still lower in 2021 than in 2019 for most rural hospitals, and small rural hospitals continued to have higher losses on patient services.”
Miller said that, to rural residents, the hospitals “are the health system in their community. There is no urgent care center. There may not even be a primary care practice. Everything is at that hospital, so if the hospital closes, health care is gone.”
He added that the facilities have been able to stay afloat up until this point largely due to government intervention. “But the increase in the margins was temporary because of the big federal grants,” he explained, “and moreover, costs are now higher than they were before the pandemic and will likely stay that way, so after the pandemic, the margins will drop again. In other words, the day of reckoning for the hospitals that were losing a lot of money was pushed back by the pandemic, but it’s still coming.”