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Why rural hospitals are struggling and what can be done

Mar 26, 2019

More than 20 percent of the nation’s rural hospitals are struggling to keep their doors open, according to a recent report from Modern Healthcare. Rural hospitals in the South and Northeast are particularly at risk, with several states reporting over 40 percent of their rural hospitals are at risk of failure.

For the communities that rely on these hospitals, the closure of a facility can be devastating. These hospitals are often the economic drivers in their respective communities, providing jobs and subsequently income to a large portion of residents, and they are also critical to the care of their communities, delivering life-saving support to residents who would otherwise have nowhere to go. 

But why, if these hospitals are so essential to their communities, are they struggling? The answer to this question is the result of a number of factors.

1. Rural populations

Rural populations are falling, leading to a decline in inpatient admissions for rural hospitals, and the residents who remain in rural areas are often unhealthier than their urban counterparts. The majority of patients in rural communities are on government-sponsored plans or are uninsured. Medicare and Medicaid reimburse at a lower rate than commercial insurers, placing a high financial burden on the facilities caring for those patients.

2. Capital/Revenue

Government reimbursement programs typically pay for services based on the national averages for similar services. Increasingly, services are being provided by large, multi-system hospitals which can perform services more cheaply and efficiently than smaller hospitals. As a result, reimbursements aren’t covering costs in rural communities.

3. Size

Rural hospitals are often too large for the size of their communities — they have too many beds that are left empty as a result of falling inpatient admissions. According to Modern Healthcare Metrics, rural hospitals have an average occupancy rate of 55 percent. These facilities are costly to operate, and they do not offer the essential services these communities need in a financially sustainable manner, easily falling into the red due to shrinking reimbursement and rising costs. 

4. Employee recruitment

Given the lower pay and fewer resources characteristic of rural hospitals, they struggle to recruit and retain physicians and qualified employees. According to another report from Modern Healthcare, more than 4,420 areas across the United States are considered underserved by the U.S. Department of Health & Human Services, and that figure will increase as more rural hospitals close.  

5. Financial incentives

Currently, most rural hospitals are reimbursed based on how many services they provide. They do not have the flexibility or capital to provide full-scale preventive services to reach patients before they get sick. So how can they change the way they operate — and why would they — when there is little or no financial incentive to do so? Current financial incentives are not aligned in a way that would allow rural providers to adopt new payment models or make the shift to value-based care without significant assistance, and they can’t afford to do it alone.

Given the challenging circumstances in which these rural hospitals operate and the unique characteristics of each community, no plan of action can fit every rural hospital’s needs. However, there are options hospital leaders should consider when trying to improve quality of care, financial position or both.  

6. Collaboration

Teaming with a larger system or a group of other rural providers or neighboring hospitals has proven a viable option for many rural hospitals. In addition to gaining financial stability and resources, collaborating with larger systems in neighboring areas can help rural hospitals develop population health programs, which can benefit providers and patients. Sharing specialty services with nearby systems is another sustainable option that provides a broader continuum of care while reducing the financial burden on small rural hospitals. If hospitals merge and/or restructure based on the needs of their communities, they can reduce costs and focus on outpatient and preventive services, rather than staffing expensive acute-care beds.

7. Telemedicine

As noted by this Modern Healthcare report, “Telehealth is an important tool that can help rural providers maintain certain services…but broadband internet access and the current reimbursement model set limitations.” While there are technological limitations in some areas, telemedicine can provide rural residents with the care they need without having to staff an expensive acute-care facility.

8. Separate wants from needs

Rural providers must accept that offering every service under one roof might not be a possibility. By creating a community health needs assessment, rural hospitals can identify the most significant health risks faced by their residents and create a plan of action to address those issues, separating what a hospital would like to provide from what it must provide.  

“It’s more important that we have the right services for the community to ensure we have a financially viable hospital rather than hold on to excess beds,” said Joshua Ratner, senior vice president of network strategy for a health network in New York, in this Modern Healthcare report.

Success stories of hospitals in rural communities involve some form of transformation — from independent hospital to a collaborative effort, from one large facility to a series of outpatient clinics, from fully staffed facilities to telehealth services.

Offering sustainable, high-quality care is the goal of any hospital, and while that may be a more daunting task for rural providers, hospital leaders must keep that goal in mind when making tough decisions as to which of these options to pursue.

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