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One in four rural hospitals were at high financial risk of closing even before coronavirus

The data was gathered before COVID-19 began its spread across the globe, meaning the outlook for rural hospitals may yet worsen.

Jeff Lagasse, Associate Editor

A full quarter of rural hospitals in the U.S. are at a high risk of closing unless their financial situations improve, according to an annual Guidehouse analysis of publicly available data. The data examined by Guidehouse – formerly Navigant – was collected prior to the COVID-19 coronavirus pandemic, meaning the situation is likely to get worse.

The 354 at-risk rural hospitals span 40 states and represent more than 222,350 annual discharges, 51,800 employees and $8.3 billion in total patient revenue, the analysis found.

Of these hospitals, 287, or 81%, are considered highly essential to the health and economic well-being of their communities. Thirty-four states have at least half of their financially distressed rural hospitals considered highly essential, with 16 states having all hospitals in this situation.

Southern and Midwestern states, including Tennessee, Oklahoma, Mississippi, Alabama and Kansas, are projected to be impacted the most by hospital closures. A state-by-state breakdown can be found here.


The migration patterns of residents who live in rural counties in six states shows 76% of patients with a local hospital out-migrated for care – meaning they bypassed their local area and hospital to receive care elsewhere – compared with 35% and 23% of suburban and urban patients, respectively.

Since more complex care can't often be provided at community hospitals, the analysis divided rural outmigration data into three levels based on patient acuity. While rural hospitals should be able to keep most lower-acuity cases for which the hospital provides associated services, 68% of patients still out-migrated for this level of care. Each patient who out-migrates represents a loss of revenue for the local hospital, as well as revenue leaving the broader economy.

Additional factors that have contributed to the rural hospital crisis include payer-mix degradation, an inability to leverage technology due to a lack of capital, clinician shortages and suboptimal revenue-cycle management.

While there's no single solution for the rural hospital crisis, opportunities do exist to transform rural healthcare, the study suggests.

Reintroduced in 2017 by Senators Chuck Grassley, R-Iowa, Amy Klobuchar, D-Minn., and Cory Gardner, R-Colo., the Rural Emergency Acute Care Hospital (REACH) Act was meant to help critical access hospitals by allowing them to transform their delivery model in alignment with the needs of their community, without the financial disincentive of losing cost-plus reimbursement.

The legislation would create a new Medicare classification under which CAHs would be able to rid themselves of excess inpatient beds and focus on outpatient services instead. The REACH Act has been read in, but it has not yet been voted upon by the appropriate committee.

While waiting for federal legislation, providers can collaborate with their state legislators to develop state-based Medicare demonstration waivers to change local and regional rules regarding inpatient beds and emergency designation. This could promote regional stabilization and an opportunity to pilot novel approaches to rural healthcare.

Another step rural hospitals can take to address the crisis includes accessing scale through partnerships with regional tertiary and academic health systems, other rural facilities, physician groups, payers, accountable care organizations and other entities. Partnership areas include telehealth, revenue cycle, human capital, electronic health record use, physician training and clinical optimization.

Hospitals can also engage their board members and community leaders to identify opportunities to promote and sustain their local hospital and retain out-migrating patients.


While all hospitals are at increased financial risk, nonprofit hospitals are expected to have a particularly difficult go of things as the virus continues to spread. Such hospitals tend to carry fairly large investment portfolios. During the first wave of the coronavirus those took a hit, as did various other financial instruments; debt markets were basically shutting down, amounting to an assault on balance sheets.

With revenue tanking, and expenses staying the same or even rising, nonprofits are burning through liquidity, prompting some CFOs to establish mechanisms for forecasting revenue and expenses on a rolling basis.


"Rural hospitals are not only essential to the health and wellness of nearby residents, they are often a rural county's largest employer and a crucial economic link for other local businesses and job creators," said Guidehouse partner Dave Mosley. "It was already troubling that the economic outlook for rural hospitals deteriorated during the longest period of uninterrupted economic growth our country has ever experienced. A major crisis like the COVID-19 pandemic or any significant economic downturn is likely to make the situation even more dire."

Twitter: @JELagasse

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