More rural hospitals are in danger of closing, in large part because of insufficient reimbursement from private health plans, a report found.
“The primary reason hundreds of rural hospitals are at risk of closing is that private insurance plans are paying them less than what it costs to deliver services to patients,” the report from the Center for Healthcare Quality and Payment Reform (CHQPR) noted. “Although the at-risk hospitals are losing money on uninsured patients and Medicaid patients, losses on private insurance patients are the biggest cause of overall losses.”
The report documents 703 rural hospitals nationwide at risk of closing, compromising almost a third of rural hospitals. This is on top of the 105 hospitals that have closed since 2015. In addition, more than two dozen hospitals shut down their inpatient services in order to become Rural Emergency Hospitals (REHs), which offer emergency services only, the report explained.
People may think that changing from being a full-service hospital to becoming an REH means eliminating only inpatient beds, but that’s not true, said Harold Miller, MS, president and CEO of the CHQPR, based in Pittsburgh, in a phone call. “These small hospitals have what are called ‘swing beds’ — they can swing an acute-care [inpatient] bed over to a skilled nursing facility bed … Many of the hospitals that closed their inpatient services had to close their skilled nursing facilities.”
Losing those swing beds hurts patients that, for example, “went to a hospital in a distant city and got their hip replaced,” he continued. “It used to be that they could come back to the hospital in their city and get rehab there, but they can’t do that anymore.” Instead, they have to stay for several weeks in the more distant facility.
In many small communities, the hospital is everything when it comes to healthcare, Miller said. “There is only primary care in the community because the small rural hospital employs primary care physicians; there’s only nursing care because the hospital runs it. If you’re a patient with diabetes in this community, and you need to get periodic blood tests, you have to drive for 30 minutes, 45 minutes, or an hour or more” if the hospital can’t take care of you.
The REH program was started by the federal government “based on the persistent myth that the reason rural hospitals are losing money is that they’re forced to deliver inpatient care, and if you relieve them of the responsibility of having inpatient care, they’ll be better off,” Miller said. “That’s not true.”
Instead, “in most cases hospitals are losing money on the emergency department … and losing money on primary care services,” he noted. “They may [also] be losing money on their inpatient unit, but it’s not that everything else is profitable and the inpatient unit is dragging them down.”
Rural hospitals have to make a lot of calculations when considering whether to convert to an REH, Miller said. That’s because most small rural hospitals are designated as “critical access hospitals” (CAHs), which means they get paid by Medicare on a “cost-plus” basis — that is, how much it costs to provide a service plus extra as a small profit.
Becoming an REH means the facility loses its CAH status. On the plus side, however, REHs get an annual grant of $3.2 million from Medicare to help them keep afloat, plus they get Medicare payments that are 5% higher than comparable hospitals in other types of geographic areas. Those enhanced payments, however, “may be less than the hospital is getting as a CAH,” he said.
What can be done to help rural hospitals stay in business? The annual Medicare grant is a good idea because it’s akin to paying for “standby capacity” — the idea that the hospital will stay open 24/7 whether it has any patients or not, and really will be there in an emergency, Miller said.
However, “it needs to be structured better than the way it is today,” he added. “If a community only needs $1 million to be able to run an ED, why would you give them $3.2 million? It should be based on something related to how big the ED needs to be and the other services [the hospital] is delivering.”
Maternity care units in rural hospitals are also suffering, according to another CHQPR report. “Literally every month, hospitals are shutting down labor and delivery (L&D) services,” Miller said. Most hospitals that close don’t do so all at once; instead they eliminate services one by one. Maternity care is often a casualty because “it is a big loser for many hospitals; they don’t get paid enough to cover” the cost of care.
Helping hospitals maintain their L&D services “will then boost their overall finances, so the two are connected in that regard,” said Miller. “The whole thing is about preserving services in the community.”
A move to help rural hospitals keep maternity care services is afoot on Capitol Hill, he said, noting that Sen. Ron Wyden (D-Ore.), chair of the Senate Finance Committee, is circulating a bill called the Keep Obstetrics Local Act. That bill increases Medicaid funding for obstetric services and also provides standby payments to keep L&D units open.
The American Hospital Association (AHA), which is also concerned about rural hospital closures, is urging the federal government to make permanent the Medicare-Dependent Hospital (MDH) program, which provides additional payments to small rural hospitals where at least 60% of admissions or patient days are from Medicare patients.
The association is also seeking to make permanent the Low Volume Adjustment (LVA) program, which provides increased payments to isolated, rural hospitals with a low number of discharges. “The MDH designation and LVA protect the financial viability of these hospitals to ensure they can continue providing access to care,” the AHA said in its 2024 Rural Advocacy Agenda paper.
Joyce Frieden oversees MedPage Today’s Washington coverage, including stories about Congress, the White House, the Supreme Court, healthcare trade associations, and federal agencies. She has 35 years of experience covering health policy. Follow
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