More than 450 rural hospitals are financially unstable as operating margins decline, new research shows.
Of the 453 vulnerable rural hospitals, 237 are "at risk" and 216 are the least stable, according to an analysis from the Chartis Center for Rural Health that weighed case mix, ownership model, capital efficiency, occupancy and other factors. About 47% of the country's 1,844 rural hospitals are operating in the red, up from 39% in 2015.
Rural hospitals in states that have not expanded Medicaid recorded a -0.3% median operating margin, compared to 0.8% for rural facilities in expansion states, according to the report. Providers in a Medicaid expansion state are 62% less likely to close.
"Things are bad and getting worse," said Michael Topchik, national leader at Chartis, adding that 124 rural hospitals have closed in the past decade. "If states haven't expanded Medicaid, that works against them."
That sentiment has been echoed by hospital executives in Alabama, and other non-expansion states. In a town like Greenville, Ala., with less than 8,000 residents, not expanding Medicaid "almost shot our legs out from under us," said Greenville Mayor Dexter McLendon, who chairs the city-backed L.V. Stabler Memorial Hospital's board. About 38% of Alabama's rural hospitals were considered vulnerable as nearly 80% of all the state's rural hospitals recorded a negative operating margin, Chartis found.
Medicaid expansion is one of many factors. Case mix also plays a major role, Topchik said. Hospitals typically suffered as they lost higher-acuity patients.
Most patients that go to rural hospitals are older and poorer, often covered by Medicare and Medicaid, which reimburse at lower rates than commercial insurers. Hospitals are trying to cope by downsizing or closing service lines like obstetrics, creating massive voids throughout the country.
Ownership models are another key indicator. Rural stand-alone hospitals are most at risk, with 60.5% having lost money on an operating basis in from 2012 to 2017, compared with 42% of their urban counterparts, according to an analysis of Modern Healthcare Metrics data. Those owned by a health system fare much better.
Occupancy rates also play a key role in a rural hospital's financial status. The average total occupancy rate for rural hospitals was 52.2% in 2016, which was well above the acute occupancy rate of 37.8%, a Modern Healthcare analysis of Metrics data revealed. This suggests that hospital beds are largely underutilized for long-term, lower-acuity care.
"The greatest financial burden to many rural hospitals is supporting a 24/7 emergency department, where standby staffing costs are high, volumes are relatively low and reimbursement comes nowhere near to covering expenses," Christina Campos, administrator at Guadalupe County Hospital in New Mexico, said last year.
Policies like sequestration and cuts to bad debt reimbursement continue to roil rural providers. Sequestration, a Budget Control Act of 2011 provision that trigged 2% annual cuts to Medicare, has disproportionately hurt rural hospitals. That, combined with a 35% cut to Medicare reimbursement for bad debt, have dented rural hospital revenues by $531.6 million a year, according to Chartis' analysis. That translates to potential losses of 11,540 jobs and $1.3 billion in gross domestic product. Those projections are conservative, Topchik said.
"Without a hospital, these small American towns dry up and blow away," he said. "When you track a rural community two, three years after a hospital closes, a third of the tax revenue disappears and businesses shutter."
But industry observers are hopeful that tweaks to the Medicare wage index will buoy rural hospitals. Traditionally, higher cost-of-living states like California and New York benefited while largely rural states where workers are paid less fared worse.
Experts hope that the bipartisan Rural Emergency Acute Care Hospital Act would help. It would create a new Medicare classification that would allow rural hospitals to offer emergency and outpatient services but no longer have inpatient beds. Payment rates would equal 110% of the reasonable cost of providing outpatient and transportation services.
Meanwhile, hospitals like Guadalupe County have reduced their inpatient footprint and pivoted to more outpatient services. Lebanon, N.H.-based Dartmouth-Hitchcock Health recently partnered with West Health—a group of not-for-profit organizations looking to improve senior care—to create a geriatric emergency department. It would be one of the first to focus on a largely rural population, executives said.
Urgency is important, given that 19 rural hospitals closed last year, marking the most on record, Topchik said.
"I think it is a moral issue," he said. "We are in a crisis."