25% of Rural Hospitals at Risk of Closing as Patients Go Elsewhere

April 09, 2020 - More rural hospitals are at high financial risk of closing as patients living in the communities choose to go elsewhere for care, according to a new analysis from Guidehouse.

The latest analysis from the consulting firm showed that one in four (25 percent) rural hospitals are at high risk of closing unless their financial standing improves. That is up from one in five, or 21 percent, of rural hospitals last year.

But that percentage could continue to grow as COVID-19 puts more strain on healthcare organizations and the economy as a whole.

"It was already troubling that the economic outlook for rural hospitals deteriorated during the longest period of uninterrupted economic growth our country has ever experienced,” said Dave Mosely, partners at Guidehouse. “A major crisis like the COVID-19 pandemic or any significant economic downturn is likely to make the situation even more dire."

Rural hospitals only account for about 30 percent of all hospitals operating in the US, with less than 2,000 nationwide, according to data from the American Hospital Association (AHA). The hospitals are the main source of care and oftentimes employment for about one in five Americans.

READ MORE: Overcoming Rural Hospital Revenue Cycle Management Challenges

But Guidehouse’s analysis of 1,430 rural hospitals found that even the most essential rural hospitals are struggling to stay open.

About 81 percent of rural hospitals at high financial risk of closing are considered highly essential to their communities. Rural hospitals are considered essential based on service to vulnerable populations, geographic isolation, economic impact, and social vulnerability index.

Rural hospital closures would hit Southern and Midwestern states the hardest, according to the analysis. States with the most at-risk rural hospitals included Tennessee, Oklahoma, Mississippi, Alabama, and Kansas. In some of these states, 100 percent of at-risk rural hospitals are considered essential.

Despite community essentiality, many patients are bypassing their local rural hospital to receive care elsewhere. Guidehouse reported that more than three in four patients residing in rural counties with a local hospital traveled for care, versus 35 of suburban patients and 23 percent of urban patients.

Rural patients were more likely to seek care elsewhere for general medicine (22 percent), as well as orthopedics (17 percent), general surgery (13 percent), cardiovascular diseases (11 percent), and neurosciences (10 percent).

READ MORE: 2019 Single Worst Year for Rural Hospital Closures, Report Finds

Some of this patient activity is due to the acuity of services offered by rural hospitals, but 68 percent of rural patients still bypassed their local hospital for the lowest acuity of care, Guidehouse found.

“Every patient that outmigrates for care that's also offered in their community represents a revenue loss for the local hospital, as well as revenue leaving the local economy,” stated Daniel DeBehnke, MD, MBA, a former academic health system CEO and partner at the firm. “The patients rural hospitals are supposed to serve now appear even less likely to use them.”

Rural hospitals are also facing a host of other financial challenges, including payer mix degradation and declining inpatient care volumes. The organizations are also facing a shortage of clinicians and revenue cycle management staff – both of whom are critical to keeping the hospitals running smoothly.

A lack of technology and innovation due to cash flow issues may also exacerbate financial challenges. For example, a lack of robust EHR capabilities and disparate documentation methods resulted in lackluster charge capture operations at some rural hospitals, Guidehouse found.

At the time of publication, COVID-19 has yet to hit rural communities as hard as major cities, like New York City, Boston, and Seattle. But rural areas are not immune to the novel coronavirus and the outbreak in these communities could make rural hospital woes worse.

READ MORE: Gundersen, Marshfield Clinic Call Off Rural Hospital Merger Plan

Rural hospitals have more bed availability relative to population compared to their urban counterparts, but they lack equipment, technology, qualified staff, and in many cases intensive care unit beds. These shortcomings spell trouble for when COVID-19 hits rural communities, experts at the Urban Institute stated in a recent blog post.

Diane Arnos and Fredric Blavin, co-authors of the post, explained that the cancelation or postponement of elective surgeries due to COVID-19 will severely impact rural hospitals, which cannot absorb the losses compared to many larger hospital systems. The pandemic may also worsen payer mix as unemployment forces more individuals off of private insurance coverage.

The Coronavirus Aid, Relief and Economic Security (CARES) Act, which will provide more than $100 billion to hospitals during the unprecedented crisis, includes provisions for rural hospitals. But the hospitals may need more to keep them from closing.

“From serving higher-risk populations to struggling with limited funding, rural hospitals face serious challenges that may require additional federal action to address,” Arnos and Blavin wrote. “To improve access to and quality of care for rural communities, state and federal policymakers should consider supplying medical equipment and other assistance as the pandemic spreads to these areas.”

Experts from Guidehouse also urged policymakers to pass the Rural Emergency Acute Care Hospital (REACH) Act. The bill was recently reintroduced by Senators Chuck Grassley, (R-IA), Amy Klobuchar (D- MN), and Cory Gardner (R-CO) to allow critical access hospitals to modify their delivery model to align with the needs of their communities without risking their cost-based reimbursement structure.

In the meantime, rural hospitals should collaborate with other providers, including regional tertiary and academic health systems, other rural facilities, physician groups, payers, and accountable care organizations, the authors of the analysis advised. Collaboration can help rural hospitals improve their financial standing by implementing telehealth, improving back-office functionality, increasing access to physician training, and optimizing clinical and service lines.