Half of Rural Hospitals Are in the Red. Policy Changes Are Needed, Says One CEO.

New research reveals the continued financial decline of rural facilities.

The reality for rural hospitals across the country is dire and only getting worse.

Without policymakers taking action, little about the situation is going to change, David Schreiner, CEO of Dixon, Illinois-based Katherine Shaw Bethea (KSB) Hospital, told HealthLeaders.

Currently, 50% of rural hospitals are operating at a loss, up from 43% last year, according to a report by healthcare advisory firm Chartis. Since 2010, 167 rural hospitals have either closed or converted to a model that excludes inpatient care. Another 418 facilities are “vulnerable to closure,” the research highlighted.

“Unless something changes, the ability for tweener hospitals—what I call those hospitals between the critical access hospitals that are cost plus reimbursed and the academic medical centers—to be successful and to thrive in America is compromised,” Schreiner said.

The statistics are even more skewed for independent operators like KSB. Chartis found that 55% of independent rural hospitals are losing money, while 42% of health-system affiliated facilities are operating at a loss.

“Those margins are impacted for independent hospitals because we don't have the ability to allocate that over multiple locations,” Schreiner said. “And by that I'm talking about all of the centralized services like revenue cycle, HR, our electronic medical record, and the legal services. The list goes on and on and on. Systems have the ability to spread that. As a standalone independent hospital, we do not. So some of the things that worked in the past aren't working today and much of that is when we were involved in the pandemic.

“We have the war for talent that is never getting easier. Rural hospitals are becoming older, they're becoming less educated. And all of those make it more difficult for us to retain and recruit staff.”

There are strategies that rural hospital CEOs can implement to improve their finances, whether it’s addressing workforce challenges or exploring new revenue streams, but without long-term stability, it can feel a lot like running in place.

“Even if we do things very well and we operate as efficiently as we can, we may be able to get to a break-even margin,” Schreiner said.

“The real threat for us is our inability to capitalize. So even though we may do okay on the bottom line, we're not putting off enough of the profit in order to buy new equipment and reinvest in our facilities.”

What changes will make enough of a difference? One option, Schreiner noted, is to increase the size of the cost plus reimbursement for rural hospitals, similar to what it is for critical access hospitals. However, critical access hospitals qualify if they have 25 beds or less, whereas a rural hospital like KSB has 80.

“What should that number be? Should it be 50? Should it be 75? That would have a dramatic impact on the sustainability of hospitals,” Schreiner said.

Another option, he suggested, is to redefine sole community hospitals. Right now, part of CMS’ criteria for a sole community hospital is if it is located more than 35 miles from other like hospitals. The distances for hospitals beyond 35 miles can vary greatly, however, and that can impact the survival of those operators, as well as the communities they serve.

“There's a much different definition of rural if you're in Northwest Illinois, like we are, versus being in the plain states, for example, where you may be a two-hour drive away from the next facility,” Schreiner said.

“Our communities rely to a great deal on a thriving community hospital. We're often the largest employer in the community, the economic driver of the community in a very big way. So when communities lose their hospitals like you've seen in places like Streator, Illinois and Fort Scott, Kansas, you can see what happens to those communities within one year, two years, three years after the closing and it's detrimental.”