How To Protect Your Rural Hospital From Financial Unravel

CFOs of rural hospitals must be diligent and creative with their financial strategies.

Ohio-based Community Memorial Hospital (CMH) permanently closed its doors on August 31 due to financial challenges. The closure will have a major impact on the surrounding community, but it did not come as a big surprise.

In May of this year the hospital temporarily suspended its services. When its Chapter 9 bankruptcy application was rejected, the health system found no viable options to remain operable and was forced to shut down.

The root of these challenges, according to reports, stemmed from a fraudulent laboratory agreement in 2016 which ordered the hospital to pay $25 million back to insurance companies.

The hospital also faced issues related to its new electronic health system in 2021, and changes to Ohio’s Medicaid payment system in February 2023 exacerbated finances further.

In another blow, the hospital was hit with two cyber-attacks, leaving it with liabilities and security issues.

In a statement, CEO Bill Cherry said the majority of hospital staff have lost their jobs, and that the building and the equipment will be sold.

As a critical access hospital (CAH), the impact of this closure cannot be understated, and much of the community in Northwest Ohio and Northeast Indiana will now struggle to find care nearby.

"They are going to have to drive 30 miles or more to receive care," Cherry said. "There are a lot of elderly people within the community and a lot of them don't drive or don't like to drive, so it makes it a challenge to go and get their healthcare services."

Regulatory Environment & Strategic Response

CMH’s closure underscores a persistent issue in the healthcare sector: the financial sustainability of small and rural hospitals.

Calls will need to be heard for systemic reforms to support the financial stability of small and rural hospitals. Some viable solutions include adjusting reimbursement rates, providing targeted financial assistance, and investing in technology and telemedicine to improve access and efficiency.

The CFO Takeaway

Rural hospitals have seen a pattern of closures over the last decade, with 192 rural hospitals closing since 2005. CFOs of rural organizations must employ strict strategies for financial profitability to stay operational. They may also need to strategize more aggressively than urban health systems to avoid financial issues.

The most unique hurdle in the case of CMH was its fraudulent laboratory agreement. While it may have been a rare occurrence, executives of rural health systems must carefully consider third party agreements to avoid similar mishaps.

Cybersecurity is another issue, for all health systems as well as rural. It’s well known by now that cyberattacks are becoming increasingly more common in healthcare, and health systems must be prepared with solid cybersecurity measures in place. Without them, a cyberattack could be the final straw when coupled with other challenges. Rural health system CFOs should look to invest in high quality cybersecurity measures to lower their risk.