Why 1 3 of hospitals will close

Mapping strategies are detailed in the Methodological appendix. Among the low-margin rural hospitals, more than half 55 percent were more than 20 miles away from the next-closest hospital-based emergency department, and one-tenth were more than 35 miles away. See Figure 4. The average distance to the next-closest emergency department was 22 miles.

Without other resources to fill the gap, some patients might forgo care they need and others would be forced to undertake an even longer journey to receive medical attention. As rural hospitals continue to close, it is crucial to preserve access to emergency care for rural Americans.

The following section details a series of policy recommendations to support adequate emergency care and address care shortages in rural communities. Experience to date suggests that rural hospitals in those states that have not yet expanded their Medicaid programs under the ACA would benefit from Medicaid expansion through lower levels of uncompensated care and increased financial sustainability.

Medicaid expansion is associated with improvements in health and a wide variety of other outcomes, including lower mortality, less uncompensated care, and lower rates of medical debt.

Policymakers can also support rural communities and their hospitals by opposing efforts to repeal the ACA. To preserve access to emergency care, Congress could allow rural hospitals like CAHs to downsize to an emergency department and eliminate inpatient beds without giving up special Medicare reimbursement arrangements.

Qualifying hospitals could transfer patients requiring inpatient admission to other hospitals, while continuing to offer some diagnostic imaging and other outpatient services. Chuck Grassley R-IA that would create rural emergency centers. Separately, MedPAC has recommended that rural hospitals located more than 35 miles from the nearest emergency department be allowed to convert to freestanding emergency departments while still being reimbursed at hospital rates.

Under global budgeting, hospitals are paid a fixed amount rather than having their reimbursements based on the volume and types of services they provide. In addition, payment reforms that include both hospital and nonhospital care can encourage communities to invest in services that are typically less generously reimbursed, such as preventive care. For example, in , Maryland transitioned its acute hospitals from fee-for-service payments to a global budget. The Pennsylvania Rural Health Model is the first Medicare demonstration project to test the financial viability and community effects of a global budget for strictly rural hospitals.

Importantly, the program allows hospitals to share in the savings that result from avoidable utilization. The lack of transportation infrastructure can lead rural residents to rely on ambulances and emergency rooms for nonemergency care. In nonemergency situations, patients often cite the lack of affordable transportation as a major barrier to care access.

Oregon offers a tax credit for volunteer rural emergency medical services EMS providers, who provide medical and transportation services analogous to those of volunteer firefighter programs. Rural health care provider shortages contribute to poorer access to care and poorer quality of care in rural communities. While 20 percent of the U. One way to assist rural areas would be to encourage health professionals to train and work in underserved communities. Federal funding for physician training should include reimbursements for community-based sites so that medical residents can rotate through nonhospital settings.

Mounting closures of rural hospitals across the country are exacerbating the disparity in health care access between rural and urban areas. The financial vulnerability of the remaining rural hospitals suggests that the trend may continue, leaving shortages in emergency care and other hospital services. Policymakers should support initiatives that allow remaining rural hospitals the flexibility to tailor their services to meet community needs and improve access to care for rural Americans.

He is an undergraduate at the University of Georgia studying economics and genetics. Emily Gee is the health economist of Health Policy at the Center. Prior to that, she worked at U. She holds a Ph. Data were from FY , the most recent year for which the CMS has a complete set of hospital cost filings. CAP used the most recent report filed for each hospital. These hospitals fall into two categories:. Low Financial Reserves. The second group of hospitals have had positive total margins, but only because they receive large amounts of funding from local taxes, state subsidies, or other sources of funds sufficient to offset losses on patient services.

Moreover, these hospitals either have liabilities in excess of assets, or their net assets would not be large enough to offset the patient service losses for more than two years.

Since it is not clear that these hospitals can continue receiving large amounts of revenue from other sources in the future, they also have to be considered at high risk of closure. High risk of closure means the hospital has had persistent losses on patient services and has only been able to maintain positive margins through significant revenues from grants, local taxes, or other revenues not derived from services to patients.

Millions of people live in the areas served by the at-risk hospitals who could be directly affected if the hospitals were to close. Almost all of the rural hospitals that are currently at immediate or high-risk of closure are in isolated rural communities. In many cases, the closest hospital is also a hospital that is struggling financially. When there is only one hospital in the community and the next-closest hospital is many miles away, closure of the hospital means that the community residents have no ability at all to receive emergency or inpatient care without traveling long distances.

Maintaining timely access to emergency care and adequate capacity for inpatient care in small rural communities is particularly important when severe and unexpected events occur. The pandemic clearly demonstrated the value of having hospitals with standby capacity in both rural and urban areas, but similar issues arise on a smaller scale every year with hurricanes, wildfires, influenza outbreaks, and other emergencies.

The impact is much greater than just loss of access to an Emergency Department and inpatient care, however. In many small rural communities, the hospital is likely the only place where residents can get laboratory tests or imaging studies, and it may be the only or principal source of primary care in the community.

When one of these rural hospitals closes, the community can effectively lose its entire healthcare system, not just a hospital. The small rural hospitals discussed earlier in this report are at much higher risk of closure than larger rural hospitals. Rural hospital closures affect not only the residents of rural communities, but also people who live in urban areas.

The entire nation depends on rural communities to supply food, energy, and recreation, and the continued viability of those industries depends on whether their workers and families have access to adequate healthcare services. The pandemic proved that health problems in rural communities can lead to food shortages in urban areas.

If large numbers of these hospitals are allowed to close, people everywhere could be harmed. Although there is growing awareness and concern about the problem of rural hospital closures, most of the policies and programs that have been proposed or implemented will not solve the problem, and in some cases, they could make things worse:. Technical Assistance Programs. The financial losses at rural hospitals are primarily due to the fact that the payments they receive from private and public payers are not adequate to support the costs of the services they provide, not because they deliver services inefficiently.

No amount of technical assistance can help a hospital unless it can receive revenues that are at least as much as the minimum cost of delivering essential services.

Higher Payments for Inpatient Care. As a result, higher payments for inpatient care may reduce the deficit at a hospital, but they will not eliminate it. Federal assistance to offset the costs and financial losses hospitals experienced during the coronavirus pandemic will help rural hospitals in the short run, but it will do nothing to address the more fundamental problems with payment systems that placed hundreds of hospitals at risk of closing even before the pandemic occurred.

Most of the hospitals that are at risk of closure are already designated as Critical Access Hospitals, and that status has not enabled them to avoid financial losses. Allowing additional hospitals to receive cost-based payment from Medicare could reduce their losses, but it will not make many of them solvent because it will not address the significant shortfalls in payments from other payers. Even if the hospital wants to stop delivering inpatient services and would be better off financially doing so, it still needs a payment system that will support the delivery of high-quality outpatient care.

Global Hospital Budgets. Shared Savings and Risk-Based Payments. It costs more per person to provide high-quality care in a small rural community than in larger communities, but most current payment programs penalize small hospitals because of that, even if the hospital is operating as efficiently as possible and the quality of care is high. Moreover, most current value-based payment programs are specifically designed for very large numbers of patients, not the small populations in rural communities.

In order for the residents of rural communities to receive affordable, high-quality healthcare, the method health insurance plans use to pay small rural hospitals needs to achieve three goals. It must:. Current fee-for-service, cost-based payment, and shared savings systems do not achieve all of these goals, and neither would a hospital global budget or global payment program.

It is not sufficient to make changes that just address one or two of the goals. For example, increasing fee-for-service payment amounts could eliminate hospital deficits and ensure availability of essential services in the short run, but this would do nothing to eliminate the penalties created by fee-for-service payment when hospitals work to improve the health of their residents.

Conversely, changing the method of payment , without increasing the amount of payment sufficiently to cover the minimum costs of delivering services, will not prevent hospitals from closing. Incentives to improve the quality of services mean nothing if there are no services left to improve. A Patient-Centered Payment System would advance all three of these goals. An effective Patient-Centered Payment System for rural hospitals has five components, all of which are essential to success:.

Under a Patient-Centered Payment System, separate payments for standby capacity and individual services better match the way that costs change when patients need more or fewer services than any other approach. As a result, a Patient-Centered Payment System is the only payment system that:. Provides adequate payment to sustain essential services even if patients are healthier and need fewer services;. More information about Patient-Centered Payment for primary care and other services is available at www.

It is impossible to prevent rural hospital closures without spending more money on small rural hospitals. The majority of small rural hospitals, no matter efficiently they are operated, are not receiving payments that are large enough to pay for the minimum costs of delivering those services.

The goal of value-based payment should be to pay adequately but not excessively to enable delivery of high-quality care to patients, not simply to create savings for payers. Although there are hundreds of rural hospitals at risk of closure, the total amount of money needed to prevent them from closing is relatively small because most of the hospitals are small.

The increase in payments needed to eliminate the deficits at the at-risk rural hospitals would only increase national healthcare spending by a fraction of a percent. A large portion of the annual increase in spending nationally is caused by excessive prices and the delivery of unnecessary services; that portion of additional spending neither preserves access to care nor improves the quality of care. If high prices and unnecessary services can be reduced, a portion of the savings should be redirected to preserving access to rural healthcare services.

Amount needed to prevent closures is the average annual loss, in the most recent three years for which data were available, for hospitals classified as being at immediate or high risk of closure. National spending on all healthcare services and on hospitals is for Spending at rural hospitals is for the most recent year available.

It is likely that much of this increase in funding will be used to support delivery of primary care and emergency care, not inpatient care or ancillary services. There is widespread recognition nationally that primary care is underfunded, so efforts to increase payments for primary care will also be helpful to small rural hospitals.

There have also been proposals to pay rural hospitals more to sustain their emergency department services, but these proposals would require hospitals to eliminate their inpatient services; eliminating inpatient services would make many hospitals worse off financially as well as reducing access to inpatient care, rehabilitation, and long-term care for rural communities.

In addition, failure to pay rural hospitals adequately and appropriately will likely also cause healthcare spending on the residents of those communities to increase in the future, because reduced local access to preventive care and prompt treatment will cause the residents to need even more services and more expensive services than they would otherwise.

It is impossible to know whether these increases would be more or less than the increases in spending required to prevent rural hospitals from closing, but the goal should be to provide good care at the most affordable cost for residents of every community, not to spend as little as possible.

A rural hospital should provide access to high-quality services to all residents of the community, not just a subset of them.

The hospital cannot do this if only one or two payers change the way they pay for services. Every payer — every commercial insurance plan, every Medicare Advantage plan, every Medicaid Managed Care Organization, every state Medicaid agency, and Original fee-for-service Medicare — needs to pay rural hospitals both adequately and appropriately.

The best way to do that is by using a Patient-Centered Payment System. In order for small rural hospitals to be paid adequately and appropriately by all payers, actions will need to be taken by a broad range of stakeholders, including the residents and employers in rural communities as well as health insurance companies, state governments, and the federal government.

The payers who most need to change the way they pay small rural hospitals are private health insurance companies. The biggest cause of negative margins in most small rural hospitals in most states is low payments from private insurance plans, including both commercial insurance plans and Medicare Advantage Plans.

Moreover, if payments from private insurance plans are high enough to not only cover the costs of services to privately insured patients, but to give the hospital a small positive margin on those services, that margin would also offset the losses the hospitals experience due to bad debt. Under a Patient-Centered Payment System, Standby Capacity Payments would be set based on the number of residents of the community who have insurance, so that the aggregate revenues from those payments are sufficient to cover the costs of services to both insured and uninsured residents.

Despite the importance of having private insurance companies change the way they pay rural hospitals, it is unlikely that most of them will do so without significant pressure from businesses, citizens, and government. There are several reasons for this:. This is also true for insurance companies that are simply processing claims for self-insured businesses; even if the business is willing to pay the hospital more or differently, it needs a health insurance company or third-party administrator TPA that is willing to implement the changes.

Even though failure to sustain the rural hospital may increase health care costs in the community in the future, an insurance company can address that by increasing its premiums.

In fact, the insurance company will want to charge higher premiums in the future in order to maintain or increase its profits, since profits and administrative costs are limited to a maximum percentage of total premium revenues.

There are several ways that private health insurance companies can be encouraged to implement the payment reforms that small rural hospitals need:. Employers and community residents should only choose a health insurance plan that pays their rural hospital adequately and appropriately. Employers and citizens in rural communities likely have no idea that the insurance plan they are using may be helping to force their local hospital out of business. Moreover, their premiums could increase even more in the future if healthcare spending increases because there is no longer a local source for preventive care and early treatment.

However, there is only an incentive for an insurance plan to pay differently if it believes that doing so would increase its membership or that failure to do so would cause it to lose a large number of customers. In the short run, employers and citizens can focus on ensuring the health plan pays adequate amounts for services, while indicating that health plans will need to implement Patient-Centered Payments in future years in order to continue selling insurance in the community.

Public and private employers in rural communities, including hospitals, should work together through purchaser coalitions to choose health insurance plans that pay adequately and appropriately. Most employers in rural communities are small businesses that individually represent only a small number of potential members for any health insurance company.

By acting collectively, however, the employers can have much a greater impact on what a health insurance company will be willing to do. The employers can accomplish this by forming a healthcare purchasing coalition and either using information assembled through the coalition to make similar decisions about which plans to purchase, or by having the coalition purchase insurance collectively on their behalf.

This is particularly important in regions where there is one dominant private insurance company, since other insurance companies are only likely to enter the market if there is a critical mass of purchasers who are willing to change the insurance plan they use. In most communities, they are larger than the majority of private businesses.

Many businesses in the community will be part of national or multi-state firms, and the local manager does not make the decisions about which health insurance plan is used. These large firms can help their employees in rural areas by choosing health insurance carriers that pay rural hospitals adequately and appropriately.

The biggest collective impact will likely be achieved if other employers in the community work together with the hospital to determine which health insurance plans will pay the local hospital adequately and appropriately while also providing the most affordable premiums overall.

With 19 closures, was the single worst year of the rural hospital closure crisis. According to the study, States in the Southeast and lower Great Plains Midwest bore the greatest brunt of the closure crisis with the highest number of rural hospital closures since being in; Texas 20 , Tennessee 12 , Oklahoma 7 , Georgia 7 , Alabama 6 and Missouri 6. Unfortunately, the trend for these regions does not seem to be abating.

States with the highest percentage of rural hospitals identified as 'Vulnerable' by analysis. But what are the factors contributing to these hospital closures? Of the eight states with the highest levels of closures since , none are Medicaid expansion states.

Rural hospitals in states that have not expanded Medicaid face greater financial pressures than When it comes to rural healthcare in the US, Medicaid is one of the most important pieces of the puzzle. Medicaid expansion creates opportunities for individual in rural communities to move from the ranks of the medically uninsured.