Ethan Rhodes
There are approximately 6,000 hospitals in the United States, and rural hospitals are defined as those not located within a metropolitan area designated by the U.S. Office of Management and Budget and the Census Bureau. In recent years, hundreds of rural hospitals across the U.S. have been at risk of closure, conversion, or service reduction due to financial distress and inadequate payments from health insurance plans. Since 2005, there have been 196 rural hospital closures and conversions, with 112 complete closures and 84 converted closures. The financial problems facing rural hospitals have led to concerns about access to healthcare and job loss in these communities.
| Characteristics | Values |
|---|---|
| Number of hospitals in the US | 6,093 |
| Number of rural hospitals at risk of closure | Over 300 |
| Number of rural hospitals closed since 2005 | 196 |
| Number of rural hospitals closed since 2010 | 153 |
| Number of rural hospitals that have stopped delivering babies in the past 5 years | Over 100 |
| Number of rural hospitals that still have labor and delivery services | Less than half |
| Number of rural hospitals in 2023 | 50 fewer than in 2017 |
| Definition of a rural hospital | A hospital not located within a metropolitan area designated by the U.S. Office of Management and Budget and the Census Bureau |
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What You'll Learn
Financial problems and solutions
There are around 6,000 hospitals in the United States. Many of these hospitals face financial challenges, particularly in rural areas. This is due to a variety of factors, including low patient volumes, high costs, and insufficient reimbursement from payers like Medicare and Medicaid.
Financial Problems
Rural hospitals tend to have low patient volumes because they serve small, isolated communities. Additionally, residents may travel to urban areas to receive care, further reducing patient volumes. As a result, rural hospitals may have higher costs on average and may not be able to offer specialized services. Most small rural hospitals lose money delivering services to patients, while most urban and larger rural hospitals turn a profit. This discrepancy is partly due to the higher costs of delivering care in rural areas, which are not always covered by payments from Medicare, Medicaid, or private insurance plans.
Another issue is the "downside risk," where rural hospitals are penalized for improving the health of their residents. If community residents are healthier and need fewer emergency department visits and other services, the hospital's revenues will decrease, but the costs of maintaining essential services remain the same, increasing financial losses. Medicare's cost-based payment system for Critical Access Hospitals exacerbates this problem, as Medicare's share of the hospital's costs decreases if beneficiaries need fewer services.
Solutions
Several solutions have been proposed to address the financial challenges faced by rural hospitals:
- Expanding Medicaid eligibility: This has been shown to improve the financial performance of rural hospitals by reducing losses on uninsured patients and bad debt. However, it may not reduce losses on services delivered to Medicaid patients due to low payment amounts, and it does not address the issue of losses on other types of insurance, including Medicare Advantage plans.
- Converting hospitals to "Rural Emergency Hospitals": By eliminating inpatient services, rural hospitals can focus on providing emergency care, which may be more financially sustainable.
- Creating a "global budget" for the hospital: This involves allocating a set amount of funding to the hospital, which can help stabilize finances and allow for better financial planning.
- Paying hospitals "shared savings" bonuses: If a hospital reduces total healthcare spending for its patients, it can receive bonuses, incentivizing cost-effective practices.
- Government relief funds: During the COVID-19 pandemic, rural hospital finances improved due to government relief funds. However, these funds are typically tied to specific expenses or lost revenues related to the pandemic.
- Multi-payer solutions: Given that no single payer is solely responsible for financial losses at rural hospitals, multi-payer solutions are needed to address the issue comprehensively.
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Closures and conversions
Since 2005, 146 rural hospitals in the US have closed or been converted to non-acute care facilities, with 81 shutting down entirely. The remaining 65 underwent "conversion", a term used to describe when a hospital ceases to provide inpatient services but continues to offer primary and outpatient care, as well as emergency services. This distinction is important because a hospital that moves locations may still be accessible to the community it serves. For example, a move across town or outside city limits would not typically be considered a "closure", but a reopening in a community 10-15 miles away likely would.
Financial stress is the primary driver of rural hospital closures and conversions, with smaller size, lower occupancy rates, and greater vulnerability to economic fluctuations compared to urban hospitals. The COVID-19 pandemic exacerbated these financial pressures, as rural hospitals were forced to reduce money-making procedures and incur additional costs for personal protective equipment and other pandemic-related services. Low reimbursement rates from private insurers have also been cited as a significant factor, with private insurers covering the majority of patient costs.
The impact of rural hospital closures or conversions to emergency-only services extends beyond healthcare access. The local economy suffers as businesses become hesitant to establish themselves in areas without healthcare infrastructure. Existing businesses that rely on rural land, such as farms, have to cope with a less healthy workforce. Additionally, patients may delay seeking healthcare until their condition worsens, resulting in increased hospitalization rates and longer hospital stays. This, in turn, contributes to emergency department crowding in urban areas, as patients from closed rural hospitals are redirected to urban hospitals, sometimes even across state lines.
To address the financial challenges faced by rural hospitals, the Federal Government has provided financial support through various programs, including the USDA's Community Facilities Program. However, current federal programs are not enough to solve the problems facing small rural hospitals, and proposed changes may exacerbate the issues. Adequate reimbursement rates and an improved payment system are necessary to sustain essential healthcare services in rural communities.
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Inadequate insurance payments
The American rural health safety net has been in crisis mode for nearly 15 years, with rural hospital closures, decreasing reimbursements, declining operating margins, and staff shortages. Since 2005, more than 190 rural hospitals have closed across the United States, and many more are in danger of closing due to financial difficulties. The primary cause of these problems is inadequate insurance payments from health insurance plans, which are insufficient to sustain essential services in rural communities.
Private insurance plans, Medicare Advantage plans, and Medicare are the primary sources of inadequate payments to rural hospitals. Private insurers are unwilling to reimburse the full cost of procedures, and Medicare Advantage's prior authorization policies create challenges. Rural hospitals serve smaller patient populations, and procedures performed on fewer patients do not generate sufficient revenue to cover a facility's fixed costs. As a result, rural hospitals need to be paid more per procedure than larger hospitals just to break even.
The current fragmented tangle of federal and state programs attempting to address the rural hospital funding problem has not been effective. These programs do not adequately consider the unique financial challenges faced by rural hospitals, and some proposed changes, such as those related to Medicare expansion, could exacerbate the issues. To prevent rural hospital closures, it is crucial to increase payments from private health insurance companies and choose plans that adequately reimburse rural hospitals.
Expanding Medicaid eligibility and increasing Medicare payments can also help reduce financial losses for rural hospitals. However, the root cause of most losses is not uninsured patients but low payments from private health plans for insured patients. Creating global hospital budgets can protect hospitals from revenue losses due to lower service volume, but it does not address the rising costs that hospitals face. To ensure the survival of rural hospitals, it is essential to address the inadequate insurance payments and implement coherent national funding policies that support the delivery of affordable, high-quality healthcare in these communities.
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Loss of labour and delivery services
There are 6,093 hospitals in the United States, and the American Hospital Association defines a rural hospital as one that is not located within a metropolitan area designated by the U.S. Office of Management and Budget and the Census Bureau.
Over the past two decades, nearly 200 rural hospitals have closed, and more than half of rural U.S. hospitals now lack labour and delivery services. This is due to a variety of factors, including the high cost of maintaining obstetric services, shortages of labour and delivery clinicians and nurses, safety concerns, declining birth rates, staffing challenges, and financial losses.
In Iowa, for example, at least 41 hospitals have closed their labour and delivery units since 2000, and the state ranks near the bottom of all states for obstetrician-gynecologists per capita. The loss of these services can have a significant impact on the community, including discouraging young people from moving to the area, driving birth numbers even lower, and reducing access to important postpartum support services such as lactation and breastfeeding support, childbirth education classes, and perinatal mental health services.
The absence of labour and delivery services can also harm infant and maternal health. Studies have shown that more remote rural counties without hospital-based obstetric services have an increased risk of preterm birth. Additionally, people giving birth in rural areas may need to travel further to access the specialized healthcare they need, which can be especially difficult for those without reliable transportation.
To address these issues, rural hospitals need adequate payments and a better payment system to provide essential healthcare services for their communities.
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Impact on employment
The closure of rural hospitals has a significant impact on employment in several ways. Firstly, it directly affects the jobs of those working in the hospital. Rural hospitals often employ a significant number of people in the community, and their closure can result in job loss and financial insecurity for those individuals. This can have a ripple effect on the local economy, as the spending power of the affected households decreases.
Secondly, the closure of a rural hospital can lead to a "brain drain" in the community. Healthcare professionals, including doctors, nurses, and other specialists, may be forced to relocate to find new employment opportunities. This loss of skilled professionals can have long-term implications for the community's ability to attract and retain other businesses and industries that require a healthy and skilled workforce.
Additionally, the closure of a rural hospital can create a vacuum in the local healthcare sector, leading to the emergence of alternative healthcare providers. These may include clinics, standalone emergency centers, or telemedicine services. While these alternatives can provide some level of healthcare access, they may not offer the same level of employment opportunities as a full-service hospital. They may rely more heavily on technology and remote services, potentially reducing the overall number of jobs available in the community.
The financial health of rural hospitals is also closely linked to their employment practices. Many small rural hospitals may have a positive total margin, even if they incur losses on patient services, due to local tax revenues or state grants. However, if these sources of revenue were to decrease or be terminated, the hospital's ability to cover its costs, including employee salaries, would be significantly impacted. This could result in job losses or reduced wages for employees.
Furthermore, the conversion of a rural hospital to a Critical Access Hospital or Rural Emergency Hospital can also affect employment. These designations come with specific funding and reimbursement structures that may influence staffing levels and job roles. Critical Access Hospitals, for example, have a bed limit of 25 and are reimbursed based on reasonable costs rather than a fixed rate per service, which can influence staffing decisions.
In conclusion, the impact of rural hospital closures on employment is multifaceted and far-reaching. It directly affects the jobs of healthcare professionals, creates economic ripple effects in the community, and influences the overall healthcare landscape in rural areas. To mitigate these impacts, adequate funding, improved payment systems, and support for rural healthcare infrastructure are crucial.
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Frequently asked questions
There are 6,093 hospitals in the United States.
There have been 196 rural hospital closures and conversions since January 2005, with 153 of these occurring since 2010. In 2023, there were 50 fewer rural hospitals than in 2017.
Over 300 rural hospitals across the US are at disproportionate risk of closure, conversion, or service reduction. Additionally, over 700 rural hospitals (one-third of all rural hospitals in the country) are at risk of closing in the near future.
