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JAMA Forum Archive, 2012-2019: Health policy commentary from leaders in the field
JAMA Forum

Rethinking Rural Hospitals

I spend a lot of time in the northern Catskill Mountains of New York. I’m fortunate that my local hospital, Margaretville Hospital, is in the top 100 “critical access hospitals” ranked by the National Rural Health Association, even though it has only 15 beds and all were empty a few months ago. It has an emergency department, a helicopter transport system that enables access to its affiliates in the Health Alliance system, telehealth services, and outpatient physical therapy.

Diana Mason, PhD, RN

(Image: Ted Grudzinski/AMA)

But other rural communities, home to nearly 20% of the US population, are not so fortunate. Since 2010, 78 of the more than 2150 rural nonspecialty US hospitals have closed. While the closure rate has recently declined, the proportion of financially struggling rural hospitals has increased. When a rural hospital closes, the economic losses can devastate an already stressed community through loss of health care workers, emergency services, and primary care capacity, as well as higher unemployment and lower per-capita income, a drop in housing values, poorer health, and increasing health disparities.

An urgent look at how to prevent these closures is merited, but it may also be time to rethink what a rural hospital should be.

Factors Associated With Closures

Why are rural hospitals at higher risk of closure than urban hospitals? George Pink, PhD, Deputy Director of the North Carolina Rural Health Research Program, sees 3 main contributors:

  • Market factors. Rural areas tend to have poorer population health, higher unemployment rates, and stiffer competition from other hospitals

  • Hospital factors. These include low occupancy rates, lack of physician coverage, deteriorating facilities, and patient safety concerns

  • Financial factors. From 2012 to 2014, for example, rural hospitals averaged a 2% operating margin, compared with 5.9% for urban hospitals

Why the thinner margins? Rural hospitals serve populations that tend to have higher rates of chronic illness than those served by urban hospitals. Also, about 60% of rural hospitals’ revenues are from Medicare, Medicaid or both, compared with 45% for urban hospitals.

According to Brock Slabach, MPH, vice president for member services at the National Rural Health Association, “Even small changes in these programs can have a disproportionate effect on rural hospitals’ financial viability.” That is what happened in 2013 when the Middle Class Tax Relief and Job Creation Act reduced bad debt payments (charity care) to rural hospitals by 35%, and the Budget Control Act of 2011 led to a 2% reduction in almost all hospital Medicare payments (“sequestration”).

The Affordable Care Act (ACA) had an impact, as well. It changed the payer mix by increasing the proportion of people with private insurance through the state and federal exchanges. But some rural communities had only one insurer on the exchange. According to a study by the North Carolina Rural Health Research Program, some people bought plans with the cheapest premiums, only to discover they came with unaffordable deductibles and copayments. According to Pink, some states that had more people go into high-deductible health plans saw hospital bad debt soar. The ACA cuts in Disproportionate Share Hospital (DSH) funding for uncompensated care exacerbated this problem.

The impact of the Medicaid expansion component of the ACA is mixed. Some evidence shows that states that expanded Medicaid under the ACA were able to reduce rural hospitals’ proportion of uncompensated care, but the persistence of Medicaid reimbursement at less than cost offset this gain. Nevertheless, rural hospital profit margins have declined in states that did not expand Medicaid, while those in most states that did expand Medicaid saw margins remain stable or improve.

Depending on whether and in what form the American Health Care Act becomes law, it could accelerate rural hospital closures if it increases the number of uninsured people and places limitations on state Medicaid expansion.

Time for Innovation

Congress has responded to closures of rural hospitals in the past through policies that increase the hospitals’ Medicare reimbursement. The program with the largest participation—more than half of all rural hospitals now take part—is the Critical Access Hospital Program, which provides 101% reimbursement of allowable costs of inpatient and outpatient services for Medicare patients. The program, established in 1997, specifies that eligible hospitals must have fewer than 25 beds and operate emergency services 24 hours a day. The American Hospital Association has called for shoring up this program by protecting or increasing the reimbursement rate and ensuring that the eligibility requirements are not prohibitive, including providing flexibility in bed capacity.

Most proposals to bolster rural hospitals focus on finances and critical services. For example, the Rural Emergency Acute Care Hospital Act, introduced into Congress in 2015, would establish a new Medicare payment designation—Rural Emergency Hospital—to pay for emergency care, observation care, and outpatient services.

The National Rural Health Association is advocating the Save Rural Hospitals Act, also introduced in 2015. It would provide financial relief for rural hospitals by getting rid of the sequestration reduction in Medicare payments, reversing the cuts in bad debt relief and DSH payments, increasing payment for ground ambulance services, and improving Medicaid payments for primary care.

This act would also create a new Medicare designation of community outpatient hospital (COH) to support innovation in providing emergency and nonacute services, including robust primary care. This approach will be limited if rural hospitals are not linked into larger health systems with tertiary care facilities that can provide telehealth and emergency access by air or ground. The need for capital is crucial to purchase the telehealth technology and transport systems, as is the need to provide ongoing payment for these services.

Rethinking rural hospitals should include approaches to enabling health systems to be leaders in assessing and responding to the community’s health priorities—including social determinants of health. But this will not happen without the development of payment models to support such work. The COHs could serve as “accountable health communities” for developing needed services and lead partnerships to address social and environmental factors that could improve community health. The Center for Medicare & Medicaid Innovation has funded Pennsylvania to test a payment model supporting a larger role for rural hospitals in community health promotion.

In the meantime, President Trump’s proposed budget would reduce funding for state offices of rural health and for small federal grant programs that support rural hospitals aligning with larger health systems.

Nonetheless, innovation can happen one community at a time. Margaretville Hospital and the Health Alliance recently began a telehealth behavioral health program for youth in a county that has 1 mental health care provider for more than 1000 people and a serious opioid abuse problem. In addition, volunteers are developing a  network of supportive services for people in recovery.

As George Pink told me, “Congress needs to take this issue seriously, look at different models, and start experiments. It’s time for innovation.”

About the author: Diana J. Mason, PhD, RN, Professor Emerita and Co-Director, Center for Health, Media & Policy at Hunter College, City University of New York; and Senior Policy Service Professor, George Washington University School of Nursing. She is the immediate past president of the American Academy of Nursing.