Half of US Rural Hospitals Operate at a Loss

Rural healthcare’s outlook just worsened, according to a new analysis from Chartis, a healthcare advisory firm.

The updated analysis of key indicators such as rural hospital operating margin, facility closures, and loss of access to care and services paints a grim picture for rural hospitals in the US, particularly independent providers.

Half of rural hospitals are operating in the red, the analysis found, and that percentage increased from 43 percent a year ago. More independent rural hospitals are operating at a loss at 55 percent, while 42 percent of health system-affiliated rural hospitals have a deficit. The analysis noted that almost 60 percent of rural hospitals in the US are now affiliated with a health system.

With more rural hospitals facing revenue losses, 418 facilities are “vulnerable to closure,” the analysis showed.

“America’s rural hospitals have been battling against drivers of instability for more than a decade, but this newest research suggests this crisis has accelerated quickly to previously unseen levels,” Michael Topchik, national leader of The Chartis Center for Rural Health, said in a statement. “To learn the percentage of rural hospitals in the red has shifted 7 [percent] and now includes half of all rural hospitals is startling and should serve as an urgent call to action for everyone invested in rural healthcare.”

Chartis is sharing the findings from the analysis with members of Congress, state rural health offices, and rural health advocates at the National Rural Health Association’s (NRHA) 35th annual Rural Health Policy Institute Conference in Washington this week.

Other findings include an increasing reliance of Medicare Advantage plans for revenue and significant loss of services, including obstetric services and cancer care services. Specifically, the analysis found 267 rural hospitals — or nearly a quarter of rural OB units — dropped OB services between 2011 and 2021. Even more rural hospitals (382 facilities) stopped chemotherapy services from 2014 to 2022.

Even more alarming, 28 rural communities lost access to inpatient care last year because of rural hospital closures or conversions to models that exclude inpatient care, Chartis reported in the analysis.

Meanwhile, rural hospitals are relying more on Medicare Advantage as 35 percent of all Medicare-eligible patients in rural communities have Medicare Advantage. In seven states, penetration of Medicare Advantage even exceeds 50 percent, according to the analysis.

“This study confirms that Medicare-eligible patients in rural communities are increasingly choosing Medicare Advantage plans. This shifting payer mix has emerged as a significant pressure point for rural hospitals that have come to rely on predictable reimbursement rates associated with traditional Medicare,” explained Topchik.

Traditional Medicare uses a cost-based system to reimburse critical access hospitals, which has been a lifeline for rural hospitals with low patient volumes and revenue. However, Medicare Advantage plans do not use a cost-based reimbursement system, so net reimbursement to critical access hospitals is often lower for similar services compared to Traditional Medicare, Chartis explained. Plans also may not cover all the services as Traditional Medicare does, such as swing beds.

Additionally, Chartis said rural hospitals may struggle with navigating the administrative requirements for payment in Medicare Advantage, for example, prior authorizations, which can result in more denials if not done according to payer requirements.

Healthcare industry leaders will need to understand how growing Medicare Advantage enrollment impacts rural healthcare and its administrative burden on hospitals. The analysis also begs the question about the new rural emergency hospital (REH) designation and its effect on access to care. Less than two dozen rural hospitals made the switch to REH last year, meaning they no longer offer certain services, such as inpatient care and swing beds. Chartis expects nearly 400 rural hospitals to consider REH conversion.