Rural hospitals face ‘precarious’ outlook as expenses climb, AHA says

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Dive Brief:

  • Escalating costs for labor, drugs, supplies and equipment are adding to the long-term pressures facing rural hospitals, raising the risk of more closures that could jeopardize patient access to care, the American Hospital Association warned in a new report. 
  • Many hospitals were already in difficult financial positions before the COVID-19 pandemic began, due to challenges including low patient volume and reimbursement, geographic isolation, staffing shortages and aging infrastructure, the AHA said. From 2010 through 2021, 136 rural hospitals closed, according to data from the University of North Carolina’s Cecil G. Sheps Center for Health Services Research. In 2020, when the pandemic hit, a record 19 rural hospitals closed.
  • The public health emergency put additional pressure on margins and patient volumes. “While rural hospitals were partially buoyed by the Provider Relief Fund and other sources of COVID-19 assistance that limited closures in 2021, the financial outlook for many rural hospitals moving forward is precarious,” the AHA said.

Dive Insight:

The AHA is concerned that worsening economic conditions will put more rural facilities out of business and leave patients with fewer options for quality care close to home. Already, nearly 46 million people living in rural areas, or 14% of Americans, face a shortage of healthcare services, the hospital lobby said.

“The risk of increased closures has now returned as hospitals deal with the mounting financial challenges created by the pandemic, longstanding difficulties facing rural hospitals and new economic pressures, including rapidly increasing input costs,” the report said.

Rural hospitals often treat people who are older, sicker and poorer, compared to the national average, and a higher percentage of patients in rural areas are uninsured, the AHA said. It said the majority of rural hospital closures happened in states without Medicaid expansion or where it had been in place for less than a year.

Flexible models of care, a decreased regulatory burden and state Medicaid expansion are needed to prevent more facilities from closing in rural communities, the report said. The CMS this summer proposed one such payment model, a new provider designation for rural hospitals that aims to help rural operators stay open.

Partnerships, mergers or affiliations also are potential lifelines for rural hospitals, increasing access to much-needed capital, the AHA said. Contrary to claims that consolidation drives rural closures, the group said mergers are associated with a 3.3% reduction in annual operating expense per adjusted admission at the acquired hospitals. 

The AHA said it is urging Congress to extend two programs, the Medicare-dependent hospital and the enhanced low-volume adjustment, that are helping rural hospitals offset financial vulnerabilities associated with being geographically isolated and having low patient volumes. Both are set to expire on Sept. 30 without further action from Congress.

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