To explain how the accelerating penetration of Medicare Advantage is harming rural hospitals in ways that will likely require action by Congress and regulators to fix, Nemaha Valley Community Hospital CEO Kiley Floyd pointed to patients in her northeastern Kansas community who previously were covered by traditional Medicare.
One diabetic man who was not competent to mind his own finances used to have his care covered by regular Medicare and his veteran's benefits, Floyd said — until a Medicare Advantage marketer called and he said the magic word: "Yes."
Related: Medicare Advantage rate cut for 2025 finalized in CMS rule
"All of a sudden he doesn't have access to those other benefits. He doesn't need any other plans — he's a veteran," Floyd said. "He can no longer get his diabetic supplies paid for through his Medicare Advantage plan."
Another patient who is quadriplegic joined a plan that offered $250 a month for groceries. "It doesn't cover the cost of his care, but he has grocery money," said Floyd, whose 18-bed critical access hospital is about a 75-minute drive from Topeka, Kansas.
Facilities like hers don't turn away patients because they have poor insurance, she said. They try to serve them just the same, but increasingly confront private payers that throw barriers in their path, requiring time, staffing and money to overcome. And all too often, the plans simply don't pay. It's a trend that rural healthcare analysts say is rapidly driving the demise of small, remote hospitals across the country, and likely to exacerbate healthcare access difficulties for populations already at risk.
"Medicare Advantage is really an existential crisis threat," said Michael Topchik, executive director of the Chartis Center for Rural Health, who has worked with Floyd and many other hospital administrators. "It's not my words, it's the CEOs' with whom I work. That's what keeps them up at night."
Studies by Chartis and others paint the bleak picture for rural hospitals. According to a recent estimate by the nonprofit Center for Healthcare Quality and Payment Reform, about 700 rural hospitals are at risk of closing. A recent Chartis report estimated 167 rural hospitals have closed since 2010, with another 418 vulnerable to closure now.
Rural hospitals in the red
While there are many long-running reasons for the poor state of rural hospitals, particularly smaller facilities, the basic cause is that they get paid less than it costs to serve patients. According to CHQPR, the median margin on patient services at small rural hospitals is about minus 7%. And according to Chartis, the median overall operating margin for independent rural hospitals is 2.2% in the red. In Floyd's state, the negative margin is 10%.
The bulk of those shortfalls come from private payers, and often Medicaid — a problem that isn't new. What is new is the growth of Medicare Advantage plans in rural communities, supplanting traditional Medicare, which is rural hospitals' most reliable payment source, said CHQPR President and CEO Harold Miller.
According to the Chartis report, Medicare Advantage enrollment surged in rural communities by 48% from 2019 to 2023, with 35% of Medicare-eligible patients in those areas joining the private plans. At the same time, the data show that while temporary pandemic relief shored up hospital finances during some of that span, the percentage of rural hospitals operating at a loss rose from 43% to 50% in the 12 months before the Chartis report was released in March.
"What I'm kind of coming up with as a quote in my own head is that perhaps Chicken Little was right — to see half of rural hospitals now operating in the red is stunning," Topchik said. "So in the last five years we've seen the beginning of a hockey stick" trend line.
One big reason for small hospitals' financial woes, Miller said, is that unlike traditional Medicare, Medicare Advantage plans don't have to pay the full cost of services. While the rates that companies negotiate are not public, Miller points to specific data compiled by the administrator of Ozarks Community Hospital in Gravette, Arkansas, who showed Miller how much of the facility's revenue came from original Medicare versus Medicare Advantage, and found the Medicare Advantage plans paid about one-third less for the same services.
Prior authorizations denied
Another challenge is the bureaucratic hurdles related to prior authorization and claims denials. "They reject claims for any number of reasons, which forces the hospital to have to file the claim again," Miller said.
Floyd said about a quarter of her Medicare Advantage pre-authorizations are denied, which doesn't just cause care delays. "I've had to appoint two new people," she said, to deal with the added paperwork burden.
Solutions at the local end are not easy. Floyd said her staff conducts outreach to inform area residents about what they will lose if they switch to Medicare Advantage plans, but says too many of her patients are isolated, lonely or not entirely competent, and they fall for phone pitches. She's also planning to drop some of the plans that have been most problematic, as some other smaller hospitals have done.
Another small facility, 25-bed William Newton Hospital in Winfield, Kansas, stopped contracting with Medicare Advantage plans last fall, citing the low and delayed reimbursement, and a 500% surge in Medicare Advantage enrollment in their service area over five years. "These are issues healthcare providers have struggled with for several years, and the frequency and volume of issues seem to be getting worse," CEO Brian Barta posted on the hospital's website.
The more enduring solutions lie with the Centers for Medicare and Medicaid Services and Congress, analysts said.
Last week, the House Ways and Means Committee marked up a series of bills that are meant to help smaller facilities, including extending higher Medicare payments for low-volume and Medicare-dependent hospitals until September 2025, and making some tweaks to Medicare rules to help with staffing and ambulance access. But Miller and Topchik both said those would do little more than nibble around the edges.
In a brief interview after the session, Ways and Means Committee Chair Jason Smith (R-Mo.) said the issue of Medicare Advantage putting greater pressure on rural hospitals has "definitely been brought up," but he did not specify whether any legislation might be in the works.
"When it comes to access to care, we're looking at everything, because it's a real issue in rural America and underserved communities," Smith said.
The Senate Finance Committee is scheduled to hold a hearing Thursday on rural healthcare, with Medicare Advantage expected to among the topics.
Seeking payment parity
Miller cited two actions specifically targeting Medicare Advantage plans that could help. One would be to require the plans to pay critical access and other small rural hospitals as much as regular Medicare, and to pay in a timely fashion. He said plans should be required to contract with any hospital that is willing to have them, in order to help reduce power imbalances when local administrators bargain with large corporations.
Floyd said one good step would be to require an end-of-year settlement process like there is in traditional Medicare, where under- or over-payments are reconciled and hospitals get compensated for payment shortfalls.
Topchik, who is among the witnesses scheduled for Thursday's Senate hearing didn't offer specific policy proscriptions, but raised questions for lawmakers to consider.
"I am imploring Congress not to do anything specific, but that they need to figure out how to bulldoze the way forward, pave the way ... and create potential parity, so that what's good for the goose could be good for the gander," Topchik said. "Let the private sector do what it does best, but let's perhaps put some guardrails or guidelines in place."
CMS targets marketing
CMS has already begun to add some guardrails, finalizing a rule earlier this year that requires insurers to speed up prior authorizations, improve data interoperability, and release prior authorization decision data.
The agency has also acted to curb abuses in Medicare Advantage marketing, while requiring more public disclosure on the impacts of pre-approval requirements. It is also considering increasing transparency requirements.
Floyd said better consumer protection is essential, suggesting that marketers should not be allowed to switch patients out of regular Medicare with just a phone call. There should be an application that a person's caretaker can review, she said, "to protect these people so they can't just say 'yes' on the phone." Medicare rules do require that brokers record such calls, that they follow a specific script explaining the new plan, and that they get a clear statement from the beneficiary requesting enrollment.
Industry touts MA benefits
Associations representing insurers and Medicare Advantage plans offered counter information that suggested Medicare Advantage plans are often better for patients and rural hospitals.
Healthcare insurance association AHIP pointed to a federally funded study published in the American Journal of Managed Care last fall that used data from before the pandemic, 2008 through 2019, that echoed Miller and Topchik's data on growing Medicare Advantage penetration, but found the surge was associated with an improvement in rural hospital finances.
According to AHIP's data, each percentage-point increase in Medicare Advantage penetration in rural counties was associated with a 4% lower risk of hospitals closing. It did note, however, that there was still relatively little Medicare Advantage penetration among patients at critical access hospitals, which are smaller. Chartis' data, which is more recent, finds small hospitals becoming less stable. Miller noted the problems are most acute at those small hospitals, while larger rural facilities are in better financial condition.
A spokeswoman for the Better Medicare Alliance, which is funded by Medicare Advantage plans, also pointed to the same study AHIP cited, and added a study it funded through healthcare research and consulting firm ATI Advisory that concludes traditional Medicare beneficiaries in rural areas pay 49% more in premiums and out of pocket expenses than enrollees in Medicare Advantage.
The alliance also pointed to other reasons for rural hospitals' struggles, including the end of the federal government's boosted pandemic support; the fact that a one-third of rural hospitals are in states that have not expanded Medicaid, and industry-wide workforce shortages that make it difficult and more expensive for small hospitals to hire doctors and nurses.
Topchik acknowledged that many rural Americans find the private Medicare plans appealing, but based on his more recent data, predicted Congress and regulators will have to intervene.
"This Medicare Advantage thing is only growing — a very popular program — but it just has these unintended consequences that are going to absolutely sink rural hospitals," he said.
