Rural hospitals are hurting financially and could become candidates to close if healthcare reforms leave more people uninsured, according to a new study.
With operating margins already inadequate to keep up with routine maintenance and expansion, rural hospitals would face even tougher times if Congress replaces the Affordable Care Act with a plan that cuts funding for Medicare and Medicaid. The hospitals are heavily reliant on Medicare and Medicaid funding, according to findings in a new study by Health Management Partners, a Nashville-based consultancy.
Medicare and Medicaid patients represent an outsized portion of the volumes of patients at the 1,343 rural community hospitals studied by HMP.
Medicare and Medicaid patients represented 63% on average of volumes at rural hospitals vs. 49% at urban hospitals, the study showed.
That heavy reliance on federal and state payers means rural hospitals are vulnerable if the Affordable Care Act is repealed and replaced with an alternative that results in more uninsured people, said Clare Moylan, managing director of HMP.
“The data shows that if federal policymakers fail to take into account the vulnerability of rural hospitals as they consider whatever is next in healthcare reform, it is likely that numerous rural hospitals will fail within the next few years,” Moylan said.
Rural hospitals generally are in far worse financial condition than urban hospitals, according to HMP's research. The group also looked at CMS data from 1,200 urban hospitals to compare their financial state.
In order to fund basic capital expenditures, hospitals generally need to post a profit margin of 3% to 4%. However, rural hospitals on average had operating losses between 2011 and 2014, the study said.
Rural hospitals broke about even on operations in 2015, possibly due to greater Medicaid and exchange patient volumes and Medicaid expansion in many states, HMP said.
In contrast, urban hospitals' average operating margin was 4.4% in 2015, according to data from CMS' healthcare provider cost-reporting information system, which HMP used to prepare its analysis.
Some rural hospitals will close in the coming years after being financially strained and constrained for capital for a significant period of time. Those closures can't be avoided whether ACA is replaced or not, the study said.
But rural hospitals play an important role for the populations they serve, especially the frail and elderly who can't travel well, HMP said.
Rural hospitals also are important to their local economies and are often a prominent employer in their respective towns. About 95% of rural hospitals are located in Republican congressional districts that helped carry Donald Trump to the presidency in the 2016 general election.
“Many rural facilities are aged, oversized and in need of capital," the study said. "Yet funding sources are scarce, particularly for those that are already financially supported by local counties and resident tax dollars."