It’s a dilemma that many small rural hospitals face — how to continue operating as expenses increase while revenue streams, especially traditional Medicare reimbursements, decline.
As Brock Slabach, chief operating officer at the nonprofit National Rural Health Association (NRHA), explains 152 rural hospitals have closed since 2010 and hundreds more are vulnerable to closure.
The nonpartisan organization, which has tens of thousands of members, advocates on behalf of healthcare entities that serve rural communities.
“According to our data partner, the Chartis Center for Rural Health, in 2024 46% of rural hospitals had negative operating margins,” Slabach said. “They estimate that about 432 are vulnerable to closure. The 10 states that did not expand Medicaid are home to 205 of these vulnerable hospitals. While rural areas make up 80% of the land mass, they contain 17 to 20% of the population. The challenge is how do we continue to provide care to these populations which play a key role in supplying food, fuel and fiber to our urban centers.”
Unlike their larger counterparts, Slabach said these institutions have much lower patient volumes, making it more difficult to negotiate with insurance providers.
They also face employee shortages, often requiring them to pay more to attract and retain healthcare workers.
“One of the biggest problems for small rural hospitals in recent years has been the shift to Medicare Advantage programs from Medicare Parts A and B, which provided federally guaranteed payment rates to rural hospitals such as Critical Access Hospitals and Sole Community Hospitals,” Slabach said. “Medicare Advantage programs are commercial plans, which may provide lower reimbursement rates to low-volume, rural hospitals. There are also issues with preauthorization and denials.”
Harold Miller, president and chief executive officer of the Center for Healthcare Quality and Payment Reform in Pittsburgh, said federal grants helped rural hospitals stay afloat during the pandemic, but that temporary lifeline has now dried up.
Making matters worse, supply chain issues have bumped up costs and private insurance payments haven’t kept pace, causing greater losses, he said.
“Small rural hospitals and large hospitals have the exact opposite payment concerns,” Miller said. “Most urban hospitals and large rural hospitals make profits on payments from commercial insurers, but not on payments from Medicare and Medicaid, while small rural hospitals typically lose money on payments from private insurance companies and get higher payments from Medicare and even Medicaid. As more Medicare beneficiaries switch to Medicare Advantage plans run by private insurance companies and Medicaid programs face potential cuts, this will exacerbate the financial difficulties that rural hospitals face.”
The fight to stay afloat
Miller said even if a rural hospital doesn’t close, it might be forced to eliminate certain specialties, particularly labor and delivery.
“For small rural hospitals, typical payments for labor and delivery services are not adequate to cover the cost of services,” Miller said. “If labor and delivery services are eliminated, a woman may have to travel a long distance for prenatal care and to deliver her baby. Moreover, if the hospital no longer delivers babies, it may lose other types of women’s healthcare services. All of this contributes to higher mortality rates for women and infants in rural areas.”
For those institutions that continue to provide such care, hospital executives are coming up with creative ways to staff departments, but these alternatives generally increase costs.
Locum Tenens staffing agencies provide physicians specializing in services like obstetrics on a temporary basis to help fill gaps or cover those on vacation.
“It is increasingly difficult for a hospital that delivers 200-300 babies a year to have enough full-time OB-GYNS on staff to provide 24/7 call coverage,” Miller said. “So the hospital may have to contract with outside obstetricians who will each come to work for a week at a time and be available 24 hours a day to deliver babies. There are staffing companies that recruit physicians to do this kind of work for labor and delivery, emergency care and other services. This can be very expensive for the hospital because it has to cover the physician’s travel and living expenses and the staffing company’s fees as well as the compensation to the physician, but there may be no other way to get adequate physician coverage to support the services.”
On March 1, 2024, Ridgecrest Regional Hospital in California suspended its labor and delivery services amid a shortage of providers and inadequate reimbursement schedules. While it continued to operate its women’s health clinic, other operations such as pain management and urology were reduced.
For most of the year, women in the community had to travel for 90 minutes or more in order to receive prenatal care or to deliver their babies, Miller said.
But unlike many other hospitals, the closure was only temporary.
In December, the hospital restored labor and delivery services after being awarded a government contract through the Department of the Navy enabling it to provide standby medical services, including labor and delivery for 12 months.
In a press release CEO Jim Suver stated, “While we are celebrating this victory with enthusiasm, we know that the financial solution is only short term. As a hospital, and as a community, we will continue to engage our elected officials in order to ensure that long-term solutions for sustainable healthcare are identified and implemented.”
Solving the dilemma
To help stem rural hospital closures, the Consolidated Appropriations Act of 2021 created a new Medicare provider type, the Rural Emergency Hospital (REH).
The designation allows eligible institutions to receive a $3.3 million annual facility payment in addition to payments for services, said Miller.
Medicare pays rural emergency hospitals 5% more than the rates it pays for outpatient services at larger hospitals, although this may be less than what a Critical Access Hospital received prior to becoming an REH, Miller added.
To be eligible, a hospital had to be a Critical Access Hospital or a rural hospital with 50 or fewer beds as of Dec. 27, 2020.
The facility also had to be enrolled and certified to participate in Medicare as of the same date.
Rural Emergency Hospitals are required to provide 24-hour emergency and observation care, but they are prohibited from offering acute inpatient services, said Miller.
“The problem with this program is that hospitals have to eliminate inpatient services in order to qualify for the annual payment, which means residents of the community have to be transferred to hospitals in distant communities if they need inpatient care,” Miller said.
Dan Glessner, a shareholder in the Akron office of Roetzel & Andress, said eliminating key services like labor and delivery — which has a negative impact on patients — is often driven by a rural hospital’s inability to employ the necessary staff to avoid liability.
Glessner said under the 1986 Emergency Medical Treatment and Labor Act (EMTALA), Medicare-participating hospitals with emergency departments are required to screen and provide stabilizing treatment to patients with emergency medical conditions regardless of their ability to pay.
“A hospital cannot simply turn someone away who is experiencing an emergency situation because it does not have the resources or capacity to stabilize the patient because that would violate the law,” said Glessner, who focuses on health law. “From a risk management standpoint, a hospital must have quality providers on hand to provide appropriate care, which is becoming more challenging in rural locations.”
While federal programs do exist that provide incentives, such as student loan repayment assistance for physicians who practice in rural areas, Glessner said the government has to do more to solve the problem.
“Rural hospitals must be subsidized in some manner,” Glessner said. “The legislation that does exist does not go far enough and that’s why so many of these hospitals have closed or are at risk of closing.”
Slabach said his association is keeping a close watch over legislation that would both improve and create additional burdens on rural hospitals that are still operating.
“The current Congressional continuing resolution which funds government operations expires on March 14, and we are seeking an extension of public health emergency telehealth funding and essential rural payment programs such as Medicare Dependent Hospital, Low-Volume Hospital and rural ambulance add-on payments, while fighting against cuts to Medicare and Medicaid,” Slabach said. “NRHA also opposes a provision to impose Medicare site-neutral payments that would cut the payments for many services provided in hospitals.”
Slabach said the association also supports the Rural Hospital Closure Relief Act of 2023, which would allow additional institutions to qualify as critical access hospitals that receive special payment under Medicare.
“We believe there are many improvements that can be made on the regulatory side that would improve the survival rates for small rural hospitals,” Slabach said.
