Almost half of rural hospitals in the red, data shows

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It remains a challenging time for the nation’s rural hospitals. The percentage of such hospitals operating with negative margins is slightly lower than it was last year, at about 46%.

At the same time the number of rural hospitals deemed at risk of closure has increased.

According to a new Chartis report, the national median operating margin for rural hospitals is 1%, but the median margin is negative in 16 states. At the state level, all three of Connecticut’s rural hospitals are operating in the red, and 87% of Kansas’ rural hospitals are in the red, followed by Washington (76%), Oklahoma (70%) and Wyoming (70%). 

At the other end of the spectrum, Alaska (15%) and Wisconsin (19%) are the only states in which the percentage of rural hospitals in the red is less than 20%. 

Rural hospitals located in states that have expanded Medicaid under the Affordable Care Act continue to perform better financially than their counterparts in the 10 remaining non-expansion states (Alabama, Florida, Georgia, Kansas, Mississippi, South Carolina, Tennessee, Texas, Wisconsin and Wyoming). In expansion states, the median rural hospital operating margin is 1.5%, and 43% are in the red.

In the analysis, non-expansion states account for nearly 30% of all rural hospitals. Fifty-three percent are in the red, and the median operating margin is -1.5%. 

WHAT’S THE IMPACT

Chartis found that government policies such as budget sequestration and bad debt reimbursement continue to place added pressure on rural hospital revenues. According to the analysis, the 2% cut in Medicare reimbursement under sequestration will cost rural hospitals more than $509 million this year and result in more than 8,000 jobs lost. 

The sequestration is a mandatory across-the-board reduction of 2% on Medicare payments to healthcare providers, implemented as part of the Budget Control Act of 2011.
States such as California ($27 million), Minnesota ($23 million), Texas ($22.8 million) and New York ($22 million) will be hit hardest by sequestration’s impact on rural hospital revenue, numbers showed.

There are also unique implications for rural hospitals when it comes to payer mix. Within rural communities, 39% of all Medicare-eligible individuals are enrolled in Medicare Advantage plans. Common reimbursement models used by Medicare Advantage often follow fee-for-service reimbursement as a percent of Medicare rates, rather than retrospective cost-based reimbursement. As a result, Chartis found rural hospitals may receive a lower reimbursement than they’re accustomed to for Medicare Advantage patients.

For rural providers operating on razor-thin margins, shifts in revenue – even if temporary – can have a disproportionate impact in rural settings where Medicare insurance is typically the largest, according to the report.

Data showed that in the last 15 years, 182 rural hospitals – about 10% of them nationally –  have either closed or converted to an operating model that doesn’t provide inpatient care. 

Chartis’ model identified 432 rural hospitals vulnerable to closure. Of the 48 states with rural hospitals, 38 have at least one vulnerable hospital. States with the highest number of vulnerable hospitals are Texas (47), Kansas (46), Mississippi (28), Oklahoma (23) and Georgia (22).

THE LARGER TREND

Despite the sobering numbers, the majority of rural healthcare organizations have expressed optimism about their financial viability. In a recent Wipfli poll, 72% of respondents said they were “cautiously optimistic,” and 24% said they were “completely optimistic.”

Seventy-eight percent said they are “not likely at all” to merge with another organization, yet 41% said that reimbursements and other financial concerns remain a significant challenge.

More respondents than in previous years, about 65%, cited cybersecurity as a top concern, and 81% have increased their investment in cybersecurity technologies in the past 12 months.

Jeff Lagasse is editor of Healthcare Finance News.
Email: jlagasse@himss.org
Healthcare Finance News is a HIMSS Media publication.