Report: Rural Hospital Crisis Enters ‘Startling New Phase’

Feb. 14, 2024
Chartis Center for Rural Health finds that 50 percent of the nation’s rural hospitals are operating at a loss and 20 percent are vulnerable to closure

In a distressing development that has become increasingly common, two Hospital Sisters Health System (HSHS) hospitals and 19 Prevea Health clinics recently announced they will be shutting down in April, leaving a huge care gap in northwest Wisconsin and nearly 1,400 people unemployed. A new report from consulting firm Chartis indicates that this scenario is becoming increasingly common, with 50 percent of the nation’s rural hospitals operating at a loss and 418 vulnerable to closure. 

The latest research from the Chartis Center for Rural Health points to what it calls a startling new phase of this crisis as rural hospitals fall deeper into the red,  and “care deserts” widen throughout rural communities. The report also notes that the increasing penetration of Medicare Advantage could further disrupt rural hospital revenue.

A record 28 rural communities lost access to inpatient care last year as a result of rural hospital closures or conversion to a model excluding inpatient care. 

“America’s rural hospitals have been battling against drivers of instability for more than a decade, but this newest research suggests this crisis has accelerated quickly to previously unseen levels,” said Michael Topchik, national leader, the Chartis Center for Rural Health, in a statement. “To learn the percentage of rural hospitals in the red has shifted 7 percent and now includes half of all rural hospitals is startling and should serve as an urgent call to action for everyone invested in rural healthcare.” 

“We are seeing a rapidly deteriorating environment for rural hospitals,” said Alan Morgan, CEO of the National Rural Health Association, in a statement. “Now is time to sound the alarms. Rural communities need to know that their hospitals are facing serious headwinds, and Congress needs to act to maintain access to local healthcare.” 

The Chartis report breaks down the crisis by region of the country. States with the highest percentage of rural hospitals operating at a loss include Kansas (89 percent in the red), New York and Wyoming (83 percent each), Vermont (75 percent), and Alabama (74 percent). In Kansas, which is home to 99 rural hospitals, the median operating margin is -10 percent. With the exception of Delaware (home to just two rural hospitals), Utah is the only state where the percentage of rural hospitals in the red is less than 20 percent.

With approximately 20 percent of America’s rural hospitals vulnerable to closure, states with the highest percentage of vulnerable rural hospitals are Florida (43 percent), Nebraska (41 percent), Tennessee (41 percent), North Carolina (40 percent), Kansas (38 percent), and Utah (38 percent).

The impact of Medicaid expansion, Medicare Advantage
The report notes that facilities in states that have not expanded Medicaid have consistently performed worse financially than their expansion state counterparts. This year’s analysis not only shows a continuation of that trend but a similar jump in the percentage of rural hospitals operating in the red.

Across the 10 remaining non-expansion states (Alabama, Florida, Georgia, Kansas, Mississippi, South Carolina, Tennessee, Texas, Wisconsin, and Wyoming), the percentage of facilities with a negative operating margin increased year-over-year from 51 percent to 55 percent. These states are home to more than 600 rural hospitals in total. Several of these states are among the most severely affected by hospital closures and a loss of access to care.

The Chartis analysis indicates that between 2019 and 2023, enrollment in Medicare Advantage in rural communities increased 48 percent. Medicare Advantage net reimbursement to Critical Access Hospitals is often lower for similar services than that of traditional Medicare because Medicare Advantage does not follow cost-based reimbursement.

Medicare Advantage also may not cover all the services traditional Medicare does, including swing beds, which provide skilled nursing care for patients and are often a strong source of revenue stability for rural hospitals.

The report also said that rural providers may not be equipped to efficiently navigate administrative requirements for payment introduced by Medicare Advantage, such as prior authorizations, which can lead to increased denials.

“This study confirms that Medicare-eligible patients in rural communities are increasingly choosing Medicare Advantage plans. This shifting payer mix has emerged as a significant pressure point for rural hospitals that have come to rely on predictable reimbursement rates associated with traditional Medicare,” added Topchik. 

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