Rural Hospital Closures Are Caused by Inadequate Payments from Private Health Plans

Earlier in the article, it is said . . . Over the past decade, more than 100 rural hospitals have closed. The result of the closures being millions of Americans who live in those communities no longer have access to an emergency room, in patient care, much less doctors. This is healthcare and hospital services citizens in much of the rest of the country (provided it is not inner city) take for granted. Angry Bear has posted on healthcare services provided in rural communities and less favorable areas. These are areas the which do not attract healthcare providers. It will eventually come to a crisis stage.

“Rural Hospitals at Risk of Closing,” CHQPR

The primary reason hundreds of rural hospitals are at risk of closing is that private insurance plans are paying them less than what it costs to deliver services to patients. As shown below, although the at-risk hospitals are losing money on uninsured patients and Medicaid patients, losses on private insurance patients are the biggest cause of overall losses.

Conversely, many other rural hospitals are not at risk of closing because they make profits on patient services. They receive payments from private health plans that not only cover the costs of delivering services to the patients with private insurance, but those payments also offset the hospitals’ losses on services delivered to uninsured and Medicaid patients.

Most “solutions” for rural hospitals have focused on increasing Medicare or Medicaid payments or expanding Medicaid eligibility due to a mistaken belief that most rural patients are insured by Medicare and Medicaid or are uninsured. In reality, about half of the services at the average rural hospital are delivered to patients with private insurance (both employer-sponsored insurance and Medicare Advantage plans). In most cases, the amounts these private plans pay, not Medicare or Medicaid payments, determine whether a rural hospital loses money.

Preventing Rural Hospital Closures

Private insurance companies and public insurance programs need to make significant changes in both the amounts and methods they use to pay for rural hospital services in order to prevent more rural hospitals from closing in the future.

Require That Health Insurance Payments Cover the Cost of Services in Rural Communities

Payments that are sufficient to cover the cost of services at large hospitals will not be adequate at small rural hospitals because it costs more to deliver healthcare services in rural communities. This is not because rural hospitals are inefficient, but because of the smaller number of patients served relative to the fixed costs of the services. For example, a small rural community will have fewer Emergency Department (ED) visits than a larger community simply because there are fewer residents, but the minimum cost of staffing the ED on a 24/7basis will be the same, so the average cost per visit will be higher.

Congress should require that Medicare Advantage (MA) plans pay small rural hospitals adequately. MA plans should pay at least as much as Original Medicare pays for the same services, and plans should be required to pay claims in a timely fashion.

Employers and residents in rural communities should choose private insurance plans that pay their hospitals adequately. Most private insurance plans are unlikely to increase or change their payment sunless businesses, local governments, and residents choose health plans based on whether they pay enough to sustain local healthcare services.

Rural hospitals should not be forced to eliminate inpatient care in order to receive higher payments for other services, as is required under the federal “Rural Emergency Hospital” program. Federal programs should preserve and expand rural healthcare services, not reduce them.

Increasing payments to levels sufficient to prevent closures of the at-risk hospitals would cost about $6 billion per year 1/10 of 1% of total national healthcare spending. Most of the higher spending would support primary care and emergency care, since these are the biggest causes of losses at most small rural hospitals. Spending would likely increase as much or more if hospitals close, because reduced access to preventive care and failure to receive prompt treatment will cause rural residents to be sicker and need more services in the future.

Create Standby Capacity Payments to Support the Fixed Costs of Essential Rural Services

The financial problems at small rural hospitals are caused not only by the inadequate amounts paid by insurance plans, but by the problematic method all payers use to pay for services. The hospitals are paid nothing at all for one of the most important services for a rural community– having physicians and nurses standing by to treat an injury or serious health problem quickly. Having health insurance that pays fees when injuries or problems occur is of little value if there is no Emergency Department or inpatient care available for the resident to use.

In order to preserve and strengthen essential hospital services in rural communities, small rural hospitals need to receive Standby Capacity Payments from both private and public payers in addition to being paid Service-Based Fees when individual services are delivered. The Standby Capacity Payment would support the fixed costs of essential services at the hospital, and the Service-Based Fees would cover the variable costs of those services. More details on this approach are available in A Better Way to Pay Rural Hospitals.