Why Do Rural Hospitals Close?

One of the serious issues with healthcare today is the lack of universal availability of it across the nation. In citified areas, the availability of it mostly meets the demand of the people requiring it and is in close proximity. If you travel one to two hours outside of the city, the availability of it begins to drop off until a person in need must travel hours to get to help. The resource in more rural areas begins to drop off in a precipitous manner. Not to make light of the healthcare situation, if you watch the move “Doc Hollywood,” small community with an aging doctor, a small clinic, staff nurse, a large number of patients, and a distant hospital. Dr. Ben Stone is on his way to LA in his 356 Cabriole (almost bought one in the eighties). The resources bypass rural America mostly for monetary reasons.

Here is a list of reasons:

  • States not expanding Medicaid: While Medicaid will not pay as much as commercial healthcare insurance or Medicare; without Medicaid, a hospital may be left with a larger debt. Hospitals located in communities with high numbers of uninsured residents are more susceptible to closures. According to the University of North Carolina’s Rural Health Research Program, the 17 states that did not expand Medicaid under the Affordable Care Act had the highest number of hospital closures. Texas lost the most hospitals (15), followed by Tennessee, Georgia, Alabama, Mississippi and North Carolina. Over half of the remaining rural hospitals in Texas and Tennessee and more than a third of hospitals in Oklahoma and Georgia are at risk of closing due to their weak financial position. These states are Republican led states and it is solely politics.

Medicaid expansion was associated with improved hospital financial performance and substantially lower likelihoods of closure in rural markets. The addition of  work requirements by states  will negate much of the Medicaid’s expansion gain.

  • High Deductible Commercial Healthcare PlansPlans with annual deductibles of $3,000, $5,000 or even $10,000 have become commonplace since the implementation of the Affordable Care Act as companies and insurers look for ways to keep monthly premiums to a minimum. In rural areas where high-deductible plans are prevalent and incomes lower than in urban areas, patients can struggle to pay those deductibles.”Bad debt for rural hospitals has gone up ~50% since the passage of the Affordable Care Act in 2010.”
  • Patient Transferred to A Larger Hospital: Smaller hospitals and in particular rural hospitals may lack the needs of a patient. The patient admitted to a smaller hospital are stabilized and then transferred to a larger hospital which has the resource to care for the patient. When the insurance finally processes the bill, the first facility  ends up with the deductible portion while the larger hospital has most of its bill paid.
  • Consolidations:  The National Rural Health Association, a nonprofit, estimated that 673 rural facilities (with a variety of ownership structures) were at risk of closure, out of over 2,000. And with the new tax legislation, and events like the merger of the drugstore chain CVS and the insurer Aetna, the turmoil looks to get worse. In response, stand-alone nonprofit hospitals have been auctioning off their real estate to investors, selling themselves to for-profit chains or private-equity firms, or, like Berger hospital  in Ohio have been folding themselves into regional health systems. Mergers and closing are not only happening in rural areas. Paladin Healthcare, an entity owned by private equity baron Joel Freedman, bought Hahnemann (Center City, Philadelphia) as part of small hospital   portfolio. He made no improvements for 18 months, and then closed the facility with the intention of selling the real estate, which is set in a “gateway location” for gentrification.
  • Political Interests: Back in 2014 the Crominbus Appropriations bill was passed less than three hours before a midnight deadline that threatened a federal shutdown. It was a compromise between Repubs and Dems. Inserted within the bill (just before it was passed) was Section 227 by Representative Jack Kingston of Colorado at the behest of Representative Fred Upton. It said:

    Sec. 227. None of the funds made available by this Act from the Federal Hospital Insurance Trust Fund or the Federal Supplemental Medical Insurance Trust Fund, or transferred from other accounts funded by this Act to the “Centers for Medicare and Medicaid Services–Program Management” account, may be used for payments under section 1342(b)(1) of Public Law 111-148 (relating to risk corridors).

    The Risk Corridor Program which compensated Insurance Companies in the initial three years for taking on risky people with pre-existing conditions could not be funded by moving funds from other programs. Initially, it was passed without a Congressional appropriation and was blocked by the GAO who had received a letter from Senator Jeff Sessions who asked if the Administration could appropriate funds for a program. The Administration can not do so; but, it can move funding around.

 You will hear many complaints about narrow insurance corridors. The result of Section 227 was Coops going bankrupt, insurance companies withdrawing, people having to find other plans, premiums increasing, etc. causing much of the narrowing. Rather than solve the issue, Republicans as led by Fred Upton of Michigan chose to use this in an effort to dismantle the ACA. The ACA Risk Corridor Program was to last 3 years and is similar to the Republican created Risk Corridor Program in Part D which is ongoing.

  • Staffing: I do not know Steve, a commenter on one of my Posts. His comment makes sense. We (anesthesiology) are par with everything that our network accepts. I am not a fan of surprise billing, but I dont think you grasp all of the issues here. Medicare reimburses at much lower rates than does private insurance in my specialty. If you work in a place with a high percentage of Medicare (or Medicaid which is worse) like we do, you cannot come close to earning market salaries.

Medicare reimburses at much lower rates than does private insurance in my specialty. If you work in a place with a high percentage of Medicare (or Medicaid which is worse) like we do, you cannot come close to earning market salaries. So we, many years ago, ended up working 95th percentile or worse hours (over 70 per week) while earning in the 15th-20th percentile in income. We lost a lot of staff. The hospital had to make up the difference so that we could hire and retain people. We were fortunate that our hospital had the resources to do that.

Up north of us another hospital faced a similar situation, but they didn’t have the resources to subsidize their staff. So they fired a good team and brought in another. Told them it was OK to not bill in accordance with what the hospital accepted, like the prior group did. That let the new group earn enough, for a while, to hire and retain people. Hospital eventually failed anyway and had to be bought out.

Mayo Clinic in Minnesota closed one smaller hospital and two clinics due to a lack of personnel and utilization. The result was people having to make a much longer trip to get to the hospital and staffing goes where the money is in many cases.

It is a problem begging for a solution.

More Rural Hospitals Closing in States Refusing Medicaid Coverage Expansion, Center for Children & Families (CCF) of the Georgetown University Health Policy Institute, Adam Searing, October 2018

The Quiet Crisis Of Rural Hospital Closures, Kaiser Health News, January 2020

170 Rural Hospital Closures, NC Rural Health Research Program