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Study: Financial troubles place rural hospitals and their communities at risk

A recent study from the Center for Healthcare Quality and Payment Reform (CHQPR) spotlighted the significant financial troubles currently faced by nearly half of all rural hospitals. The study analyzed the most recent three-year period of financial data available for rural hospitals across the country; its results predict an at-best uncertain future for rural hospitals in nearly every state, or 40% of all rural hospitals nationwide.

The study categorized at-risk rural hospitals in one of two categories: those at “immediate risk” of closure and those at “high risk of closure in the near future.” Hospitals considered at immediate risk of closure had both (i) negative total margins for the most recent three-year period for which financial data was available and (ii) low or non-existent financial reserves. For purposes of this study, “low or non-existent financial reserves” means that a hospital’s total liabilities exceed its assets (excluding buildings and equipment) or that its assets exceed its liabilities, but only enough to sustain an additional two years’ worth of losses. Hospitals considered at high risk of closure in the near future, on the other hand, had (i) minimal financial reserves (but enough to cover annual losses for at most five years) or (ii) high dependence on non-patient service revenues, matched with low or non-existent financial reserves, as defined above. In other words, the continued operation of these “high-risk” rural hospitals relied largely, if not entirely, on government support.

In the end, more than 500 rural hospitals were found to be at immediate risk of closure; more than 300 were found to be at high risk of closure in the near future. “At a minimum,” the study found, “more than 20% of rural hospitals are at risk of closing in almost every state in the country, and in 15 states, the majority of rural hospitals are at risk of closing.” Some of the most severely impacted states include Texas, where 81 out of 146 rural hospitals are at risk of closing (for a total of 55%); Mississippi, where 41 out of 65 rural hospitals are at risk of closing (for a total of 63%); and Kansas, where 76 out of 104 rural hospitals are at risk of closing (for a total of 73%). Results were not limited by geography: for example, all three – or 100% – of Connecticut’s rural hospitals are currently at risk of closing, ranking the state ahead of all others. And in Hawaii, 8 out of 12 rural hospitals are at risk of closing, for a total 67%.

If accurate, these sobering statistics predict trouble for rural communities’ continued access to care. The study notes: “Closure of [a rural hospital] would mean the community residents have no ability at all to receive emergency or inpatient care without traveling long distances… In many rural communities, the hospital is the only place where residents can get laboratory tests or imaging studies, and it may be the only or principal source of primary care in the community.”

Rectifying the financial situation for these rural institutions will almost certainly require a multi-faceted approach. The study cites several factors contributing to the current crisis: inadequate payments from private insurers, bad debt attributable to uninsured individuals (particularly in states that have not expanded their Medicaid programs), and staffing and capacity issues. An infusion of government funds – around $3.4 billion, or .01% of total national healthcare spending – could prevent closures and preserve access. CHQPR predicts that the critical state of rural hospitals will inevitably yield an increase in healthcare spending, whether that spending subsidizes continued rural operations or whether that spending is attributable to additional strain ultimately placed on more urban providers in the absence of their rural counterparts.

While not all rural hospitals captured by the study – particularly those identified as high risk – may be in a position to do so, struggling rural hospitals may consider certain financial and operational changes to bolster their operations in the long term. For example, at-risk rural hospitals, and in particular those that are government owned, might consider joint ventures with for-profit entities to obtain access to new sources of capital. At-risk hospitals could also explore non-control transactions, or hospital affiliations that do not involve the sale of a majority interest or a transfer of governance and control. These might include special member models, branding arrangements, joint operating agreements, and regional collaborations. From a more operational perspective, at-risk hospitals could transition to ambulatory care delivery models, partnering with larger hospitals for physician coverage, telemedicine, and inpatient or specialty care.

The ultimate solution for each at-risk rural hospital will necessarily be unique, and must account for the patient care needs of the surrounding community. And, as the CHQPR study makes clear, must take effect sooner rather than later.

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