October 29, 2018; New York Times
NPQ has reported before on the flickering lights of the US rural hospital, and how bond rating services continue to express concern about hospitals’ ability to repay bondholders who invest in capital expansion. In 2013, half of US hospitals lost money on patient care. Health industry reports frequently cite high volatility in both individual hospitals and health system net revenues.
Access to care in rural areas is often measured in miles, but it’s also measured in terms of access to specialist practitioners and specialized treatments. The New York Times’ Austin Frakt quotes Katy Kozhimannil, an associate professor and health researcher at the University of Minnesota, who describes “maternity care deserts in some of the most vulnerable communities, putting pregnant women and their babies at risk.” Doctors reply that malpractice premiums make it “economically infeasible nowadays to practice obstetrics in rural areas,” but there are other aspects to the story. A dearth of paying patients (either through private insurance, government programs like Medicaid and Medicare, or self-pay) combines with specialists who have no one with whom to share responsibility for office hours and hospital rounds. With many rural communities shrinking, the patient population losses become even more damaging.
The rural health care squeeze is believed to be more prevalent in states which have not approved Medicaid expansion under the Affordable Care Act (or ACA, also known as Obamacare). While this may be true (see study here), it sidesteps the issue of inadequate government reimbursement for services provided to covered patients by hospitals and other providers. State budgets are tight, and Medicaid demands a major—and escalating—portion of state revenues. Even though the federal government covers 90 percent of costs under Medicaid expansion, the remaining 10 percent of costs, coupled with the roughly 35-45 percent of costs for other Medicaid patients that are paid using state funds, is a large bill to pay. This is a near-universal problem for government contract-funded nonprofits, as NPQ’s Jeanne Bell has observed.
Traditionally, states seek to minimize their Medicaid costs by minimizing reimbursements to Medicaid providers, reaching a point where providers risk losing money even if they are paid for services. In short, Medicaid expansion may allow a rural hospital to provide care to patients and increase its gross revenues while decreasing costs associated with uncompensated care, but it may actually harm the hospital’s bottom line when reimbursements come in below costs.
Rural hospital closures affect communities’ economies. Hospitals are often among the largest employers in their area, which in turn provide additional business activity through wages paid to employees and transactions with local businesses. “When a community loses its only hospital, per capita income falls by about 4 percent, and the unemployment increases by 1.6 percentage points,” according to a study cited by the Times.
Almost 90 rural hospitals have closed since 2010, and more closures are expected as revenue margins shrink and health system mergers seek to build the critical mass necessary to sustain operations. The trend has serious healthcare and economic implications, not only for patients, but for all residents. Pressure is growing for other service providers, including government agencies and nonprofit health, human services, and social services agencies, to fill the gaps and help rural communities remain viable.—Michael Wyland