While many hospitals have struggled financially during the pandemic, few have struggled more than hospitals in rural areas. Yet if many rural hospitals close this year, COVID-19 will be only one straw that broke the camel’s back.
“For the last 20 years, rural hospitals have been struggling. That’s kind of who they are,” said Alan Morgan, CEO of the National Rural Health Association. “But COVID really knocked them off.”
There are 1,821 rural hospitals in the United States. Since 2005, 171 have closed. Twelve have closed thus far in 2020.
The closure of rural hospitals makes it more difficult for the roughly 46 million people living in rural America to access healthcare. Additionally, such hospitals provide rural areas with a significant number of jobs. Local economies suffer when a rural hospital shuts its doors.
The root of rural hospitals’ struggles is a 1980s Medicare payment system change. Prior to 1983, Medicare reimbursed hospitals for the cost incurred for treating Medicare patients. That year, Medicare began the switch to a “prospective payment system.” Under that system, hospitals are paid a fixed amount for the treatment they give to Medicare patients. It incentivizes hospitals to keep costs down so that the cost of treating a patient does not exceed the payment amount.
However, some patients require extended hospital stays, and the cost of treating them exceeds the Medicare payment. The financial burden of those patients is much greater for rural hospitals.
“If someone is admitted to the hospital for 27 days and the hospital gets paid $2,700 for that, if I’m a large hospital, I can probably cover that,” said Mark Holmes, director of the Cecil B. Sheps Center for Health Services Research at the University of North Carolina. “But if I’m a small hospital, one bad case can make a big difference, and I have less of a margin for that.”
According to the Sheps Center, one-half of rural hospitals have less than 30 days of cash reserves.
Rural hospitals are also more reliant on Medicare payments in recent years due to the “graying” of the U.S. population. In 2011, the first of the baby boomers turned 65, the age to qualify for Medicare.
“One thing that makes it difficult for a rural hospital is heavy reliance on Medicare and Medicaid,” said Terry Scoggin, CEO of Titus Medical Center, a rural hospital in Mount Pleasant, Texas. “We have an aging population, so over 60% of our patients are Medicare or Medicaid.” Neither of those programs, he noted, pay as well as private insurance.
There were nearly 49 million Medicare enrollees in 2011. By 2018, it was almost 60 million.
In 1997, Congress tried to ensure that people in rural America would have access to hospital care by establishing “critical access hospitals.” Medicare reimburses critical access hospitals for the cost plus 1% of treating Medicare patients, relieving such hospitals of some of the risks associated with the prospective payment system. But for a hospital to qualify as critical access, it must have no more than 25 hospital beds and be located more than 35 miles from any other hospital. Many rural hospitals do not meet those requirements.
Being a critical access hospital, though, is still no guarantee against closure. About 1 in 5 rural hospitals that have closed since 2005 were critical access hospitals.
The pandemic has only added to the difficulties.
“Rural hospitals lost almost all of their revenue for two months due to COVID-19, as all elective procedures were put on hold,” said Michael Topchik, national leader for the Chartis Center for Rural Health. Topchik stated that 79% of rural hospital revenues come from outpatient elective procedures. The Chartis Center estimates that 453 rural hospitals are currently at risk of closing.
Congress provided some aid to hospitals during the pandemic via the Coronavirus Aid, Relief, and Economic Security Act and the Paycheck Protection Program, but whether it will be enough to stabilize rural hospitals remains to be seen.
Those programs were apparently not sufficient for St. Luke’s Cushing Hospital in Leavenworth, Kansas. It will close on Oct. 1 despite attempting to make improvements to the hospital in recent years. Cushing was only a few months into some of those improvements when the pandemic hit.
“Like health care organizations everywhere, we stocked up on resources and staffed up on people to prepare for a surge in cases,” said a statement on Cushing’s website. “This increased expense came at the same time we had to defer elective procedures. These factors resulted in significant financial strain and ultimately led to the decision to close Saint Luke’s Cushing Hospital.”
The passage of Obamacare in 2010 has presented further challenges. Of the rural hospitals that have failed since 2005, 65% failed after Obamacare came into full effect in 2013.
Obamacare reduced the payments that the federal government made to hospitals for treating the uninsured and also limited their ability to write off bad debt. That likely hit rural hospitals harder than urban ones since rural areas tend to have more uninsured residents.
Those cuts were made to offset Obamacare’s expansion of Medicaid, the federal-state health program for the poor. In theory, many people previously uninsured would enroll in Medicaid, leading to more revenue for hospitals.
However, 13 states have refused to expand Medicaid. Eight of those states are in the South.
“If a [rural hospital] is in a state that did not expand Medicaid … that is highly predictive of hospital closure,” said Topchik.
Not everyone is convinced by that explanation.
“There is another school of thought that says that the South has always had hospitals that are facing tougher finances, and that was [the case] even before Medicaid expanded,” said Holmes.
Topchik also noted that rural hospitals that are part of a larger hospital system are at a lower risk of closure than ones that are “stand-alone.”
Titus is a stand-alone hospital, and Scoggin says that limits his administrative resources.
“Private insurers are always looking to not pay us,” he said. “We don’t have a lot of resources … to fight the denials, the first time, the second time, or the third time. We don’t have the resources to get into the billing the way the larger health systems do to ensure payment.”
Additionally, Obamacare compelled Medicare and Medicaid to focus more on value-based payments that require hospitals to meet certain goals, such as ensuring that enough of their patients keep their hypertension and diabetes under control.
“We have the opportunity to get the same amount of money as before, but we have to go through all of these hurdles now to get it,” said Scoggin. “We’re losing money that’s out there because we don’t have enough administrative personnel or resources [to comply].”
Finally, rural hospitals face an additional threat as COVID-19 appears to surge in rural areas.
“Rural hospitals, nationally, are stable. But this is a short window of time,” said Morgan. “Rural hospitals either have to find a way to fully restart outpatient elective procedures, or they are going to need additional federal assistance. And unfortunately, with the surges we’re seeing in rural areas right now, the option to reopen outpatient procedures isn’t there.”
