Rural Hospitals Facing Risk of Closure Due to Financial Stress

May 05, 2022 - The COVID-19 pandemic has led to significant financial stress for rural hospitals, with 441 facilities facing financial risk factors putting them at risk of closure, according to a report from the Bipartisan Policy Center (BPC).

The federal relief provided to hospitals during the pandemic helped slow the growing rate of rural hospital closures. But the relief is only temporary, and hospitals are still facing financial and staffing challenges.

BPC interviewed rural hospital leaders and provider organizations across eight states to understand how their finances are faring even with federal funding.

All of the hospital associations had negative total operating margins for three consecutive years for at least some hospitals in their state. Financial losses varied by state; 6 percent of hospitals in Nevada experienced losses compared to 38 percent in Wyoming

Out of 2,176 rural hospitals, 441 are facing three or more financial risk factors that put them at risk of service reduction or closure, the report found. Financial risk factors included negative total operating margins, negative operating margins on patient services alone, negative current net assets, and negative total net assets.

Over 900 hospitals reported facing two or more financial risk factors, while 173 hospitals faced four risk factors.

An executive from Minnesota Hospital Association described the situation as unsustainable, stating that rural hospitals across the state had a median operating margin of 1.4 percent in 2019 and 30 hospitals reported negative operating margins.

In Wyoming, where all but two of the state’s 28 hospitals are classified as rural, most critical access hospitals (CAHs) had an operating margin of 1 to 2 percent.

During the last ten years, most the states had at least one converted hospital closure in which the facility closes its inpatient unit but continues to offer emergency, rehabilitation, or outpatient care. Since 2005, around 83 percent of hospitals have experienced a converted hospital closure.

This trend reflects similar federal efforts to provide rural communities with services that shift the focus from inpatient care to emergency and outpatient services. The Rural Emergency Hospital (REH) model allows facilities to offer outpatient care without requiring them to provide inpatient services, which can be associated with high costs and low patient volumes in rural areas.

Congress passed the REH model in December 2020. Hospitals will be able to convert to the REH designation starting in 2023.

With 441 rural hospitals at risk of closure, patients may experience significant repercussions. Hospital closures in rural areas can reduce access to healthcare services as they might be the only facility around for miles.

The BPC report referenced a report from the US Government Accountability Office (GAO) that found one-way travel time to healthcare services increased by 20 miles in communities with rural hospital closures. Travel distance for specialty services like substance use treatment increased nearly 40 miles.

In addition to financial stress, workforce challenges are driving hospital closures. The report noted that even before the pandemic, rural hospitals struggled to recruit and retain staff members. Staff burnout, inadequate compensation, and stressful environments have exacerbated the workforce shortage crisis during the pandemic. Rural hospital leaders reported that retaining workers and ensuring proper staff levels are top challenges.

Leaders noted that without continued federal financial relief after the public health emergency (PHE), many rural hospitals struggling before the pandemic will be at risk of closure again.

BPC offered several recommendations to policymakers that would help prevent rural hospital closures and preserve patient access to care, including extending the capacity of the rural healthcare workforce and improving the retention of rural providers. BPC suggested leaders use federal tax credits to encourage healthcare workers to stay in rural communities and called for rules that allow practitioners trained outside of the United States to practice in underserved areas.

Additionally, BPC recommended that policymakers improve reimbursement for providers in rural areas and provide rural hospitals full relief from Medicare sequestration until two years after the PHE ends.

Extending temporary telehealth flexibilities to two years after the PHE ends would also ensure patients in rural areas maintain access to care following a potential hospital closure.