Rural hospitals hit hard by reductions in Medicare disbursements, declining population

Approximately 3 percent of all rural hospitals closed in the period between 2013 and 2017, which can affect rural residents’ access to health care services. The U.S. Government Accountability Office (GAO) did a study to determine how HHS supports and monitors rural hospitals’ financial viability and rural residents’ access to hospital services. The study also details the number and characteristics of rural hospitals that have closed as well as what is known about the factors that contributed to those closures. According to the GAO report, Medicare Dependent Hospitals and for-profit hospitals were some of the hardest hit by reductions in Medicare disbursements, while hospitals in Medicaid expansion states and states with higher enrollment under the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) were the least affected (GAO Report, GAO-18-634, September 30, 2018).

Rural hospitals

In 2017, 2,250 general acute care hospitals in the United States met the definition of rural. Rural hospitals represented approximately 48 percent of hospitals nationwide and 16 percent of inpatient beds. Rural hospitals spread across 84 percent of the United States land area that is classified as rural and served 18 percent of the United State population that lived in those areas. Rural areas tend to have a higher percentage of elderly residents than urban areas, a higher percentage of residents with limitations in activities caused by chronic conditions, and a lower median household income. Rural areas also face a decreasing population and slow employment growth.

Payment policies and programs

HHS provides key financial support to rural hospitals to provide rural residents access to hospital services through a number of payment policies and programs. CMS administers five rural hospital payment designations, in which rural or isolated hospitals that meet specified eligibility criteria receive higher reimbursement for hospital services than they otherwise would have received under Medicare’s standard payment methodology. The Federal Office of Rural Health Policy (FORHP) administers multiple grant programs, cooperative agreements, and contracts that provide funding and technical assistance to rural hospitals. CMS’s Center for Medicare and Medicaid Innovation tests new ways to deliver and pay for healthcare. There are also the broader HHS payment policies and programs such as Medicare and Medicaid base payments, Medicare and Medicaid uncompensated care payments, the state innovation models initiative, as well as other targeted HHS payment policy and programs.

Rural hospital closures

An analysis of data shows that from 2013 through 2017, 64 rural hospitals closed. This is more than twice the number of rural hospitals that closed during the prior 5-year period and accounts for more than the share of urban hospitals that closed and more than the number of rural hospitals that opened. Rural hospitals in the South represented 38 percent of the rural hospitals in 2013 but accounted for 77 percent of the rural hospital closures from 2013 through 2017. Medicare dependent hospitals represented 9 percent of the rural hospitals in 2013 but accounted for 25 percent of the rural hospital closures.

For-profit hospitals are twice as likely to experience financial distress relative to government-owned and non-profit hospitals and represented 11 percent of rural hospitals in 2013 but accounted for 36 percent of closures. Bed size also seems to be a factor as rural hospitals with between 26 and 49 inpatient beds represented 11 percent of the rural hospitals in 2013 but accounted for 23 percent of the closures. While critical access hospitals (CAHs), which have 25 acute inpatient beds or less and make up a majority of the rural hospitals, were less likely than other rural hospitals to close. This may be due, in part, to the CAH payment designation.

Contributing factors

Data shows that rural hospital closures were generally preceded and caused by financial distress. This is partially due to a decrease in patients seeking inpatient care at rural hospitals. There are an increasing number of federally qualified health centers or newer hospital systems outside of the area that create increased competition for rural hospitals. Technological advances have also allowed for more services to be provided in outpatient settings. There is also data showing that the years 2010 through 2016 marked the first recorded period of rural population decline.

Rural hospitals are sensitive to changes in Medicare payments because, on average, Medicare accounted for approximately 46 percent of their gross patient revenues in 2016. Reductions in nearly all Medicare reimbursements and reductions in Medicare bad debt payments have contributed to negative margins for rural hospitals.

Medicaid expansion

According to stakeholders that were interviewed and literature that was reviewed, the strongest factor that likely strengthened the financial viability of rural hospitals was the increased Medicaid eligibility and enrollment under the ACA. A 2018 study showed that Medicaid expansion was associated with improved hospital financial performance and a substantially lower likelihood of closure, especially in rural markets. Drops in uninsured rates in 2008 through 2009 and 2014 through 2015 corresponded with states’ decisions to expand Medicaid, with small towns and rural areas seeing the largest increase in Medicaid coverage and decline in uninsured. Data shows that from 2013 through 2017, rural hospitals in states that had expanded Medicaid as of April 2018 were less likely to close compared with rural hospitals in states that had not expanded Medicaid.

Highlight on Florida: Hurricane causes hospital closures, requires extra support for vulnerable patients

Florida health care facilities were forced to make serious operating choices when Hurricane Matthew hit, and provided recommendations to the public that may be important during future emergency situations. In such situations, hospitals strive to allocate staffing and provisions to best meet patients’ needs, and rely on locals to seek shelter elsewhere.

Hospital closures, evacuations

The state of Florida faced some serious health care delivery concerns when Hurricane Matthew hit last week. Jackson Health System, a major hospital system in Miami, planned to operate as normally as possible, except for some clinics that closed Thursday and Friday. Broward Health, a five-hospital system, took the opposite approach and closed all hospitals except for emergencies and trauma patients. All outpatient procedures were canceled on Thursday and Friday. Baptist Health kept hospitals and emergency rooms open, but closed some of its centers. Cape Canaveral Hospital, Baptist Medical Center Beaches, and three Florida Hospital locations were forced to evacuate patients. Although Florida Hospital Flager remained opened for emergencies, Ormond Beach and New Smyrna Beach locations closed their ERs.

Storm considerations

Hospitals offered some advice for locals, and urged patients not to plan on using hospitals as a last-minute shelter option. One official said that every year, some individuals show up seeking to wait out the hurricane at the hospital, requiring staff to be diverted away from patient care. According to the Orlando Sentinel, counties established shelters for those with special needs that are staffed with nurses and have some equipment. Hospitals also warned that patients needing medications would not be able to pick them up at a hospital and would be forced to proceed through the ER to get prescriptions.

Jackson Health posted a special advisory for women planning to deliver their baby at one of its facilities, outlining who should report to the hospital when a hurricane warning takes effect. Women carrying multiple babies who are at least 34 weeks along, having a history of preterm labor, or have placental implantation issues at least 28 weeks into their pregnancy were encouraged to come to the hospital and be prepared for admission. Others were told to call their physician and report to the hospital if referred.

Other patients, such as those requiring oxygen and dialysis, were also particularly vulnerable in this situation. Over 500,000 such patients were in the hurricane’s path. Chen Senior Medical Centers identified many vulnerable patients and called them individually, asking about their conditions and needs. Oxygen was provided at no cost to those who needed it. There was also a federal Disaster Distress Helpline staffed to provide immediate crisis counseling.