Why Rural Hospitals Across America Are at Risk of Closure

A recent report by Center for Healthcare Quality and Payment Reform has revealed that more than 700 rural hospitals are on the verge of closure due to severe financial distress. This crisis could have devastating consequences for millions of Americans living in rural areas who rely on these facilities for essential medical care.

The Negative Impact of Rural Hospital Closures

The closure of rural hospitals is not a new phenomenon, but the scale of the current crisis is unprecedented. Over the past decade, more than 100 rural hospitals have already shut their doors leaving many communities without critical healthcare services such as emergency rooms, inpatient care, and other essential medical services. This lack of access to hospitals for the rural community is inconvenient for many and could have a negative overall effect on the health of this population.

Rural hospitals are crucial to surrounding communities and provide not only emergency care but also routine medical services, preventive care, and support for chronic conditions. When these hospitals close, residents are often forced to travel long distances to access medical care, which can be both costly and time-consuming. When rural residents have life-threatening emergencies, the distance to travel can be fatal.

Why Are Rural Hospitals Struggling to Stay Open?

Rural hospitals are having difficulties attributed to several factors. One main issue is the higher cost of delivering healthcare in small, rural communities compared to urban areas. Rural hospitals typically serve a smaller population, which means that the costs of maintaining a hospital—including salaries for staff, equipment, and facility maintenance—are spread over fewer patients. This results in higher per-patient costs that are not always covered by insurance payments.

Rural hospitals often struggle with lower patient volumes and fewer financial resources. Many rely on local tax revenues and state grants to make up for the shortfall between their operating costs and the revenue they receive from patient services. However, these supplementary funds are not guaranteed and can fluctuate based on economic conditions and political priorities.

The Financial Reality

The majority of rural hospitals operate at a financial loss when it comes to patient services. This loss is exacerbated by the inadequate reimbursement rates from health insurance plans, which do not fully cover the costs of care in these settings. Rural hospitals face higher operational costs due to the need to maintain a full range of services, even if patient volumes are low. Despite their best efforts to manage these costs, many hospitals find themselves in a precarious financial position.

Hospitals at the highest risk of closure are those with significant debt compared to their assets. These institutions often lack sufficient net assets (excluding buildings and equipment) to offset their losses for more than a few years. When the financial reserves of a hospital are depleted, it becomes increasingly difficult to continue operating without a substantial influx of additional funds.

How Can It Be Fixed?

To address the financial instability facing rural hospitals, the report from the Center for Healthcare Quality and Payment Reform offers two key recommendations:

1. Reform Health Insurance Payments

The current structure of health insurance payments is one of the main contributors to the financial struggles of rural hospitals. The reimbursement rates are established for larger urban hospitals, and are often not suitable for rural settings. Rural hospitals are in need of health insurance payments that accurately reflect the costs of providing care in these communities to keep their doors open. 

Reforming payment structures to better align with the unique financial needs of rural hospitals could provide a much-needed lifeline. This would involve adjusting reimbursement rates to cover the true cost of care, including the fixed costs that rural hospitals incur. Such reforms would help ensure that these hospitals can continue to operate and provide essential services to their communities.

1. Standby Capacity Payments

The second recommendation is the idea of standby capacity payments. A  standby capacity payment is a payment made to a hospital to cover the fixed costs of essential services, such as the emergency department, laboratory, or inpatient unit. These payments are intended to ensure that hospitals can maintain the necessary infrastructure and staffing to provide care, even when patient numbers are low. Rural hospitals currently do not receive compensation for the availability of essential medical staff, such as physicians, nurses, and other healthcare professionals. Standby capacity payments would address this gap by providing financial support to cover the fixed costs of maintaining a ready medical staff, even if patient volumes are low.

These payments would help rural hospitals manage the financial burden of being on standby to respond to emergencies, which is a vital service for any community. By compensating hospitals for the availability of critical staff, this approach would help ensure that rural hospitals can remain open and provide the necessary care when it is needed most.

To prevent further closures of rural hospitals and protect the health of many rural residents, significant changes are needed in how both private insurers and public insurance programs approach the payment for rural healthcare services. Without these changes, the financial instability of rural hospitals will likely continue, leading to more closures and reduced access to care for rural communities.

Keeping rural hospitals open is not just a matter of financial stability; it is a critical issue that affects the overall well-being of rural communities. Access to healthcare is a right, and ensuring that all Americans, regardless of where they live, have access to quality medical services is essential for a healthy and equitable society.

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