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Analysis

Financial Woes Threaten Closures for 1-in-5 Rural Hospitals

By John Commins  
   February 20, 2019

The ongoing financial crisis threatening rural hopsitals may be worsening. And stakeholders warn that it could get even worse if the economy cools off.

More than 20% of rural hospitals are at a "high risk of closing" due to wobbly finances, a Navigant analysis of publicly available data shows.

The study, released Wednesday, also shows that 64% of these at-risk rural hospitals are considered essential to the health and economic well-being of their communities.

The analysis examines the financial viability and community essentiality of more than 2,000 rural hospitals nationwide. It found that 21% of the rural hospitals are at high risk of closing based on their total operating margin, days cash on hand, and debt-to-capitalization ratio. This equates to 430 hospitals across 43 states that employ 150,000 people. 

"Our analysis shines a new light on a rural hospital crisis that must be addressed and could significantly worsen with any downturn in the economy," study co-author David Mosley, managing director at Navigant, said in a media release.

"Local, state, and federal politicians, as well as health system administrators, need to act," he said.

The study also reviewed of the "community essentiality" of these cash-strapped rural hospitals, measuring factors such as trauma status, service to vulnerable populations, geographic isolation, and economic impact.

They determined that 64% or 277 of these hospitals are considered essential to their community's health and economic well-being. In 31 states, at least half of these financially distressed rural hospitals are considered essential.

Southern and Midwestern states, including Mississippi, Alabama, Kansas, Georgia, and Minnesota, are projected to be impacted the most, the data shows.

The study blamed "multiple factors" for the ongoing crisis with rural hospitals, including low rural population growth, payer mix degradation, excess hospital capacity due to declining inpatient care, and an inability for hospitals to leverage technology due to a lack of capital. 

One possible solution involves collaborations between rural hospitals and academic and regional health systems, that leverages the larger systems' resources for telehealth, revenue cycle management, human capital, electronic health records, physician training, and clinical optimization.

The study also supports supporting legislation that advances telehealth reimbursements, such as the bipartisan Rural Emergency Acute Care Hospital (REACH) Act.

Reintroduced in 2017 by Sens. Chuck Grassley, R-Iowa, Amy Klobuchar, D-Minn., and Cory Gardner, R-Colo., the REACH Act would create a new Medicare classification under which rural hospitals would offer emergency and outpatient services but no longer have inpatient beds.

“Our analysis shines a new light on a rural hospital crisis that must be addressed and could significantly worsen with any downturn in the economy.”

John Commins is a content specialist and online news editor for HealthLeaders, a Simplify Compliance brand.


KEY TAKEAWAYS

The analysis examines the financial viability and community essentiality of more than 2,000 rural hospitals nationwide.

It found that 21% of the rural hospitals are at high risk of closing based on their total operating margin, days cash on hand, and debt-to-capitalization ratio.

Factors fueling the crisis include low rural population growth, payer mix degradation, excess hospital capacity, and an inability to leverage technology.


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