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What Will It Take To Keep Rural Hospitals Open?

Analysis  |  By Amanda Schiavo  
   January 26, 2023

CHQPR says there needs to be a fundamental shift in the way these organizations are paid.

Rural hospitals can be a beacon of hope for the isolated communities they serve, but these organizations can face a unique set of financial challenges that make keeping their doors open more difficult.

Between 2005 and 2019, more than 150 rural hospitals closed, according to data from the Center for Healthcare Quality & Payment Reform. The onset of the COVID-19 pandemic caused another 19 rural hospitals to close in 2020, the most closures for any year in the previous decade. About 30%, or over 600 rural hospitals across the U.S. are in danger of closing due to persistent financial losses, low financial reserves, and rising expenses.

"While most urban hospitals and larger rural hospitals make profits on patient services, most small rural hospitals lose money delivering services to patients," CHQPR says in its report. "The biggest cause of these losses is inadequate payments from private insurance plans. Although large hospitals can offset losses on Medicaid and uninsured patients with the profits they make on patients with private insurance, small rural hospitals cannot."

Rural hospitals are paid less than what it costs to provide care, according to CHQPR. Rural hospitals will lose money when providing services to patients because of insufficient payments from private insurance companies. Insurance providers tend to pay rural hospitals less than their larger counterparts for the same services.

"The problem is not just the amount of payment, but the method of payment," CHQPR says in its report. "Current payment systems do a poor job of supporting the delivery of high-quality healthcare in rural areas. If a small hospital provides primary care and other services designed to help patients stay healthy, the number of ED visits and treatment services at the hospital is likely to decrease, which will increase financial losses for the hospital."

To help keep rural hospitals open, CHQPR says there needs to be a fundamental shift in the way these organizations are paid. A more patient-focused payment system for rural hospitals would ensure that essential services remain available, ensure these services are delivered in a timely fashion, and support the delivery of high-quality and affordable care that is appropriate for the patient’s needs.

"A patient-centered approach to payment is designed to support the services that patients need, not to increase profits for either hospitals or health insurance plans," CHQPR says. "Since the payments are specifically designed to support both the fixed and variable costs of delivering services, the hospital would neither lose money when patients are healthier nor make excessive profits when patients need more services."

Amanda Schiavo is the Finance Editor for HealthLeaders.

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